Overview
We are a diversified global media, marketing and technology company that,
through our television and radio segments, reaches and engages U.S. Hispanics
across acculturation levels and media channels. Additionally, our digital
segment, whose operations are located primarily in Spain and Latin America,
reaches a global market. Our operations encompass integrated media and marketing
and media solutions, comprised of television, radio and digital properties and
data analytics services. For financial reporting purposes, we report in three
segments based upon the type of advertising medium: television, radio and
digital. Our net revenue for the three-month period ended March 31, 2021 was
$148.9 million. Of that amount, revenue attributed to our digital segment
accounted for approximately 68%, revenue attributed to our television segment
accounted for approximately 24% and revenue attributed to our radio segment
accounted for approximately 8%.
As of the date of filing this report, we own and/or operate 54 primary
television stations located primarily in California, Colorado, Connecticut,
Florida, Kansas, Massachusetts, Nevada, New Mexico, Texas and Washington, D.C.
We own and operate 48 radio stations in 16 U.S. markets. Our radio stations
consist of 38 FM and 10 AM stations located in Arizona, California, Colorado,
Florida, Nevada, New Mexico and Texas. We also sell advertisements and syndicate
radio programming to more than 100 markets across the United States. We also
provide digital advertising solutions that allow advertisers to reach primarily
Hispanic online audiences worldwide. We operate proprietary technology and data
platforms that deliver digital advertising in various advertising formats and
allow advertisers to reach audiences across a wide range of Internet-connected
devices on our owned and operated digital media sites, the digital media sites
of our publisher partners, and on other digital media sites we access through
third-party platforms and exchanges.
We generate revenue primarily from sales of national and local advertising time
on television stations, radio stations and digital media platforms,
retransmission consent agreements that are entered into with multichannel video
programming distributors ("MVPDs"), and agreements associated with our
television stations' spectrum usage rights. Advertising rates are, in large
part, based on each medium's ability to attract audiences in demographic groups
targeted by advertisers. In our television and radio segments, we recognize
advertising revenue when commercials are broadcast. In our digital segment, we
recognize advertising revenue when display or other digital advertisements
record impressions on the websites of our third party publishers or as the
advertiser's previously agreed-upon performance criteria are satisfied. We do
not obtain long-term commitments from our advertisers and, consequently, they
may cancel, reduce or postpone orders without penalties. We pay commissions to
agencies for local, regional and national advertising. For contracts we have
entered into directly with agencies, we record net revenue from these agencies.
Seasonal revenue fluctuations are common in our industry and are due primarily
to variations in advertising expenditures by both local and national
advertisers. Our first fiscal quarter generally produces the lowest net revenue
for the year. In addition, advertising revenue is generally higher during
presidential election years (2020, 2024, etc.) and, to a lesser degree,
Congressional mid-term election years (2022, 2026, etc.), resulting from
increased political advertising in those years compared to other years.
We refer to the revenue generated by agreements with MVPDs as retransmission
consent revenue, which represents payments from MVPDs for access to our
television station signals so that they may rebroadcast our signals and charge
their subscribers for this programming. We recognize retransmission consent
revenue earned as the television signal is delivered to an MVPD.
Our FCC licenses grant us spectrum usage rights within each of the television
markets in which we operate. These spectrum usage rights give us the authority
to broadcast our stations' over-the-air television signals to our viewers. We
regard these rights as a valuable asset. With the proliferation of mobile
devices and advances in technology that have freed up spectrum capacity, the
monetization of our spectrum usage rights has become a significant source of
revenue in recent years. We generate revenue from agreements associated with
these television stations' spectrum usage rights from a variety of sources,
including but not limited to agreements with third parties to utilize spectrum
for the broadcast of their multicast networks; charging fees to accommodate the
operations of third parties, including moving channel positions or accepting
interference with our broadcasting operations; and modifying and/or
relinquishing spectrum usage rights while continuing to broadcast through
channel sharing or other arrangements. Revenue generated by such agreements is
recognized over the period of the lease or when we have relinquished all or a
portion of our spectrum usage rights for a station or have relinquished our
rights to operate a station on the existing channel free from interference. In
addition, subject to certain restrictions contained in our 2017 Credit
Agreement, we will consider strategic acquisitions of television stations to
further this strategy from time to time, as well as additional monetization
opportunities expected to arise as the television broadcast industry implements
the standards contained in ATSC 3.0.
Our primary expenses are employee compensation, including commissions paid to
our sales staff and amounts paid to our national sales representative firms, as
well as expenses for general and administrative functions, promotion and
selling, engineering, marketing and local programming. Our local programming
costs for television consist primarily of costs related to producing a local
newscast in most of our markets. Cost of revenue related to our television
segment consists primarily of the carrying value of spectrum usage rights that
were surrendered in the FCC auction for broadcast spectrum that concluded in
2017. In addition, cost of revenue related to our digital segment consists
primarily of the costs of online media acquired from third-party publishers and
third party server costs. Direct operating expenses include salaries and
commissions of sales staff, amounts paid to national representation firms,
production and programming expenses, fees for ratings services, and engineering
costs. Corporate expenses consist primarily of salaries related to corporate
officers and back office functions, third party legal and accounting services,
and fees incurred as a result of being a publicly traded and reporting company.
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Highlights
During the first quarter of 2021, our consolidated revenue increased to $148.9
million from $64.2 million in the prior year period, primarily due to an
increase in advertising revenue attributed to our acquisition of a majority
interest in Cisneros Interactive during the fourth quarter of 2020, which did
not contribute to net revenue in prior periods, and an increase in revenue from
spectrum usage rights, partially offset by a decrease in advertising revenue as
a result of declines in pre-acquisition digital revenue and a decrease in
political advertising revenue. Our audience shares remained strong in the
nation's most densely populated Hispanic markets.
Net revenue in our television segment decreased to $36.1 million for the
three-month period ended March 31, 2021 from $39.2 million for the three-month
period ended March 31, 2020. This decrease of approximately $3.1 million, or 8%,
in net revenue was primarily due to a decrease in political revenue, partially
offset by increases in local and national advertising revenue, and revenue from
spectrum usage rights. In general, we face ratings declines, competitive factors
with another Spanish-language broadcaster, and changing demographic preferences
of audiences. Additionally, notwithstanding the increases in local and national
advertising revenue, we have previously noted a trend for advertising to move
increasingly from traditional media, such as television, to new media, such as
digital media, and we expect this trend to continue.
Net revenue in our digital segment increased to $101.5 million for the
three-month period ended March 31, 2021 from $13.3 million for the three-month
period ended March 31, 2020. This increase of approximately $88.2 million in net
revenue was a result of advertising revenue attributed to our acquisition of a
majority interest in Cisneros Interactive during the fourth quarter of 2020,
which did not contribute to net revenue in prior periods, partially offset by a
decrease in advertising revenue as a result of declines in pre-acquisition
digital revenue and the continuing economic crisis resulting from the COVID-19
pandemic. We have previously noted a trend in our domestic digital operations
whereby revenue is shifting more to programmatic revenue, and this trend is now
growing in markets outside the United States. As a result, advertisers are
demanding more efficiency and lower cost from intermediaries like us. In
response to this trend, we are offering programmatic alternatives to
advertisers, which is putting pressure on margins. We expect this trend will
continue in future periods, likely resulting in a permanent higher volume, lower
margin business in our digital segment. The digital advertising industry remains
dynamic and is continuing to undergo rapid changes in technology and
competition. We expect this trend to continue and possibly accelerate. We must
continue to remain vigilant to meet these dynamic and rapid changes including
the need to further adjust our business strategies accordingly. No assurances
can be given that such strategies will be successful.
Net revenue in our radio segment decreased to $11.3 million for the three-month
period ended March 31, 2021 from $11.7 million for the three-month period ended
March 31, 2020. This decrease of approximately $0.4 million, or 4%, in net
revenue was primarily due to a decrease in political advertising revenue and a
decrease in local advertising revenue, partially offset by an increase in
national advertising revenue. The decrease in local advertising revenue was
primarily a result of the continuing economic crisis resulting from the COVID-19
pandemic, ratings declines and competitive factors with other Spanish-language
broadcasters and changing demographic preferences of audiences. We have
previously noted a trend for advertising to move increasingly from traditional
media, such as radio, to new media, such as digital media, and we expect this
trend to continue. This trend has had a more significant impact on our radio
revenue as compared to television revenue, and we expect that this trend will
also continue.
The Impact of the COVID-19 Pandemic on our Business
This section of this report should be read in conjunction with the rest of this
item, "Forward-Looking Statements" and Notes to Consolidated Financial
Statements appearing herein, for a more complete understanding of the impact of
the COVID-19 pandemic on our business.
The COVID-19 pandemic had a more muted impact on our business during the quarter
ended March 31, 2021, compared to previous quarters since the pandemic began in
early 2020. Subject to the extent and duration of the pandemic and the
continuing economic crisis that has resulted from the pandemic, we anticipate
that the pandemic will continue to have diminishing effects on our business,
from both an operational and financial perspective, in future periods.
Operational Impact
We are considered, or we believe that we are considered, an "essential business"
in all jurisdictions in the United States that have at one time or another
imposed lockdown, shelter-in-place, stay-at-home or similar orders. To date, we
have experienced no significant interruption of our broadcasts in our television
and radio segments in any of the markets in which we own and/or operate
stations. Nonetheless, we are continuing to operate with reduced staff at all of
our stations and we cannot give assurance at this time whether a resurgence or
more prolonged impact of the pandemic in any of our markets would not adversely
affect our ability to continue staffing our stations at appropriate levels to
continue broadcasts without interruption.
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Despite the fact that our digital segment has a significant number of employees
in Spain, Mexico and Argentina, which are among the countries in the world worst
affected by the pandemic, most of our employees in our digital segment work
remotely and we have not seen a significant interruption in our digital business
to date. We cannot give assurance at this time whether a resurgence or more
prolonged impact of the pandemic in Spain, Latin America or any other location
where our digital segment has employees or operates would not adversely affect
our digital business.
Our corporate office is located in Santa Monica, California. Even though
statewide stay-at-home orders have ended, we have continued to operate with
reduced staff in our corporate office, with certain staff working remotely. We
have not experienced any significant interruption in any of our corporate or
administrative departments, including without limitation our finance and
accounting departments.
Financial Impact
Based on publicly available information, it appears that the global, U.S. and
local economies declined at a slower rate in the quarter ended March 31, 2021
than they did during prior periods since the pandemic began in the first quarter
of 2020. Despite the general sense that the worst of the pandemic may have
passed and that the economy is slowly recovering, such improvement is uneven
geographically and by industry, and may be adversely impacted by any resurgence
of the pandemic, the rate of vaccinations of the population and other factors
beyond our control. Accordingly, the effect of the economic crisis that has
resulted from the pandemic continues to be felt by us and may continue to be
felt by us in future periods.
We continue to experience cancellations of advertising and a decrease in new
advertising placements in our television segment and especially in our radio
segment, continuing a trend that we had begun to experience since the beginning
of the pandemic in early 2020, although we experienced this decrease at a slower
rate during the quarter ended March 31, 2021. The impact on our radio segment
continues to be greater than that on our television segment because radio
audiences have declined at a greater rate, and have been maintaining at a lower
level, as a result of a decline in the number of people commuting to work or
driving in general since the beginning of the pandemic, despite a general easing
of lockdown, shelter-in-place, stay-at-home or similar orders. At least some of
these changes in personal behavior may endure regardless of when and how the
pandemic ends, although any such longer-term changes cannot be known at present.
We believe that the continuing cancellations and reductions in the placement of
new advertising are primarily attributable to decisions that our advertisers are
making regarding the preservation of their own capital during the continuing
effects of business interruption that has resulted from a variety of lockdown,
shelter-in-place, stay-at-home or similar orders that were previously more
widely in effect; the closure and uneven reopening of businesses across the
United States, including those in the automotive, services, non-emergency
healthcare, retail, travel, restaurant and telecommunications industries, that
has affected the degree to which consumers are able to frequent such businesses;
reduced demand for products and services by our advertisers' customers, who are
our audiences; the diversion of our advertisers' own personnel's attention from
advertising activities as a result of continuing concerns about health, remote
working and/or financial and other non-financial considerations; and the overall
financial solvency of our advertisers in general during the continuing economic
crisis that has resulted from the pandemic. To partially address this situation,
we have continued to ease credit terms for certain of our advertising clients to
help them manage their own cash flow and address other financial needs.
In order to preserve cash during this period, we have instituted certain cost
reduction measures that are currently in effect. On March 26, 2020, we suspended
repurchases under our share repurchase program. Effective May 16, 2020, we
suspended company matching of employee contributions to their 401(k) retirement
plans. We also reduced our dividend by 50% beginning in the second quarter of
2020, and we may continue to do so in future periods. Other cost reduction
measures that we instituted during 202 were restored to original levels by the
end of 2020. We will continue to monitor all of these actions closely in light
of current and changing conditions and may institute such additional actions as
we may believe are appropriate at a future date.
Additionally, we have elected to defer the employer portion of the social
security payroll tax (6.2%) as provided in the Coronavirus Aid, Relief and
Economic Security Act of 2020, commonly known as the CARES Act. The deferral was
effective from March 27, 2020 through December 31, 2020. The deferred amount
will be paid in two installments and the amount will be considered timely paid
if 50% of the deferred amount is paid by December 31, 2021 and the remainder is
paid by December 31, 2022.
Because of unprecedented uncertainties regarding the extent and duration of the
pandemic and the continuing economic crisis that has resulted from the pandemic,
our results of operations for the quarter ended March 31, 2021 may not be
indicative of our results of operations for any future period. We do not know
how soon the global, U.S. and local economies will fully recover to pre-pandemic
levels. Therefore, while we hope for a different outcome, we anticipate that we
may continue to experience an adverse financial impact on our business and
results of operations, albeit at a potentially slower rate, and possibly our
financial condition, for an unknown period of time even after lockdown,
shelter-in-place, stay-at-home and similar orders have been fully lifted, and
businesses fully reopen, on a permanent basis.
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Additionally, any resurgence of the pandemic; reimposition of lockdown,
shelter-in-place, stay-at-home and similar orders; and prolongation of the
continuing economic crisis that has resulted from the pandemic, could intensify
this adverse impact and adversely affect our business, results of operations and
financial condition in future periods during the course of the pandemic, or
beyond.
The challenges that the pandemic and the financial crisis that has resulted from
the pandemic have caused, and continue to cause, to the global, U.S. and local
economies will continue to create unprecedented uncertainty in our business and
how we plan and respond to rapidly changing circumstances in our operations, as
well as the impact this may have on our business, results of operations and
financial condition. We are closely monitoring the situation across all fronts
and will need to continue to remain flexible to respond to developments as they
occur. However, we cannot give any assurance if, or the extent to which, we will
be successful in these efforts.
Relationship with Univision
Substantially all of our television stations are Univision- or UniMás-affiliated
television stations. Our network affiliation agreement with Univision provides
certain of our owned stations the exclusive right to broadcast Univision's
primary network and UniMás network programming in their respective
markets. Under the network affiliation agreement, we retain the right to sell no
less than four minutes per hour of the available advertising time on stations
that broadcast Univision network programming, and the right to sell
approximately four and a half minutes per hour of the available advertising time
on stations that broadcast UniMás network programming, subject to adjustment
from time to time by Univision.
Under the network affiliation agreement, Univision acts as our exclusive
third-party sales representative for the sale of certain national advertising on
our Univision- and UniMás-affiliate television stations, and we pay certain
sales representation fees to Univision relating to sales of all advertising for
broadcast on our Univision- and UniMás-affiliate television stations. During the
three-month periods ended March 31, 2021 and 2020, the amount we paid Univision
in this capacity was $1.9 million and $2.2 million, respectively..
We also generate revenue under two marketing and sales agreements with
Univision, which give us the right to manage the marketing and sales operations
of Univision-owned Univision affiliates in six markets - Albuquerque, Boston,
Denver, Orlando, Tampa and Washington, D.C.
Under the current proxy agreement we have entered into with Univision, we grant
Univision the right to negotiate the terms of retransmission consent agreements
for our Univision- and UniMás-affiliated television station signals. Among other
things, the proxy agreement provides terms relating to compensation to be paid
to us by Univision with respect to retransmission consent agreements entered
into with MVPDs. During each of the three-month periods ended March 31, 2021 and
2020, retransmission consent revenue accounted for approximately $9.6 million,
of which $6.7 million and $7.0 million, respectively, relate to the Univision
proxy agreement. The term of the proxy agreement extends with respect to any
MVPD for the length of the term of any retransmission consent agreement in
effect before the expiration of the proxy agreement.
Univision currently owns approximately 11% of our common stock on a
fully-converted basis. Our Class U common stock, all of which is held by
Univision, has limited voting rights and does not include the right to elect
directors. Each share of Class U common stock is automatically convertible into
one share of Class A common stock (subject to adjustment for stock splits,
dividends or combinations) in connection with any transfer of such shares of
Class U common stock to a third party that is not an affiliate of Univision. In
addition, as the holder of all of our issued and outstanding Class U common
stock, so long as Univision holds a certain number of shares of Class U common
stock, we may not, without the consent of Univision, merge, consolidate or enter
into a business combination, dissolve or liquidate our company or dispose of any
interest in any FCC license with respect to television stations which are
affiliates of Univision, among other things.
Critical Accounting Policies
For a description of our critical accounting policies, please refer to
"Application of Critical Accounting Policies and Accounting Estimates" in Part
II, Item 7, "Management's Discussion and Analysis of Financial Condition and
Results of Operations" of our 2020 10-K.
Recent Accounting Pronouncements
For further information on recently issued accounting pronouncements, see Note
2, "The Company and Significant Accounting Policies" in the accompanying Notes
to Consolidated Financial Statements.
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Three-Month Periods Ended March 31, 2021 and 2020
The following table sets forth selected data from our operating results for the
three-month periods ended March 31, 2021 and 2020 (in thousands):
Three-Month Period
Ended March 31, %
2021 2020 Change
Statements of Operations Data:
Net Revenue $ 148,880 $ 64,249 132 %
Cost of revenue - digital 84,756 7,347 *
Direct operating expenses 26,561 26,679 (0 )%
Selling, general and administrative expenses 13,853 13,591 2 %
Corporate expenses 7,158 6,840 5 %
Depreciation and amortization 5,184 4,512 15 %
Impairment charge 1,326 39,835 (97 )%
Foreign currency (gain) loss 586 1,508 (61 )%
Other operating (gain) loss (1,913 ) (836 ) 129 %
137,511 99,476 38 %
Operating income (loss) 11,369 (35,227 ) *
Interest expense (1,717 ) (2,680 ) (36 )%
Interest income 140 624 (78 )%
Dividend income 2 23 (91 )%
Income before income (loss) taxes 9,794 (37,260 ) *
Income tax benefit (expense) (2,792 ) 1,668 *
Net income (loss) 7,002 (35,592 ) *
Net (income) loss attributable to redeemable
noncontrolling interest (1,573 ) - *
Net income (loss) attributable to common
stockholders $ 5,429 $ (35,592 ) *
Other Data:
Capital expenditures 1,513 3,676
Consolidated adjusted EBITDA (adjusted for
non-cash stock-based
compensation) (1) 14,195 9,679
Net cash provided by operating activities 23,452 12,014
Net cash provided by (used in) investing
activities 10,282 13,791
Net cash used in financing activities (2,885 ) (5,493 )
(1) Consolidated adjusted EBITDA means net income (loss) plus gain (loss) on sale
of assets, depreciation and amortization, non-cash impairment charge,
non-cash stock-based compensation included in operating and corporate
expenses, net interest expense, other operating gain (loss), gain (loss) on
debt extinguishment, income tax (expense) benefit, equity in net income
(loss) of nonconsolidated affiliate, non-cash losses, syndication programming
amortization less syndication programming payments, revenue from the Federal
Communications Commission, or FCC, spectrum incentive auction less related
expenses, expenses associated with investments, EBITDA attributable to
redeemable noncontrolling interest, acquisitions and dispositions and certain
pro-forma cost savings. We use the term consolidated adjusted EBITDA because
that measure is defined in our 2017 Credit Agreement and does not include
gain (loss) on sale of assets, depreciation and amortization, non-cash
impairment charge, non-cash stock-based compensation, net interest expense,
other income (loss), gain (loss) on debt extinguishment, income tax (expense)
benefit, equity in net income (loss) of nonconsolidated affiliate, non-cash
losses, syndication programming amortization less syndication programming
payments, revenue from FCC spectrum incentive auction less related expenses,
expenses associated with investments, EBITDA attributable to redeemable
noncontrolling interest, acquisitions and dispositions and certain pro-forma
cost savings.
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Because consolidated adjusted EBITDA is a measure governing several critical
aspects of our 2017 Credit Facility, we believe that it is important to disclose
consolidated adjusted EBITDA to our investors. We may increase the aggregate
principal amount outstanding by an additional amount equal to $100.0 million
plus the amount that would result in our total net leverage ratio, or the ratio
of consolidated total senior debt (net of up to $75.0 million of unrestricted
cash) to trailing-twelve-month consolidated adjusted EBITDA, not exceeding 4.0.
In addition, beginning December 31, 2018, at the end of every calendar year, in
the event our total net leverage ratio is within certain ranges, we must make a
debt prepayment equal to a certain percentage of our Excess Cash Flow, which is
defined as consolidated adjusted EBITDA, less consolidated interest expense,
less debt principal payments, less taxes paid, less other amounts set forth in
the definition of Excess Cash Flow in the 2017 Credit Agreement. The total
leverage ratio was as follows (in each case as of March 31): 2021, 2.1 to 1;
2020, 3.3 to 1.
While many in the financial community and we consider consolidated adjusted
EBITDA to be important, it should be considered in addition to, but not as a
substitute for or superior to, other measures of liquidity and financial
performance prepared in accordance with accounting principles generally accepted
in the United States of America, such as cash flows from operating activities,
operating income (loss) and net income (loss). As consolidated adjusted EBITDA
excludes non-cash gain (loss) on sale of assets, non-cash depreciation and
amortization, non-cash impairment charge, non-cash stock-based compensation
expense, net interest expense, other income (loss), non-recurring cash expenses,
gain (loss) on debt extinguishment, income tax (expense) benefit, equity in net
income (loss) of nonconsolidated affiliate, non-cash losses, syndication
programming amortization less syndication programming payments, revenue from FCC
spectrum incentive auction less related expenses, expenses associated with
investments, EBITDA attributable to redeemable noncontrolling interest,
acquisitions and dispositions and certain pro-forma cost savings, consolidated
adjusted EBITDA has certain limitations because it excludes and includes several
important financial line items. Therefore, we consider both non-GAAP and GAAP
measures when evaluating our business. Consolidated adjusted EBITDA is also used
to make executive compensation decisions.
Consolidated adjusted EBITDA is a non-GAAP measure. The most directly comparable
GAAP financial measure to consolidated adjusted EBITDA is cash flows from
operating activities. A reconciliation of this non-GAAP measure to cash flows
from operating activities follows (in thousands):
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