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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