ENTRAVISION COMMUNICATIONS CORPORATION Overview
We are a diversified global media, marketing and technology company serving clients inthe United States and around the world. Our digital segment, whose operations are located primarily inLatin America ,Spain andSoutheast Asia , provides innovative advertising solutions in high growth markets to advertisers and publishers, including some of the world's leading technology companies. Through our television and radio segments, we reach and engageU.S. Hispanics across acculturation levels and media channels. For financial reporting purposes, we report in three segments based upon the type of advertising medium: digital, television and radio. Our net revenue for the three-month period endedJune 30, 2021 was$178.4 million . Of that amount, revenue attributed to our digital segment accounted for approximately 73%, revenue attributed to our television segment accounted for approximately 19% and revenue attributed to our radio segment accounted for approximately 8%. Our digital segment now accounts for the majority of our revenues and we expect this to continue in future periods. We 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. OnJuly 1, 2021 , our wholly-owned subsidiary acquired 100% of the issued and outstanding shares of stock ofMediaDonuts Pte. Ltd. , or MediaDonuts, a company engaged in the sale and marketing of digital advertising. This acquisition expands our digital offerings to markets primarily inSoutheast Asia , and we expect MediaDonuts to contribute significantly to our revenue in future periods. As ofJune 30, 2021 , we own and/or operate 54 primary television stations located primarily inCalifornia ,Colorado ,Connecticut ,Florida ,Kansas ,Massachusetts ,Nevada ,New Mexico ,Texas andWashington, D.C. As of the same date, we own and operate 48 radio stations in 16 U.S. markets. Our radio stations consist of 38 FM and10 AM stations located inArizona ,California ,Colorado ,Florida ,Nevada ,New Mexico andTexas . We also sell advertisements and syndicate radio programming to more than 100 markets acrossthe United States . 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 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. 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. OurFCC 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 27 -------------------------------------------------------------------------------- usage rights that were surrendered in theFCC 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.
Highlights
During the second quarter of 2021, our consolidated revenue increased to$178.4 million from$45.1 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. Additionally, the increase in revenue was attributed to increases in local and national advertising revenue, partially offset by a decrease in political advertising revenue. Our audience shares remained strong in the nation's most densely populated Hispanic markets. Net revenue in our digital segment increased to$130.2 million for the three-month period endedJune 30, 2021 from$11.4 million for the three-month period endedJune 30, 2020 . This increase of approximately$118.8 million in net revenue was primarily due to 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. Net revenue in our television segment increased to$34.1 million for the three-month period endedJune 30, 2021 from$27.0 million for the three-month period endedJune 30, 2020 . This increase of approximately$7.1 million , or 26%, in net revenue was primarily due to increases in local and national advertising revenue, partially offset by decreases in political revenue and revenue from spectrum usage rights. Net revenue in our radio segment increased to$14.1 million for the three-month period endedJune 30, 2021 from$6.8 million for the three-month period endedJune 30, 2020 . This increase of approximately$7.3 million , or 108%, in net revenue was primarily due to increases in local and national advertising revenue, partially offset by a decrease in political revenue.
On
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 continued to have a lessened impact on our business during the quarter endedJune 30, 2021 , compared to previous quarters since the pandemic began in early 2020. Subject to the extent and duration of possible resurgences 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
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 inSpain ,Latin America ,Southeast Asia or any other location where our digital segment has employees or operates would not adversely affect our digital business. 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. 28 -------------------------------------------------------------------------------- Our corporate office is located inSanta 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
Despite the general sense that the worst of the pandemic may have passed inthe United States and certain other parts of the world, and that the economy is 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, particularly as our international operations expand to include parts of the world where vaccination rates are lower and infection rates are higher. During the quarter endedJune 30, 2021 , we did not experience material cancellations of advertising or a decrease in new advertising placements in our television and radio segments, reversing a trend we had begun to experience since the beginning of the pandemic in early 2020. At this time we do not know if certain behavioral changes by audiences in their television viewership and radio listening habits during the worst of the pandemic have changed permanently. We have also continued to ease credit terms for certain of its 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 still in effect. OnMarch 26, 2020 , we suspended repurchases under our share repurchase program. EffectiveMay 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 fromMarch 27, 2020 throughDecember 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 byDecember 31, 2021 and the remainder is paid byDecember 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 endedJune 30, 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. 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. 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 any such 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 endedJune 30, 2021 and 2020, the amount we paid Univision in this capacity was$2.0 million and$1.4 million , 29 -------------------------------------------------------------------------------- respectively. During the six-month periods endedJune 30, 2021 and 2020, the amount we paid Univision in this capacity was$3.9 million and$3.6 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 andWashington, 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 the three-month periods endedJune 30, 2021 and 2020, retransmission consent revenue accounted for approximately$9.3 million and 9.4 million, respectively, of which$6.5 million and$6.8 million , respectively, relate to the Univision proxy agreement. During each of the six-month periods endedJune 30, 2021 and 2020, retransmission consent revenue accounted for approximately$18.9 million , of which$13.3 million and$13.8 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 anyFCC 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.
30
--------------------------------------------------------------------------------
Three- and Six-Month Periods Ended
The following table sets forth selected data from our operating results for the
three- and six-month periods ended
Three-Month Period Six-Month Period
Ended June 30, % Ended June 30, %
2021 2020 Change 2021 2020 Change
Statements of Operations Data:
Net Revenue $ 178,410 $ 45,116 295 % $ 327,290 $ 109,365 199 %
Cost of revenue - digital 109,030 6,447 * 193,786 13,794 *
Direct operating expenses 28,336 22,140 28 % 54,897 48,819 12 %
Selling, general and
administrative expenses 13,106 10,897 20 % 26,959 24,488 10 %
Corporate expenses 7,345 5,384 36 % 14,503 12,224 19 %
Depreciation and amortization 5,074 3,873 31 % 10,258 8,385 22 %
Impairment charge 112 - * 1,438 39,835 (96 )%
Foreign currency (gain) loss (309 ) (155 ) 99 % 277 1,353 (80 )%
Other operating (gain) loss (523 ) (2,030 ) (74 )% (2,436 ) (2,866 ) (15 )%
162,171 46,556 248 % 299,682 146,032 105 %
Operating income (loss) 16,239 (1,440 ) * 27,608 (36,667 ) *
Interest expense (1,856 ) (2,024 ) (8 )% (3,573 ) (4,704 ) (24 )%
Interest income 83 539 (85 )% 223 1,162 (81 )%
Dividend income 2 - * 4 24 (83 )%
Income before income (loss)
taxes 14,468 (2,925 ) * 24,262 (40,185 ) *
Income tax benefit (expense) (3,992 ) 5,263 * (6,784 ) 6,931 *
Net income (loss) 10,476 2,338 348 % 17,478 (33,254 ) *
Net (income) loss attributable
to redeemable noncontrolling
interest (2,612 ) - * (4,185 ) - *
Net income (loss) attributable
to common stockholders $ 7,864 $ 2,338 236 % $ 13,293 $ (33,254 ) *
Other Data:
Capital expenditures 1,115 1,933 2,628 5,609
Consolidated adjusted EBITDA (1) 31,982 11,402
Net cash provided by operating
activities 44,385 19,463
Net cash provided by (used in)
investing activities 14,964 25,015
Net cash used in financing
activities (6,649 ) (8,362 )
(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.
31--------------------------------------------------------------------------------
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, beginningDecember 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 ofJune 30 ): 2021, 1.7 to 1; 2020, 4.4 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 inthe 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 fromFCC 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):
© Edgar Online, source
