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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

(MARK ONE)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2021

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM              TO             

COMMISSION FILE NUMBER 1-15997

 

ENTRAVISION COMMUNICATIONS CORPORATION

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

95-4783236

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

2425 Olympic Boulevard, Suite 6000 West

Santa Monica, California 90404

(Address of principal executive offices) (Zip Code)

(310) 447-3870

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading Symbol(s)

 

Name of each exchange on which registered

Class A Common stock

 

EVC

 

The New York Stock Exchange

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.:

 

Large accelerated filer

 

  

Accelerated filer

 

Non-accelerated filer

 

  

Smaller reporting company

 

 

 

 

  

Emerging growth company

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes      No  

 

As of May 4, 2021, there were 60,868,215 shares, $0.0001 par value per share, of the registrant’s Class A common stock outstanding, 14,927,613 shares, $0.0001 par value per share, of the registrant’s Class B common stock outstanding and 9,352,729 shares, $0.0001 par value per share, of the registrant’s Class U common stock outstanding.

 

 

 


 

 

ENTRAVISION COMMUNICATIONS CORPORATION

FORM 10-Q FOR THE THREE-MONTH PERIOD ENDED MARCH 31, 2021

TABLE OF CONTENTS

 

 

 

 

 

Page

Number

 

 

PART I. FINANCIAL INFORMATION

 

 

ITEM 1.

 

FINANCIAL STATEMENTS

 

4

 

 

CONSOLIDATED BALANCE SHEETS (UNAUDITED) AS OF MARCH 31, 2021 AND DECEMBER 31, 2020

 

4

 

 

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2021 AND MARCH 31, 2020

 

5

 

 

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED) FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2021 AND MARCH 31, 2020

 

6

 

 

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’  EQUITY (UNAUDITED) FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2021 AND MARCH 31, 2020

 

7

 

 

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2021 AND MARCH 31, 2020

 

8

 

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

9

ITEM 2.

 

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

25

ITEM 3.

 

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

38

ITEM 4.

 

CONTROLS AND PROCEDURES

 

38

 

 

PART II. OTHER INFORMATION

 

 

ITEM 1.

 

LEGAL PROCEEDINGS

 

40

ITEM 1A.

 

RISK FACTORS

 

40

ITEM 2.

 

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

40

ITEM 3.

 

DEFAULTS UPON SENIOR SECURITIES

 

40

ITEM 4.

 

MINE SAFETY DISCLOSURES

 

40

ITEM 5.

 

OTHER INFORMATION

 

40

ITEM 6.

 

EXHIBITS

 

41

 

 

 

 


 

 

Forward-Looking Statements

This document contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. All statements other than statements of historical fact are “forward-looking statements” for purposes of federal and state securities laws, including, but not limited to, any projections of earnings, revenue or other financial items; any statements of the plans, strategies and objectives of management for future operations; any statements concerning proposed new services or developments; any statements regarding future economic conditions or performance; any statements of belief; and any statements of assumptions underlying any of the foregoing.

Forward-looking statements may include the words “may,” “could,” “will,” “estimate,” “intend,” “continue,” “believe,” “expect”, “anticipate”, “hope” or other similar words. These forward-looking statements present our estimates and assumptions only as of the date of this report. Except for our ongoing obligation to disclose material information as required by the federal securities laws, we do not intend, and undertake no obligation, to update any forward-looking statement.

Although we believe that the expectations reflected in any of our forward-looking statements are reasonable, actual results could differ materially from those projected or assumed in any of our forward-looking statements. Our future financial condition and results of operations, as well as any forward-looking statements, are subject to change and inherent risks and uncertainties. Some of the key factors impacting these risks and uncertainties include, but are not limited to:

 

risks related to our substantial indebtedness or our ability to raise capital;

 

provisions of our debt instruments, including the agreement dated as of November 30, 2017, as amended as of April 30, 2019, or the 2017 Credit Agreement, which governs our current credit facility, or the 2017 Credit Facility, the terms of which restrict certain aspects of the operation of our business;

 

our continued compliance with all of our obligations under the 2017 Credit Agreement;

 

cancellations or reductions of advertising due to the then current economic environment or otherwise;

 

advertising rates remaining constant or decreasing;

 

rapid changes in digital advertising;

 

the impact of rigorous competition in Spanish-language media and in the advertising industry generally;

 

the impact of changing preferences, if any, among U.S. Hispanic audiences for Spanish-language programming, especially among younger age groups;  

 

the impact of changing preferences, if any, among audiences favoring newer forms of media, including digital and other forms of such media, over traditional media, including television and radio;

 

the ability to keep up with rapid technological and other changes, and compete effectively, in new forms of media, including digital media, and changes within digital media;

 

the possible impact on our business as a result of changes in the way market share is measured by third parties;

 

our relationship with Univision Communications Inc., or Univision;

 

the extent to which we continue to generate revenue under retransmission consent agreements;

 

subject to restrictions contained in the 2017 Credit Agreement, the overall success of our acquisition strategy and the integration of any acquired assets with our existing operations;

 

our ability to implement effective internal controls to address the material weaknesses identified in this report;

 

industry-wide market factors and regulatory and other developments affecting our operations;

2


 

 

 

the ability to manage our growth effectively, including having adequate personnel and other resources for both operational and administrative functions;

 

general economic uncertainty, whether as a result of the COVID-19 pandemic or otherwise;

 

current and longer-term economic and other impacts of the COVID-19 pandemic on our operations, results of operations and financial condition, including without limitation our advertisers’ response to the pandemic and resulting economic disruptions caused by lockdown, shelter-in-place, stay-at-home or similar orders instituted as a result of the pandemic;

 

the impact of any potential future impairment of our assets;

 

risks related to changes in accounting interpretations;

 

consequences of, and uncertainties regarding, foreign currency exchange including fluctuations thereto from time to time;  

 

legal, political and other risks associated with our operations located outside the United States; and

 

the effect of changes in broadcast transmission standards by the Advanced Television Systems Committee's 3.0 standard (“ATSC 3.0”), as they are adopted in the broadcast industry and as they may impact our ability to monetize our spectrum assets.

For a detailed description of these and other factors that could cause actual results to differ materially from those expressed in any forward-looking statement, please see the section entitled “Risk Factors,” beginning on page 33 of our Annual Report on Form 10-K for the year ended December 31, 2020 (our “2020 10-K”).  

 

 

 

3


 

 

PART I

FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

ENTRAVISION COMMUNICATIONS CORPORATION

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(In thousands, except share and per share data)

 

 

 

March 31,

 

 

December 31,

 

 

 

2021

 

 

2020

 

ASSETS

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

149,987

 

 

 

119,162

 

Marketable securities

 

 

15,745

 

 

 

27,988

 

Restricted cash

 

 

749

 

 

 

749

 

Trade receivables, (including related parties of $6,534 and $6,172) net of allowance for doubtful accounts of $4,757 and $3,790

 

 

132,149

 

 

 

142,004

 

Assets held for sale

 

 

6,138

 

 

 

2,141

 

Prepaid expenses and other current assets (including related parties of $274 and $274)

 

 

18,418

 

 

 

18,021

 

Total current assets

 

 

323,186

 

 

 

310,065

 

Property and equipment, net of accumulated depreciation of $192,182 and $191,183

 

 

69,737

 

 

 

72,004

 

Intangible assets subject to amortization, net of accumulated amortization of $105,578 and $103,752 (including related parties of $5,563 and $5,869)

 

 

47,587

 

 

 

49,412

 

Intangible assets not subject to amortization

 

 

211,753

 

 

 

216,653

 

Goodwill

 

 

58,043

 

 

 

58,043

 

Operating leases right of use asset

 

 

34,276

 

 

 

33,525

 

Other assets

 

 

7,586

 

 

 

7,643

 

Total assets

 

$

752,168

 

 

$

747,345

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

Current maturities of long-term debt

 

$

3,000

 

 

$

3,000

 

Accounts payable and accrued expenses (including related parties of $2,042 and $2,087)

 

 

124,369

 

 

 

126,849

 

Operating lease liabilities

 

 

7,510

 

 

 

7,290

 

Total current liabilities

 

 

134,879

 

 

 

137,139

 

Long-term debt, less current maturities, net of unamortized debt issuance costs of $1,689 and $1,796

 

 

209,811

 

 

 

210,454

 

Long-term operating lease liabilities

 

 

32,015

 

 

 

31,775

 

Other long-term liabilities

 

 

3,616

 

 

 

3,732

 

Deferred income taxes

 

 

56,306

 

 

 

54,980

 

Total liabilities

 

 

436,627

 

 

 

438,080

 

Commitments and contingencies (note 6)

 

 

 

 

 

 

 

 

Redeemable noncontrolling interest

 

 

34,858

 

 

 

33,285

 

Stockholders' equity

 

 

 

 

 

 

 

 

Class A common stock, $0.0001 par value, 260,000,000 shares authorized; shares issued and outstanding 2021 60,765,450 and 2020 60,759,405

 

 

6

 

 

 

6

 

Class B common stock, $0.0001 par value, 40,000,000 shares authorized; shares issued and outstanding 2021 and 2020 14,927,613

 

 

2

 

 

 

2

 

Class U common stock, $0.0001 par value, 40,000,000 shares authorized; shares issued and outstanding 2021 and 2020 9,352,729

 

 

1

 

 

 

1

 

Additional paid-in capital

 

 

827,749

 

 

 

828,813

 

Accumulated deficit

 

 

(546,357

)

 

 

(551,786

)

Accumulated other comprehensive income (loss)

 

 

(718

)

 

 

(1,056

)

Total stockholders' equity

 

 

280,683

 

 

 

275,980

 

Total liabilities and stockholders' equity

 

$

752,168

 

 

$

747,345

 

 

See Notes to Consolidated Financial Statements

4


 

ENTRAVISION COMMUNICATIONS CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

(In thousands, except share and per share data)

 

 

 

Three-Month Period

 

 

 

Ended March 31,

 

 

 

2021

 

 

2020

 

Net Revenue

 

$

148,880

 

 

$

64,249

 

Expenses:

 

 

 

 

 

 

 

 

Cost of revenue - digital

 

 

84,756

 

 

 

7,347

 

Direct operating expenses (including related parties of $1,937 and $2,219) (including non-cash stock-based compensation of $316 and $131)

 

 

26,561

 

 

 

26,679

 

Selling, general and administrative expenses

 

 

13,853

 

 

 

13,591

 

Corporate expenses (including non-cash stock-based compensation of $755 and $658)

 

 

7,158

 

 

 

6,840

 

Depreciation and amortization (includes direct operating of $3,843 and $3,131; selling, general and administrative of $1,153 and $1,208; and corporate of $188 and $173) (including related parties of $307 and $307)

 

 

5,184

 

 

 

4,512

 

Impairment charge

 

 

1,326

 

 

 

39,835

 

Foreign currency (gain) loss

 

 

586

 

 

 

1,508

 

Other operating (gain) loss

 

 

(1,913

)

 

 

(836

)

Operating income (loss)

 

 

11,369

 

 

 

(35,227

)

Interest expense

 

 

(1,717

)

 

 

(2,680

)

Interest income

 

 

140

 

 

 

624

 

Dividend income

 

 

2

 

 

 

23

 

Income (loss) before income 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

)

Basic and diluted earnings per share:

 

 

 

 

 

 

 

 

Net income (loss) per share attributable to common stockholders, basic and diluted

 

$

0.06

 

 

$

(0.42

)

Cash dividends declared per common share

 

$

0.03

 

 

$

0.05

 

Weighted average common shares outstanding, basic

 

 

85,041,628

 

 

 

84,317,767

 

Weighted average common shares outstanding, diluted

 

 

86,986,581

 

 

 

84,317,767

 

 

See Notes to Consolidated Financial Statements

5


 

ENTRAVISION COMMUNICATIONS CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)

(In thousands)

 

 

 

Three-Month Period

 

 

 

Ended March 31,

 

 

 

2021

 

 

2020

 

Net income (loss)

 

$

7,002

 

 

$

(35,592

)

Other comprehensive income (loss), net of tax:

 

 

 

 

 

 

 

 

Change in foreign currency translation

 

 

407

 

 

 

(166

)

Change in fair value of available for sale securities

 

 

(69

)

 

 

(223

)

Total other comprehensive income (loss)

 

 

338

 

 

 

(389

)

Comprehensive income  (loss)

 

 

7,340

 

 

 

(35,981

)

Comprehensive (income) loss attributable to redeemable noncontrolling interests

 

 

(1,573

)

 

 

-

 

Comprehensive income (loss) attributable to common stockholders

 

$

5,767

 

 

$

(35,981

)

 

See Notes to Consolidated Financial Statements

 

 

6


 

 

ENTRAVISION COMMUNICATIONS CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands, except share and per share data)

 

 

 

Number of Common Shares

 

Common Stock

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Treasury

 

Class

 

Class

 

Class

 

Additional

Paid-in

 

Accumulated

 

Other

Comprehensive

 

 

 

 

 

 

Class A

 

Class B

 

Class U

 

Stock

 

A

 

B

 

U

 

Capital

 

Deficit

 

Income (Loss)

 

Total

 

Balance, December 31, 2020

 

 

60,759,405

 

 

14,927,613

 

 

9,352,729

 

 

-

 

 

6

 

 

2

 

 

1

 

 

828,813

 

 

(551,786

)

 

(1,056

)

 

275,980

 

Issuance of common stock upon exercise of stock options  or awards of restricted stock units

 

 

6,045

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

(9

)

 

-

 

 

-

 

 

(9

)

Stock-based compensation expense

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

1,071

 

 

-

 

 

-

 

 

1,071

 

Dividends paid

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

(2,126

)

 

-

 

 

-

 

 

(2,126

)

Change in fair value of marketable securities

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

(69

)

 

(69

)

Foreign currency translation gain (loss)

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

407

 

 

407

 

Net income (loss) attributable to common stockholders for the three-month period-ended March 31, 2021

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

5,429

 

 

-

 

 

5,429

 

Balance, March 31, 2021

 

 

60,765,450

 

 

14,927,613

 

 

9,352,729

 

 

-

 

 

6

 

 

2

 

 

1

 

 

827,749

 

 

(546,357

)

 

(718

)

 

280,683

 

 

See Notes to Consolidated Financial Statements

 

 

 

Number of Common Shares

 

Common Stock

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Treasury

 

Class

 

Class

 

Class

 

Additional

Paid-in

 

Accumulated

 

Other

Comprehensive

 

 

 

 

 

 

Class A

 

Class B

 

Class U

 

Stock

 

A

 

B

 

U

 

Capital

 

Deficit

 

Income (Loss)

 

Total

 

Balance, December 31, 2019

 

 

60,074,698

 

 

14,927,613

 

 

9,352,729

 

 

-

 

 

6

 

 

2

 

 

1

 

 

836,170

 

 

(547,876

)

 

(131

)

 

288,172

 

Stock-based compensation expense

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

789

 

 

-

 

 

-

 

 

789

 

Repurchase of Class A common stock

 

 

(259,500

)

 

-

 

 

-

 

 

259,500

 

 

-

 

 

-

 

 

-

 

 

(525

)

 

-

 

 

-

 

 

(525

)

Retirement of treasury stock

 

 

-

 

 

-

 

 

-

 

 

(259,500

)

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

Dividends paid

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

(4,218

)

 

-

 

 

-

 

 

(4,218

)

Change in fair value of marketable securities

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

(223

)

 

(223

)

Foreign currency translation gain (loss)

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

(166

)

 

(166

)

Net income (loss) attributable to common stockholders for the three-month period-ended March 31, 2020

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

(35,592

)

 

-

 

 

(35,592

)

Balance, March 31, 2020

 

 

59,815,198

 

 

14,927,613

 

 

9,352,729

 

 

-

 

 

6

 

 

2

 

 

1

 

 

832,216

 

 

(583,468

)

 

(520

)

 

248,237

 

 

See Notes to Consolidated Financial Statements

 

 

7


 

 

ENTRAVISION COMMUNICATIONS CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(In thousands)

 

 

Three-Month Period

 

 

Ended March 31,

 

 

2021

 

 

2020

 

Cash flows from operating activities:

 

 

 

 

 

 

 

Net income (loss)

$

7,002

 

 

$

(35,592

)

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

 

 

 

 

 

 

 

Depreciation and amortization

 

5,184

 

 

 

4,512

 

Impairment charge

 

1,326

 

 

 

39,835

 

Deferred income taxes

 

2,987

 

 

 

(1,813

)

Non-cash interest

 

139

 

 

 

169

 

Amortization of syndication contracts

 

119

 

 

 

130

 

Payments on syndication contracts

 

(124

)

 

 

(130

)

Non-cash stock-based compensation

 

1,071

 

 

 

789

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

(Increase) decrease in accounts receivable

 

9,927

 

 

 

7,482

 

(Increase) decrease in prepaid expenses and other assets

 

1,177

 

 

 

1,026

 

Increase (decrease) in accounts payable, accrued expenses and other liabilities

 

(5,356

)

 

 

(4,394

)

Net cash provided by operating activities

 

23,452

 

 

 

12,014

 

Cash flows from investing activities:

 

 

 

 

 

 

 

Purchases of property and equipment

 

(1,838

)

 

 

(2,671

)

Purchases of intangible assets

 

-

 

 

 

(155

)

Proceeds from marketable securities

 

12,120

 

 

 

16,617

 

Net cash provided by (used in) investing activities

 

10,282

 

 

 

13,791

 

Cash flows from financing activities:

 

 

 

 

 

 

 

Tax payments related to shares withheld for share-based compensation plans

 

(9

)

 

 

-

 

Payments on long-term debt

 

(750

)

 

 

(750

)

Dividends paid

 

(2,126

)

 

 

(4,218

)

Repurchase of Class A common stock

 

-

 

 

 

(525

)

Net cash used in financing activities

 

(2,885

)

 

 

(5,493

)

Effect of exchange rates on cash, cash equivalents and restricted cash

 

(24

)

 

 

77

 

Net increase (decrease) in cash, cash equivalents and restricted cash

 

30,825

 

 

 

20,389

 

Cash, cash equivalents and restricted cash:

 

 

 

 

 

 

 

Beginning

 

119,911

 

 

 

33,857

 

Ending

$

150,736

 

 

$

54,246

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

 

 

Cash payments for:

 

 

 

 

 

 

 

Interest

$

1,578

 

 

$

2,511

 

Income taxes

$

(195

)

 

$

145

 

Supplemental disclosures of non-cash investing and financing activities:

 

 

 

 

 

 

 

Capital expenditures financed through accounts payable, accrued expenses and other liabilities

$

837

 

 

$

1,770

 

 

See Notes to Consolidated Financial Statements


8


 

 

ENTRAVISION COMMUNICATIONS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

MARCH 31, 2021

 

1. BASIS OF PRESENTATION

Presentation

The consolidated financial statements included herein have been prepared by Entravision Communications Corporation (the “Company”), pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been omitted pursuant to such rules and regulations. These consolidated financial statements and notes thereto should be read in conjunction with the Company’s audited consolidated financial statements for the year ended December 31, 2020 included in the Company’s 2020 10-K for the year ended December 31, 2020. The unaudited information contained herein has been prepared on the same basis as the Company’s audited consolidated financial statements and, in the opinion of the Company’s management, includes all adjustments (consisting of only normal recurring adjustments) necessary for a fair presentation of the information for the periods presented. The interim results presented herein are not necessarily indicative of the results of operations that may be expected for the full fiscal year ending December 31, 2021 or any other future period.

 

 

2. THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES

Nature of Business

The Company is a diversified global media, marketing and technology company that, through its television and radio segments, reaches and engages U.S. Hispanics across acculturation levels and media channels. Additionally, the Company’s digital segment, whose operations are located primarily in Spain and Latin America, reaches a global market. Entravision’s operations encompass integrated media and marketing and media solutions, comprised of television, radio and digital properties and data analytics services. The Company’s management has determined that the Company operates in three reportable segments as of March 31, 2021, based upon the type of advertising medium, which segments are television, radio, and digital. As of March 31, 2021, the Company owns and/or operates 54 primary television stations located primarily in California, Colorado, Connecticut, Florida, Kansas, Massachusetts, Nevada, New Mexico, Texas and Washington, D.C. The Company’s television operations comprise the largest affiliate group of both the top-ranked primary television network of Univision Communications Inc. (“Univision”) and Univision’s UniMás network. The television segment includes revenue generated from advertising, retransmission consent agreements and the monetization of the Company’s spectrum assets. Radio operations consist of 48 operational radio stations, 38 FM and 10 AM, in 16 markets located in Arizona, California, Colorado, Florida, Nevada, New Mexico and Texas. Entravision also operates Entravision Solutions as its national sales representation division, through which it sells advertisements and syndicates radio programming to more than 100 markets across the United States. The Company operates 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 the Company’s owned and operated digital media sites, the digital media sites of its publisher partners, and on other digital media sites it can access through third-party platforms and exchanges.  

The Impact of the COVID-19 Pandemic on the Company’s 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, the Company anticipates that the pandemic will continue to have a diminishing effect on its business, from both an operational and financial perspective, in future periods.

Nonetheless, the Company continues to experience cancellations of advertising and a decrease in new advertising placements in its television segment and especially in its radio segment, continuing a trend the Company had begun to experience since the beginning of the pandemic in early 2020, although the Company experienced this decrease at a slower rate during the quarter ended March 31, 2021. The impact on the Company’s radio segment continues to be greater than that on its 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. To partially address this situation, the Company has continued to ease credit terms for certain of its advertising clients to help them manage their own cash flow and address other financial needs.

9


 

In order to preserve cash during this period, the Company instituted certain cost reduction measures that are currently in effect. On March 26, 2020, the Company suspended repurchases under its share repurchase program.  Effective May 16, 2020, the Company suspended company matching of employee contributions to their 401(k) retirement plans. The Company also reduced its dividend by 50% beginning in the second quarter of 2020, and it may continue to do so in future periods. Other cost reduction measures that the Company instituted during 2020 were restored to original levels by the end of 2020. The Company will continue to monitor all of these actions closely in light of current and changing conditions and may institute such additional actions as the Company may believe are appropriate at a future date.

Additionally, the Company 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.

The Company believes that its liquidity and capital resources remain adequate and that it can meet current expenses for at least the next twelve months from a combination of cash on hand and cash flows from operations.

Restricted Cash

As of March 31, 2021 and December 31, 2020, the Company’s balance sheet includes $0.7 million in restricted cash, which was deposited into a separate account as collateral for the Company’s letters of credit.

Related Party

Substantially all of the Company’s television stations are Univision- or UniMás-affiliated television stations. The network affiliation agreement with Univision provides certain of the Company’s owned stations the exclusive right to broadcast Univision’s primary network and UniMás network programming in their respective markets.  Under the network affiliation agreement, the Company retains 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 the Company’s exclusive third-party sales representative for the sale of certain national advertising on the Univision- and UniMás-affiliate television stations, and the Company pays certain sales representation fees to Univision relating to sales of all advertising for broadcast on its Univision- and UniMás-affiliate television stations. During the three-month periods ended March 31, 2021 and 2020, the amount the Company paid Univision in this capacity was $1.9 million and $2.2 million, respectively.

The Company also generates revenue under two marketing and sales agreements with Univision, which give it 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 Company’s current proxy agreement with Univision, the Company grants Univision the right to negotiate the terms of retransmission consent agreements for its Univision- and UniMás-affiliated television station signals. Among other things, the proxy agreement provides terms relating to compensation to be paid to the Company by Univision with respect to retransmission consent agreements entered into with multichannel video programming distributors, (“MVPDs”). As of March 31, 2021, the amount due to the Company from Univision was $6.5 million related to the agreements for the carriage of its Univision and UniMás-affiliated television station signals. 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 the Company’s common stock on a fully-converted basis. The Company’s 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 the Company’s 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 the Company’s issued and outstanding Class U common stock, so long as Univision holds a certain number of shares of Class U common stock, the Company may not, without the consent of Univision, merge, consolidate or enter into a business combination, dissolve or liquidate the Company or dispose of any interest in any Federal Communications Commission (“FCC”) license with respect to television stations which are affiliates of Univision, among other things.

10


 

Stock-Based Compensation

The Company measures all stock-based awards using a fair value method and recognizes the related stock-based compensation expense in the consolidated financial statements over the requisite service period. As stock-based compensation expense recognized in the Company’s consolidated financial statements is based on awards ultimately expected to vest, it has been reduced for estimated forfeitures.

Stock-based compensation expense related to grants of stock options and restricted stock units was $1.1 million and $0.8 million for the three-month periods ended March 31, 2021 and 2020, respectively.

Stock Options

Stock-based compensation expense related to stock options is based on the fair value on the date of grant using the Black-Scholes option pricing model and is amortized over the vesting period, generally between 1 to 4 years.

For the three-month periods ended March 31, 2021 and 2020, there was no stock-based compensation expense related to grants of stock options. All grants of stock options have been fully expensed.

Restricted Stock Units

Stock-based compensation expense related to restricted stock units is based on the fair value of the Company’s stock price on the date of grant and is amortized over the vesting period, generally between 1 to 4 years.

 

As of March 31, 2021, there was approximately $4.7 million of total unrecognized compensation expense related to grants of restricted stock units that is expected to be recognized over a weighted-average period of 1.6 years.

11


 

Income (Loss) Per Share

The following table illustrates the reconciliation of the basic and diluted income (loss) per share computations required by Accounting Standards Codification (ASC) 260-10, “Earnings per Share” (in thousands, except share and per share data):

 

 

 

Three-Month Period

 

 

 

Ended March 31,

 

 

 

2021

 

 

2020

 

Basic earnings per share:

 

 

 

 

 

 

 

 

Numerator:

 

 

 

 

 

 

 

 

Net income (loss) attributable to common stockholders

 

$

5,429

 

 

$

(35,592

)

 

 

 

 

 

 

 

 

 

Denominator:

 

 

 

 

 

 

 

 

Weighted average common shares outstanding

 

 

85,041,628

 

 

 

84,317,767

 

 

 

 

 

 

 

 

 

 

Per share:

 

 

 

 

 

 

 

 

Net income (loss) per share attributable to common stockholders

 

$

0.06

 

 

$

(0.42

)

 

 

 

 

 

 

 

 

 

Diluted earnings per share:

 

 

 

 

 

 

 

 

Numerator:

 

 

 

 

 

 

 

 

Net income (loss) attributable to common stockholders

 

$

5,429

 

 

$

(35,592

)

 

 

 

 

 

 

 

 

 

Denominator:

 

 

 

 

 

 

 

 

Weighted average common shares outstanding

 

 

85,041,628

 

 

 

84,317,767

 

Dilutive securities:

 

 

 

 

 

 

 

 

Stock options and restricted stock units

 

 

1,944,953

 

 

 

-

 

Diluted shares outstanding

 

 

86,986,581

 

 

 

84,317,767

 

 

 

 

 

 

 

 

 

 

Per share:

 

 

 

 

 

 

 

 

Net income (loss) per share attributable to common stockholders

 

$

0.06

 

 

$

(0.42

)

 

Basic income (loss) per share is computed as net income (loss) divided by the weighted average number of shares outstanding for the period. Diluted income (loss) per share reflects the potential dilution, if any, that could occur from shares issuable through stock options and restricted stock awards.

For the three-month period ended March 31, 2020, all dilutive securities have been excluded as their inclusion would have had an antidilutive effect on loss per share. The number of securities whose conversion would result in an incremental number of shares that would be included in determining the weighted average shares outstanding for diluted earnings per share if their effect was not antidilutive was 659,828 equivalent shares of dilutive securities for the three-month period ended March 31, 2020.

 

Impairment

The Company has identified each of its three operating segments to be separate reporting units: television, radio and digital.  The carrying values of the reporting units are determined by allocating all applicable assets (including goodwill) and liabilities based upon the unit in which the assets are employed and to which the liabilities relate, considering the methodologies utilized to determine the fair value of the reporting units.

 

12


 

 

Goodwill and indefinite life intangibles are not amortized but are tested annually for impairment, or more frequently, if events or changes in circumstances indicate that the assets might be impaired. The annual testing date is October 1. As noted in the Company’s 2020 10-K, the Company recorded impairment charges of goodwill in its digital reporting unit totaling $0.8 million during the year ended December 31, 2020. In addition, the Company recorded impairment charges of FCC licenses in its television and radio reporting units in the amount of $23.5 million and $9.0 million, respectively, during the year ended December 31, 2020. In addition, the Company recorded impairment charges related to Intangibles subject to amortization of $5.3 million, and property and equipment of $1.5 million, respectively, during the year ended December 31, 2020. The Company determined there were no triggering events during the first quarter of 2021.

The carrying amount of intangible assets not subject to amortization for each of the Company’s operating segments for the three-month period ended March 31, 2021 is as follows (in thousands):

 

 

 

December 31,

2020

 

 

Impairment

 

 

Transfer to

Assets Held

for Sale

 

 

March 31,

2021

 

Television

 

$

130,274

 

 

$

-

 

 

$

-

 

 

$

130,274

 

Radio

 

 

86,379

 

 

 

(1,326

)

 

 

(3,574

)

 

 

81,479

 

Digital

 

-

 

 

 

-

 

 

 

-

 

 

-

 

Consolidated

 

$

216,653

 

 

$

(1,326

)

 

$

(3,574

)

 

$

211,753

 

 

The Company recorded an impairment charge of $1.3 million related to its assets held for sale. See the further discussion under “Assets Held for Sale” below.

 

 

Treasury Stock

On July 13, 2017, the Board of Directors approved a share repurchase of up to $15.0 million of the Company’s outstanding Class A common stock.  On April 11, 2018, the Board of Directors approved the repurchase of up to an additional $15.0 million of the Company’s Class A common stock, for a total repurchase authorization of up to $30.0 million. On August 27, 2019, the Board of Directors approved the repurchase of up to an additional $15.0 million of the Company’s Class A common stock, for a total repurchase authorization of up to $45.0 million. Under the share repurchase program, the Company is authorized to purchase shares from time to time through open market purchases or negotiated purchases, subject to market conditions and other factors. The share repurchase program may be suspended or discontinued at any time without prior notice. On March 26, 2020, the Company suspended share repurchases under the plan in order to preserve cash during the continuing economic crisis resulting from the COVID-19 pandemic.

Treasury stock is included as a deduction from equity in the Stockholders’ Equity section of the Unaudited Consolidated Balance Sheets. Shares repurchased pursuant to the Company’s share repurchase program are retired during the same calendar year.  

 

During the three-month period ended March 31, 2021, the Company did not repurchase any shares of Class A common stock. As of March 31, 2021, the Company has repurchased a total of approximately 8.6 million shares of Class A common stock at an average price per share of $3.76, for an aggregate purchase price of approximately $32.2 million, since inception of the share repurchase program. All such repurchased shares were retired as of March 31, 2021.

 

 

2017 Credit Facility

On November 30, 2017 (the “Closing Date”), the Company entered into its 2017 Credit Facility pursuant to the 2017 Credit Agreement. The 2017 Credit Facility consists of a $300.0 million senior secured Term Loan B Facility (the “Term Loan B Facility”), which was drawn in full on the Closing Date. In addition, the 2017 Credit Facility provides that the Company may increase the aggregate principal amount of the 2017 Credit Facility by up to an additional $100.0 million plus the amount that would result in its first lien net leverage ratio (as such term is used in the 2017 Credit Agreement) not exceeding 4.0 to 1.0, subject to the Company satisfying certain conditions.

13


 

Borrowings under the Term Loan B Facility were used on the Closing Date (a) to repay in full all of the Company’s and its subsidiaries’ outstanding obligations under the Company’s previous credit facility and to terminate the credit agreement relating thereto (the “2013 Credit Agreement”), (b) to pay fees and expenses in connection with the 2017 Credit Facility, and (c) for general corporate purposes.

The 2017 Credit Facility is guaranteed on a senior secured basis by certain of the Company’s existing and future wholly-owned domestic subsidiaries, and is secured on a first priority basis by the Company’s and those subsidiaries’ assets.

The Company’s borrowings under the 2017 Credit Facility bear interest on the outstanding principal amount thereof from the date when made at a rate per annum equal to either: (i) the Eurodollar Rate (as defined in the 2017 Credit Agreement) plus 2.75%; or (ii) the Base Rate (as defined in the 2017 Credit Agreement) plus 1.75%. The Term Loan B Facility expires on November 30, 2024 (the “Maturity Date”).

The amounts outstanding under the 2017 Credit Facility may be prepaid at the Company’s option without premium or penalty, provided that certain limitations are observed, and subject to customary breakage fees in connection with the prepayment of a LIBOR rate loan. The principal amount of the Term Loan B Facility shall be paid in installments on the dates and in the respective amounts set forth in the 2017 Credit Agreement, with the final balance due on the Maturity Date.

Subject to certain exceptions, the 2017 Credit Facility contains covenants that limit the ability of the Company and its restricted subsidiaries to, among other things:

 

incur liens on the Company’s property or assets;

 

make certain investments;

 

incur additional indebtedness;

 

consummate any merger, dissolution, liquidation, consolidation or sale of substantially all assets;

 

dispose of certain assets;

 

make certain restricted payments;

 

make certain acquisitions;

 

enter into substantially different lines of business;

 

enter into certain transactions with affiliates;

 

use loan proceeds to purchase or carry margin stock or for any other prohibited purpose;

 

change or amend the terms of the Company’s organizational documents or the organization documents of certain restricted subsidiaries in a materially adverse way to the lenders, or change or amend the terms of certain indebtedness;

 

enter into sale and leaseback transactions;

 

make prepayments of any subordinated indebtedness, subject to certain conditions; and

 

change the Company’s fiscal year, or accounting policies or reporting practices.

The 2017 Credit Facility also provides for certain customary events of default, including the following:

 

default for three (3) business days in the payment of interest on borrowings under the 2017 Credit Facility when due;

 

default in payment when due of the principal amount of borrowings under the 2017 Credit Facility;

 

failure by the Company or any subsidiary to comply with the negative covenants and certain other covenants relating to maintaining the legal existence of the Company and certain of its restricted subsidiaries and compliance with anti-corruption laws;

 

failure by the Company or any subsidiary to comply with any of the other agreements in the 2017 Credit Agreement and related loan documents that continues for thirty (30) days (or ten (10) days in the case of failure to comply with covenants related to inspection rights of the administrative agent and lenders and permitted uses of proceeds from borrowings under the 2017 Credit Facility) after the Company’s officers first become aware of such failure or first receive written notice of such failure from any lender;

14


 

 

default in the payment of other indebtedness if the amount of such indebtedness aggregates to $15.0 million or more, or failure to comply with the terms of any agreements related to such indebtedness if the holder or holders of such indebtedness can cause such indebtedness to be declared due and payable;

 

certain events of bankruptcy or insolvency with respect to the Company or any significant subsidiary;

 

final judgment is entered against the Company or any restricted subsidiary in an aggregate amount over $15.0 million, and either enforcement proceedings are commenced by any creditor or there is a period of 30 consecutive days during which the judgment remains unpaid and no stay is in effect;

 

any material provision of any agreement or instrument governing the 2017 Credit Facility ceases to be in full force and effect; and

 

any revocation, termination, substantial and adverse modification, or refusal by final order to renew, any media license, or the requirement (by final non-appealable order) to sell a television or radio station, where any such event or failure is reasonably expected to have a material adverse effect.

The Term Loan B Facility does not contain any financial covenants.  In connection with the Company entering into the 2017 Credit Agreement, the Company and its restricted subsidiaries also entered into a Security Agreement, pursuant to which the Company and the Credit Parties each granted a first priority security interest in the collateral securing the 2017 Credit Facility for the benefit of the lenders under the 2017 Credit Facility.

On April 30, 2019, the Company entered into an amendment to the 2017 Credit Agreement, which became effective on May 1, 2019.

The 2017 Credit Agreement contains a covenant that the Company deliver its financial statements and certain other information for each fiscal year within 90 days after the end of each fiscal year. As a result of the Company’s expanding business operations, primarily related to the acquisition of a majority interest in Cisneros Interactive, the Company did not deliver its financial statements for the year ended December 31, 2020 and other information within 90 days after the end of the fiscal year ended December 31, 2020, and therefore the Company did not satisfy the requirement of this covenant in the 2017 Credit Agreement. However, the 2017 Credit Agreement provides an additional period of 30 days for the Company to satisfy such covenant. On April 12, 2021, the Company filed its 2020 10-K with the SEC. The Company believes it is in compliance with all covenants in the 2017 Credit Agreement and has satisfied the requirements of the 2017 Credit Agreement with respect to the delivery of the Company’s financial statements and other information for the fiscal year ended December 31, 2020.

The carrying amount of the Term Loan B Facility as of March 31, 2021 was $212.8 million, net of $1.7 million of unamortized debt issuance costs and original issue discount. The estimated fair value of the Term Loan B Facility as of March 31, 2021 was approximately $203.8 million. The estimated fair value is based on quoted prices in markets where trading occurs infrequently.

Fair Value Measurements

The Company measures certain financial assets and liabilities at fair value on a recurring basis. Fair value is the price the Company would receive to sell an asset or pay to transfer a liability in an orderly transaction with a market participant at the measurement date.

ASC 820, “Fair Value Measurements and Disclosures”, defines and establishes a framework for measuring fair value and expands disclosures about fair value measurements. In accordance with ASC 820, the Company has categorized its financial assets and liabilities, based on the priority of the inputs to the valuation technique, into a three-level fair value hierarchy as set forth below.

Level 1 – Assets and liabilities whose values are based on unadjusted quoted prices for identical assets or liabilities in an active market that the company has the ability to access at the measurement date.

Level 2 – Assets and liabilities whose values are based on quoted prices for similar attributes in active markets; quoted prices in markets where trading occurs infrequently; and inputs other than quoted prices that are observable, either directly or indirectly, for substantially the full term of the asset or liability.

Level 3 – Assets and liabilities whose values are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement.

If the inputs used to measure the financial instruments fall within different levels of the hierarchy, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument.

15


 

The following table presents the Company’s financial assets and liabilities measured at fair value on a recurring basis in the Unaudited Consolidated Balance Sheets (in millions):

 

 

 

March 31, 2021

 

 

 

Total Fair Value

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

and Carrying

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Value on Balance

 

 

Fair Value Measurement Category

 

(in millions)

 

Sheet

 

 

Level 1

 

Level 2

 

 

Level 3

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

Money market account

 

$

72.4

 

 

$

-

 

$

72.4

 

 

$

-

 

Certificates of deposit

 

$

0.7

 

 

$

-

 

$

0.7

 

 

$

-

 

Corporate bonds

 

$

15.1

 

 

$

-

 

$

 

15.1

 

 

$

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2020

 

 

 

Total Fair Value

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

and Carrying

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Value on Balance

 

 

Fair Value Measurement Category

 

 

 

Sheet

 

 

Level 1

 

Level 2

 

 

Level 3

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market account

 

$

59.9

 

 

$

-

 

$

59.9

 

 

$

-

 

Certificates of deposit

 

$

2.8

 

 

$

-

 

$

2.8

 

 

$

-

 

Corporate bonds

 

$

25.2

 

 

$

-

 

$

25.2

 

 

$

-

 

 

 

As of March 31, 2021, the Company held investments in a money market fund, certificates of deposit and corporate bonds. All certificates of deposit are within the current FDIC insurance limits and the majority of corporate bonds are investment grade.

The Company’s available for sale securities are comprised of certificates of deposit and bonds. These securities are valued using quoted prices for similar attributes in active markets (Level 2). Since these investments are classified as available for sale, they are recorded at their fair market value within Cash and cash equivalents and Marketable securities in the Unaudited Consolidated Balance Sheets and their unrealized gains or losses are included in other comprehensive income.

As of March 31, 2021, the following table summarizes the amortized cost and the unrealized (gains) losses of the available for sale securities (in thousands):

 

 

 

Certificates of Deposit

 

 

Corporate Bonds

 

 

 

Amortized

Cost

 

 

Unrealized gains

(losses)

 

 

Amortized

Cost

 

 

Unrealized gains

(losses)

 

Due within a year

 

$

680

 

 

$

4

 

 

$

14,915

 

 

$

146

 

Due after one year through five years

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Total

 

$

680

 

 

$

4

 

 

$

14,915

 

 

$

146

 

 

The Company’s available for sale debt securities are considered for credit losses under the guidance of Accounting Standards Update (“ASU”) 2016-13, Financial Instruments—Credit Losses (Topic 326), which the Company adopted on January 1, 2020. As of March 31, 2021, the Company determined that a credit loss allowance is not required.  

Included in interest income for the three-month period ended March 31, 2021 was interest income related to the Company’s available for sale securities of $0.1 million.

 

16


 

 

Accumulated Other Comprehensive Income (Loss)

Accumulated other comprehensive income (loss) includes foreign currency translation adjustments and changes in the fair value of available for sale securities.

The following table provides a roll-forward of accumulated other comprehensive income (loss) for the three-month periods ended March 31, 2021 (in millions):

 

 

 

Foreign

Currency

Translation

 

 

Marketable

Securities

 

 

Total

 

Accumulated other comprehensive income (loss) as of December 31, 2020

 

$

(1.4

)

 

$

0.4

 

 

$

(1.0

)

Other comprehensive income (loss)

 

 

0.4

 

 

 

(0.1

)

 

 

0.3

 

Income tax (expense) benefit

 

 

-

 

 

 

-

 

 

 

-

 

Other comprehensive income (loss), net of tax

 

 

0.4

 

 

 

(0.1

)

 

 

0.3

 

Accumulated other comprehensive income (loss) as of March 31, 2021

 

 

(1.0

)

 

 

0.3

 

 

 

(0.7

)

 

Foreign Currency

The Company’s reporting currency is the U.S. dollar. All transactions initiated in foreign currencies are translated into U.S. dollars in accordance with ASC Topic 830, “Foreign Currency Matters” and the related rate fluctuation on transactions is included in the consolidated statements of operations.

For foreign operations with the local currency as the functional currency, assets and liabilities are translated from the local currencies into U.S. dollars at the exchange rate prevailing at the balance sheet date and equity is translated at historical rates. Revenues and expenses are translated at the average exchange rate for the period. Translation adjustments resulting from the process of translating the local currency financial statements into U.S. dollars are included in determining comprehensive (income) loss.

Based on recent data reported by the International Monetary Fund, Argentina has been identified as a country with a highly inflationary economy. According to U.S. GAAP, a registrant should apply highly inflationary accounting in the first reporting period after such determination.  Therefore, the Company transitioned the accounting for its Argentine operations to highly inflationary status as of July 1, 2018 and, commencing that date, changed the functional currency from the Argentine peso to the U.S. dollar.

Cost of Revenue

Cost of revenue related to the Company’s digital segment consists primarily of the costs of online media acquired from third-party publishers.

Assets Held For Sale

Assets are classified as held for sale when the carrying value is expected to be recovered through a sale rather than through their continued use and all of the necessary classification criteria have been met.  Assets held for sale are recorded at the lower of their carrying value or estimated fair value less selling costs and classified as current assets.  Depreciation is not recorded on assets classified as held for sale.

On March 30, 2020, the Company entered into an agreement to sell a building and related improvements in the Houston, Texas area for approximately $5.4 million.  The transaction met the criteria for classification as assets held for sale and the carrying value of $0.2 million is presented as Assets Held for Sale in the consolidated balance sheet as of March 31, 2021. Due to certain government approval delays resulting from the COVID-19 pandemic, the Company anticipates that the transaction will close in the second half of 2021.

During the first quarter of 2020, the Company listed for sale a building and related improvements in the Laredo, Texas area for approximately $2.9 million.  The transaction met the criteria for classification as assets held for sale and the carrying value of $2.0 million is presented as Assets Held for Sale in the consolidated balance sheet as of March 31, 2021.   

During the first quarter of 2021, the Company entered into negotiations to sell the assets of radio station WNUE-FM in Orlando, Florida, for $4.0 million.  On April 12, 2021, the Company entered into an asset purchase agreement for these assets.  As of March 31, 2021, the carrying value of the assets was $5.3 million, which resulted in an impairment charge of $1.3 million for the three-month period ended March 31, 2021. The transaction met the criteria for classification as assets held for sale and the adjusted carrying value of $4.0 million is presented as Assets Held for Sale in the consolidated balance sheet as of March 31, 2021.  

17


 

Recent Accounting Pronouncements

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. ASU 2020-04 provides optional guidance for a limited time to ease the potential burden in accounting for reference rate reform. The new guidance provides optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met. The amendments apply only to contracts and hedging relationships that reference LIBOR or another reference rate expected to be discontinued due to reference rate reform. These amendments are effective immediately and may be applied prospectively to contract modifications made and hedging relationships entered into or evaluated on or before December 31, 2022. The Company is currently evaluating the impact of the new guidance on its consolidated financial statements.

Newly Adopted Accounting Standards

In December 2019, the Financial Accounting Standards Board (“FASB”) issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, as part of its Simplification Initiative to reduce the cost and complexity in accounting for income taxes. ASU 2019-12 removes certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. ASU 2019-12 also amends other aspects of the guidance to help simplify and promote consistent application of GAAP. ASU 2019-12 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. The Company adopted ASU 2019-12 on January 1, 2021, which did not have a material impact on the Company’s condensed consolidated financial statements and related disclosures. 

3. REVENUES

Revenue Recognition

Revenues are recognized when control of the promised services is transferred to the Company’s customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those services.

Broadcast Advertising. Television and radio revenue related to the sale of advertising is recognized at the time of broadcast. Broadcast advertising rates are fixed based on each medium’s ability to attract audiences in demographic groups targeted by advertisers and rates can vary based on the time of day and ratings of the programming airing in that day part.  

Digital Advertising. Revenue from digital advertising primarily consists of two types:

 

Display advertisements on websites and mobile applications that are sold based on a cost-per-thousand impressions delivered. These impressions are delivered through the Company’s websites and through third party publishers either through direct relationships with the publishers or through digital advertising exchanges.

 

Performance driven advertising whereby the customer engages the Company to drive consumers to perform an action such as the download of a mobile application, the installation of an application, or the first use of an application (typically referred to cost per action or cost per installation).  

Broadcast and digital advertising revenue is recognized over time in a series as a single performance obligation as the advertisement, impression or performance advertising is delivered per the insertion order. The Company applies the practical expedient to recognize revenue for each distinct advertising service delivered at the amount the Company has the right to invoice, which corresponds directly to the value a customer has received relative to the Company’s performance. Contracts with customers are short term in nature and billing occurs on a monthly basis with payment due in 30 days. Value added taxes collected concurrent with advertising revenue producing activities are excluded from revenue.  Cash payments received prior to services rendered result in deferred revenue, which is then recognized as revenue when the advertising time or space is actually provided.

Retransmission Consent.  The Company generates revenue from retransmission consent agreements that are entered into with MVPDs. The Company grants the MVPDs access to its television station signals so that they may rebroadcast the signals and charge their subscribers for this programming. Payments are received on a monthly basis based on the number of monthly subscribers.

Retransmission consent revenues are considered licenses of functional intellectual property and are recognized over time utilizing the sale-based or usage-based royalty exception. The Company’s performance obligation is to provide the licensee access to our intellectual property. MVPD subscribers receive and consume the content monthly as the television signal is delivered.

Spectrum Usage Rights. The Company generates revenue from agreements associated with its television stations’ spectrum usage rights from a variety of sources, including but not limited to agreements with third parties to utilize excess 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 broadcasting operations; and modifying and/or relinquishing spectrum usage rights while continuing to broadcast through channel sharing or other arrangements. 

18


 

Revenue generated by spectrum usage rights agreements are recognized over the period of the lease or when the Company has relinquished all or a portion of its spectrum usage rights for a station or has relinquished its rights to operate a station on the existing channel free from interference.

Other Revenue. The Company generates other revenues that are related to its broadcast operations, which primarily consist of representation fees earned by the Company’s radio national representation firm, talent fees for the Company’s on-air personalities, ticket and concession sales for radio events, rent from tenants of the Company’s owned facilities, barter revenue and revenue generated under joint sales agreements.  

In the case of representation fees, the Company does not control the distinct service, the commercial advertisement, prior to delivery and therefore recognizes revenue on a net basis.  Similarly for joint service agreements, the Company does not own the station providing the airtime and therefore recognizes revenue on a net basis.  In the case of talent fees, the on-air personality is an employee of the Company and therefore the Company controls the service provided and recognizes revenue gross with an expense for fees paid to the employee.

Practical Expedients and Exemptions

The Company does not disclose the value of unsatisfied performance obligations when (i) contracts have an original expected length of one year or less, which applies to effectively all advertising contracts; and (ii) variable consideration is a sales-based or usage-based royalty promised in exchange for a license of intellectual property, which applies to retransmission consent revenue.  

The Company applies the practical expedient to expense contract acquisition costs, such as sales commissions generated either by internal direct sales employees or through third party advertising agency intermediaries, when incurred, because the amortization period is one year or less. These costs are recorded within direct operating expenses.

Disaggregated Revenue

The following table presents our revenues disaggregated by major source for the three-month periods ended (in thousands):

 

 

 

Three-Month Period

 

 

 

Ended March 31,

 

 

 

2021

 

 

2020

 

Broadcast advertising

 

$

33,675

 

 

$

38,728

 

Digital advertising

 

 

101,482

 

 

 

13,331

 

Spectrum usage rights

 

 

2,844

 

 

 

1,356

 

Retransmission consent

 

 

9,647

 

 

 

9,580

 

Other

 

 

1,232

 

 

 

1,254

 

Total revenue

 

$

148,880

 

 

$

64,249

 

 

Contracts are entered into directly with customers or through an advertising agency that represents the customer.  Sales of advertising to customers or agencies within a station’s designated market area (“DMA”) are referred to as local revenue, whereas sales from outside the station’s DMA are referred to as national revenue. The following table further disaggregates the Company’s broadcast advertising revenue by sales channel for the three-month periods ended (in thousands):

 

 

 

Three-Month Period

 

 

 

Ended March 31,

 

 

 

2021

 

 

2020

 

Local direct

 

$

5,240

 

 

$

5,843

 

Local agency

 

 

13,188

 

 

 

13,566

 

National agency

 

 

15,247

 

 

 

19,319

 

Total  revenue

 

$

33,675

 

 

$

38,728

 

 

Deferred Revenue

The Company records deferred revenue, which are included in accounts payable and accrued expenses in the accompanying consolidated balance sheets, when cash payments are received or due in advance of the Company’s performance, including amounts which are refundable. The change in the deferred revenue balance for the three-month period ended March 31, 2021 is primarily driven by cash payments received or due in advance of satisfying the Company’s performance obligations, offset by revenues recognized that were included in the deferred revenue balance as of December 31, 2020.

19


 

The Company’s payment terms vary by the type and location of customer and the products or services offered. The term between invoicing and when payment is due is not significant, typically 30 days. For certain customer types, the Company requires payment before the services are delivered to the customer.

 

(in thousands)

December 31,

2020

 

Increase

 

Decrease *

 

 

March 31,

2021

 

Deferred revenue

$

3,127

 

3,598

 

(3,127)

 

 

$

3,598

 

 

* The amount reflects revenue that has been recorded in the three-month period ended March 31, 2021.

 

 

4. LEASES

The Company’s leases are considered operating leases and primarily consist of real estate such as office space, broadcasting towers, land and land easements. Right of Use (“ROU”) asset and lease liability is recognized as of lease commencement date based on the present value of the future minimum lease payments over the lease term.  As the implicit rate for operating leases is not readily determinable, the future minimum lease payments were discounted using an incremental borrowing rate.  Due to the Company’s having a centralized treasury function, the Company applied a portfolio approach to discount its domestic lease obligations using its secured publicly traded U.S. dollar denominated debt instruments interpolating the duration of the debt to the remaining lease term.  The incremental borrowing rate for international leases is the interest rate that the Company would have to pay to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment.

The Company’s operating leases are reflected on the consolidated balance sheet as right-of-use assets with the related liability presented as lease liability, current and lease liability, net of current portion. Lease expense is recognized on a straight-line basis over the lease term.

Generally, lease terms include options to renew or extend the lease.  Unless the renewal option is considered reasonably certain, the exercise of any such options has been excluded from the calculation of lease liabilities.  In addition, as permitted within the guidance, ROU assets and lease liabilities are not recorded for leases within an initial term of one year or less.  The Company’s existing leases have remaining terms of less than one year up to 30 years.  Certain of the Company’s lease agreements include rental payments based on changes in the consumer price index (“CPI”). Lease liabilities are not remeasured as a result of changes in the CPI; instead, changes in the CPI are treated as variable lease payments and recognized in the period in which the related obligation was incurred. Lease agreements do not contain any material residual value guarantees or material restrictive covenants.

Certain real estate leases include additional costs such as common area maintenance (non-lease component), as well as property insurance and property taxes. These costs were excluded from future minimum lease payments as they are variable payments. As such, these costs were not part of the calculation of ROU assets and lease liabilities associated with operating leases upon transition.

 

The following table summarizes the expected future payments related to lease liabilities as of March 31, 2021:

 

(in thousands)

 

 

 

Remainder of 2021

 

$

7,300

 

2022

 

 

8,820

 

2023

 

 

7,148

 

2024

 

 

5,986

 

2025

 

 

5,636

 

2026 and thereafter

 

 

15,675

 

Total minimum payments

 

$

50,565

 

Less amounts representing interest

 

 

(11,040

)

Present value of minimum lease payments

 

 

39,525

 

Less current operating lease liabilities

 

 

(7,510

)

Long-term operating lease liabilities

 

$

32,015

 

 

 

The weighted average remaining lease term and the weighted average discount rate used to calculate the Company’s lease liabilities as of March 31, 2021 were 9.7 years and 6.3%, respectively. The weighted average remaining lease term and the weighted average discount rate used to calculate the Company’s lease liabilities as of March 31, 2020 were 11.1 years and 6.3%, respectively.

20


 

The following table summarizes lease payments and supplemental non-cash disclosures:

 

 

 

Three-Month Period

Ended March 31,

(in thousands)

 

2021

 

 

2020

Cash paid for amounts included in lease liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating cash flows from operating leases

 

$

2,756

 

 

$

2,888

Non-cash additions to operating lease assets

 

$

2,683

 

 

$

-

 

 

 

 

 

 

 

The following table summarizes the components of lease expense:

 

 

 

Three-Month Period

 

 

Three-Month Period

 

 

 

Ended March 31,

 

 

Ended March 31,

 

(in thousands)

 

2021

 

 

2020

 

Operating lease cost

 

$

2,153

 

 

$

2,673

 

Variable lease cost

 

 

128

 

 

 

297

 

Short-term lease cost

 

 

439

 

 

218

 

Total lease cost

 

$

2,720

 

 

$

3,188

 

 

 

For the three-month period ended March 31, 2021, lease cost of $1.4 million, $1.2 million and $0.1 million, were recorded to direct operating expenses, selling, general and administrative expenses and corporate expenses, respectively. For the three-month period ended March 31, 2020, lease cost of $1.6 million, $1.4 million and $0.2 million, were recorded to direct operating expenses, selling, general and administrative expenses and corporate expenses, respectively.

 

 

 

5. SEGMENT INFORMATION

The Company’s management has determined that the Company operates in three reportable segments as of March 31, 2021, based upon the type of advertising medium, which segments are television, digital and radio. The Company’s segments results reflect information presented on the same basis that is used for internal management reporting and it is also how the chief operating decision maker evaluates the business.

 

Television

As of March 31, 2021, the Company owns and/or operates 54 primary television stations located primarily in California, Colorado, Connecticut, Florida, Kansas, Massachusetts, Nevada, New Mexico, Texas and Washington, D.C. The Company generates revenue from advertising, retransmission consent agreements and the monetization of spectrum usage rights in these markets.

Digital

The Company operates proprietary technology and data platforms that deliver digital advertising in various advertising formats that allow advertisers to reach audiences across a wide range of Internet-connected devices on its owned and operated digital media sites, the digital media sites of its publisher partners, and on other digital media sites it can access through third-party platforms and exchanges.

Radio

As of March 31, 2021, the Company owns and operates 48 radio stations (38 FM and 10 AM) located in Arizona, California, Colorado, Florida, Nevada, New Mexico and Texas.

The Company owns and operates a national sales representation division, Entravision Solutions, through which the Company sells advertisements and syndicates radio programming to more 100 markets across the United States.

 

21


 

 

Separate financial data for each of the Company’s operating segments are provided below. Segment operating profit (loss) is defined as operating profit (loss) before corporate expenses, change in fair value contingent consideration, impairment charge, foreign currency (gain) loss and other operating (gain) loss. The Company generated 65% and 14% of its revenue outside the United States during the three-month periods ended March 31, 2021 and 2020, respectively. The Company evaluates the performance of its operating segments based on the following (in thousands):

 

 

 

Three-Month Period

 

 

 

 

 

 

 

Ended March 31,

 

 

%

 

 

 

 

2021

 

 

 

2020

 

 

Change

 

Net revenue

 

 

 

 

 

 

 

 

 

 

 

 

Television

 

$

36,091

 

 

$

39,199

 

 

 

(8

)%

Digital

 

 

101,482

 

 

 

13,331

 

 

 

661

%

Radio

 

 

11,307

 

 

 

11,719

 

 

 

(4

)%

Consolidated

 

 

148,880

 

 

 

64,249

 

 

 

132

%

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of revenue - digital

 

 

84,756

 

 

 

7,347

 

 

*

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Direct operating expenses

 

 

 

 

 

 

 

 

 

 

 

 

Television

 

 

14,969

 

 

 

15,825

 

 

 

(5

)%

Digital

 

 

4,901

 

 

 

3,193

 

 

 

53

%

Radio

 

 

6,691

 

 

 

7,661

 

 

 

(13

)%

Consolidated

 

 

26,561

 

 

 

26,679

 

 

 

(0

)%

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative expenses

 

 

 

 

 

 

 

 

 

 

 

 

Television

 

 

4,915

 

 

 

5,932

 

 

 

(17

)%

Digital

 

 

5,949

 

 

 

3,671

 

 

 

62

%

Radio

 

 

2,989

 

 

 

3,988

 

 

 

(25

)%

Consolidated

 

 

13,853

 

 

 

13,591

 

 

 

2

%

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

 

 

 

 

 

 

 

 

 

 

Television

 

 

3,216

 

 

 

2,875

 

 

 

12

%

Digital

 

 

1,581

 

 

 

1,150

 

 

 

37

%

Radio

 

 

387

 

 

 

487

 

 

 

(21

)%

Consolidated

 

 

5,184

 

 

 

4,512

 

 

 

15

%

 

 

 

 

 

 

 

 

 

 

 

 

 

Segment operating profit (loss)

 

 

 

 

 

 

 

 

 

 

 

 

Television

 

 

12,991

 

 

 

14,567

 

 

 

(11

)%

Digital

 

 

4,295

 

 

 

(2,030

)

 

*

 

Radio

 

 

1,240

 

 

 

(417

)

 

*

 

Consolidated

 

 

18,526

 

 

 

12,120

 

 

 

53

%

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate expenses

 

 

7,158

 

 

 

6,840

 

 

 

5

%

Impairment charge

 

 

1,326

 

 

 

39,835

 

 

 

(97

)%

Foreign currency (gain) loss

 

 

586

 

 

 

1,508

 

 

 

(61

)%

Other operating (gain) loss

 

 

(1,913

)

 

 

(836

)

 

 

129

%

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 (loss) before income taxes

 

 

9,794

 

 

 

(37,260

)

 

*

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital expenditures

 

 

 

 

 

 

 

 

 

 

 

 

Television

 

$

1,031

 

 

$

3,182

 

 

 

 

 

Digital

 

 

336

 

 

 

298

 

 

 

 

 

Radio

 

 

146

 

 

 

196

 

 

 

 

 

Consolidated

 

$

1,513

 

 

$

3,676

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31,

 

 

December 31,

 

 

 

 

 

Total assets

 

 

2021

 

 

 

2020

 

 

 

 

 

Television

 

 

434,758

 

 

 

425,899

 

 

 

 

 

Digital

 

 

196,551

 

 

 

196,020

 

 

 

 

 

Radio

 

 

120,859

 

 

 

125,426

 

 

 

 

 

Consolidated

 

$

752,168

 

 

$

747,345

 

 

 

 

 

 

*

Percentage not meaningful.

22


 

 

6. COMMITMENTS AND CONTINGENCIES

The Company is subject to various outstanding claims and other legal proceedings that may arise in the ordinary course of business. In the opinion of management, any liability of the Company that may arise out of or with respect to these matters will not materially adversely affect the financial position, results of operations or cash flows of the Company.  

7. ACQUISITIONS

Cisneros Interactive

On October 13, 2020, the Company acquired from certain individuals (collectively, the “Sellers”), 51% of the issued and outstanding shares of stock of a company engaged in the sale and marketing of digital advertising that, together with its subsidiaries, does business under the name Cisneros Interactive (“Cisneros Interactive”).  The transaction, funded from cash on hand, includes a purchase price of approximately $29.9 million in cash. The Company concluded that the remaining 49% of the issued and outstanding shares of Cisneros Interactive stock is considered to be a noncontrolling interest.

In connection with the acquisition, the Company also entered into a Put and Call Option Agreement (the “Put and Call Agreement”). Subject to the terms of the Put and Call Agreement, if certain minimum EBITDA targets are met, the Sellers have the right (the “Put Option”), between March 15, 2024 and June 13, 2024, to cause the Company to purchase all (but not less than all) the remaining 49% of the issued and outstanding shares of Cisneros Interactive stock at a purchase price to be based on a pre-determined multiple of six times Cisneros Interactive’s 12-month EBITDA in the preceding calendar year. The Sellers may also exercise the Put Option upon the occurrence of certain events, between March 2022 and April 2024.

Additionally, subject to the terms of the Put and Call Agreement, the Company has the right (the “Call Option”), in calendar year 2024, to purchase all (but not less than all) the remaining 49% of the issued and outstanding shares of Cisneros Interactive stock at a purchase price to be based on a pre-determined multiple of six times of Cisneros Interactive’s 12-month EBITDA in calendar year 2023.

Applicable accounting guidance requires an equity instrument that is redeemable for cash or other assets to be classified outside of permanent equity if it is redeemable (a) at a fixed or determinable price on a fixed or determinable date, (b) at the option of the holder, or (c) upon the occurrence of an event that is not solely within the control of the issuer.

As a result of the put and call option redemption feature, and because the redemption is not solely within the control of the Company, the noncontrolling interest is considered redeemable, and is classified in temporary equity within the Company’s Consolidated Balance Sheets initially at its acquisition date fair value. The noncontrolling interest is adjusted each reporting period for income (or loss) attributable to the noncontrolling interest as well as any applicable distributions made. Since the noncontrolling interest is not currently redeemable and it is not probable that it will become redeemable, the Company is not currently required to adjust the amount presented in temporary equity to its redemption value. The fair value of the redeemable noncontrolling interest which includes the Put and Call Agreement recognized on the acquisition date was $30.8 million. The table below presents the reconciliation of changes in redeemable noncontrolling interests (unaudited; in thousands):

 

 

 

 

Three-Month Period

Ended March 31,

 

 

2021

 

 

2020

 

Beginning balance

$

33,285

 

 

$

-

 

 

Net income (loss) attributable to redeemable noncontrolling interest

 

1,573

 

 

 

-

 

 

Ending balance

$

34,858

 

 

$

-

 

 

 

The Company is in the process of completing the purchase price allocation for its acquisition of the majority interest in Cisneros Interactive. The measurement period remains open pending the finalization of the pre-acquisition tax-related items. The following is a summary of the purchase price allocation (unaudited; in millions):

 

Cash  

$

8.7

 

Accounts receivable  

 

50.5

 

Other assets  

 

6.2

 

Intangible assets subject to amortization

 

41.7

 

Goodwill

 

12.3

 

Current liabilities  

 

(48.1

)

Deferred tax

 

(10.6

)

Redeemable noncontrolling interest

 

(30.8

)

 

 

23


 

 

The fair value of the assets acquired includes trade receivables of $50.5 million. The gross amount due under contract is $54.0 million, of which $3.5 million is expected to be uncollectable.

During the three-month period ended March 31, 2021, Cisneros Interactive generated net revenue and net income of $88.5 million and $3.2 million, respectively.

The goodwill, which is not expected to be deductible for tax purposes, is assigned to the Company’s digital segment and is attributable to Cisneros Interactive’s workforce and expected synergies from combining Cisneros Interactive’s operations with those of the Company.

The following unaudited pro forma information for the three-month periods ended March 31, 2020 has been prepared to give effect to the Company’s acquisition of a majority interest in Cisneros Interactive as if the acquisition had occurred on January 1, 2020. This pro forma information does not purport to represent what the actual results of operations of the Company would have been had this acquisition occurred on such date, nor does it purport to predict the results of operations for any future periods.

 

 

 

 

Three-Month Period

Ended March 31, 2020

 

Pro Forma:

 

 

 

Total revenue

$

104,468

 

Net income (loss)

 

(34,348

)

Net income (loss) attributable to redeemable noncontrolling interest

 

(610

)

Net income (loss) attributable to common stockholders

$

(34,958

)

 

 

 

 

Basic and diluted earnings per share:

 

 

 

Net income (loss) per share, attributable to common stockholders, basic and diluted

$

(0.41

)

 

 

 

 

 

Weighted average common shares outstanding, basic and diluted

 

84,317,767

 

 

 

 

 

 

24


 

 

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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.

 

25


 

 

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.

26


 

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. 

27


 

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.

28


 

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.

29


 

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):

 

 

 

Three-Month Period

 

 

 

Ended March 31,

 

 

 

 

2021

 

 

 

2020

 

Consolidated adjusted EBITDA

 

$

14,195

 

 

$

9,679

 

EBITDA attributable to redeemable noncontrolling interest

 

 

2,837

 

 

 

-

 

Interest expense

 

 

(1,717

)

 

 

(2,680

)

Interest income

 

 

140

 

 

 

624

 

Dividend income

 

 

2

 

 

 

23

 

Income tax expense

 

 

(2,792

)

 

 

1,668

 

Amortization of syndication contracts

 

 

(119

)

 

 

(130

)

Payments on syndication contracts

 

 

124

 

 

 

130

 

Non-cash stock-based compensation included in direct operating expenses

 

 

(316

)

 

 

(131

)

Non-cash stock-based compensation included in corporate expenses

 

 

(755

)

 

 

(658

)

Depreciation and amortization

 

 

(5,184

)

 

 

(4,512

)

Impairment charge

 

 

(1,326

)

 

 

(39,835

)

Non-recurring cash severance charge

 

 

-

 

 

 

(606

)

Other operating gain (loss)

 

 

1,913

 

 

 

836

 

Net (income) loss attributable to redeemable noncontrolling interest

 

 

(1,573

)

 

 

-

 

Net income (loss) attributable to common stockholders

 

 

5,429

 

 

 

(35,592

)

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

5,184

 

 

 

4,512

 

Impairment charge

 

 

1,326

 

 

 

39,835

 

Deferred income taxes

 

 

2,987

 

 

 

(1,813

)

Non-cash interest

 

 

139

 

 

 

169

 

Amortization of syndication contracts

 

 

119

 

 

 

130

 

Payments on syndication contracts

 

 

(124

)

 

 

(130

)

Non-cash stock-based compensation

 

 

1,071

 

 

 

789

 

Net income (loss) attributable to redeemable noncontrolling interest

 

 

1,573

 

 

 

-

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

(Increase) decrease in accounts receivable

 

 

9,927

 

 

 

7,482

 

(Increase) decrease in prepaid expenses and other assets

 

 

1,177

 

 

 

1,026

 

Increase (decrease) in accounts payable, accrued expenses and other liabilities

 

 

(5,356

)

 

 

(4,394

)

Cash flows from operating activities

 

$

23,452

 

 

$

12,014

 

30


 

 

 

Consolidated Operations

Net Revenue. Net revenue increased to $148.9 million for the three-month period ended March 31, 2021 from $64.2 million for the three-month period ended March 31, 2020, an increase of approximately $84.7 million. Of the overall increase, approximately $88.2 million was attributable to our digital segment and was primarily due 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. The overall increase in net revenue was partially offset by a decrease of approximately $3.1 million attributable to our television segment, 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, the overall increase in net revenue was partially offset by a decrease of approximately $0.4 million attributable to our radio segment due to decreases in political advertising revenue and 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 television and 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.

We believe that for the full year 2021, net revenue will increase primarily as a result of operating Cisneros Interactive for a full year in 2021 compared to less than three months in 2020, partially offset by a decrease in political advertising revenue compared to 2020.  

Cost of revenue-Digital. Cost of revenue in our digital segment increased to $84.8 million for the three-month period ended March 31, 2021 from $7.3 million for the three-month period ended March 31, 2020, an increase of $77.5 million, primarily due to increased costs of revenue associated with Cisneros Interactive during the first quarter of 2021, following our acquisition of a majority interest in Cisneros Interactive during the fourth quarter of 2020, which did not incur cost of revenue for us in the comparable period ended March 31, 2020. As a percentage of digital net revenue, cost of revenue increased to 84% for the three-month period ended March 31, 2021 from 55% for the three-month period ended March 31, 2020, primarily due to our acquisition of a majority interest in Cisneros Interactive, which operates with lower margins compared to our other digital operations.

Direct Operating Expenses. Direct operating expenses decreased to $26.6 million for the three-month period ended March 31, 2021 from $26.7 million for the three-month period ended March 31, 2020, a decrease of $0.1 million. Of the overall decrease, approximately $1.8 million was attributable to our television and radio segments and was primarily due to decreases in salary expense associated with furloughs and layoffs that occurred in 2020, payroll tax expense and expenses associated with the decrease in advertising revenue. The overall decrease was partially offset by an increase of approximately $1.7 million that was attributable to our digital segment primarily due to our acquisition of a majority interest in Cisneros Interactive during the fourth quarter of 2020, which did not incur direct operating expenses for us in the comparable period ended March 31, 2020, partially offset by decreases in salary expense associated with furloughs and layoffs that occurred in 2020. As a percentage of net revenue, direct operating expenses decreased to 18% for the three-month period ended March 31, 2021 from 42% for the three-month period ended March 31, 2020, because direct operating expenses decreased while revenue increased.

We believe that direct operating expenses will increase during 2021, primarily as a result of operating Cisneros Interactive for a full year in 2021 compared to less than three months in 2020.  

Selling, General and Administrative Expenses. Selling, general and administrative expenses increased to $13.9 million for the three-month period ended March 31, 2021 from $13.6 million for the three-month period ended March 31, 2020, an increase of $0.3 million. Of the overall increase, approximately $2.2 million was attributable to our digital segment and was primarily due to our acquisition of a majority interest in Cisneros Interactive during the fourth quarter of 2020, which did not incur direct operating expenses for us in the comparable period ended March 31, 2020, partially offset by decreases in salary expense associated with furloughs and layoffs that occurred in 2020. The overall increase was partially offset by a decrease of approximately $2.0 million attributable to our television and radio segments and was primarily due to decreases in salary expense associated with furloughs and layoffs that occurred in 2020, and payroll tax expense. As a percentage of net revenue, selling, general and administrative expenses decreased to 9% for the three-month period ended March 31, 2021 from 21% for the three-month period ended March 31, 2020, because the rate of increase in revenue exceeded the rate of increase in expenses.

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We believe that selling, general and administrative expenses will increase during 2021, primarily as a result of operating Cisneros Interactive for a full year in 2021 compared to less than three months in 2020.  

Corporate Expenses. Corporate expenses increased to $7.2 million for the three-month period ended March 31, 2021 from $6.8 million for the three-month period ended March 31, 2020, an increase of $0.4 million. The increase was primarily due to an increase in salaries and audit fees. As a percentage of net revenue, corporate expenses decreased to 5% for the three-month period ended March 31, 2021 from 11% for the three-month period ended March 31, 2020.

We believe that corporate expenses will not change significantly during 2021 compared to 2020.

Depreciation and Amortization. Depreciation and amortization increased to $5.2 million for the three-month period ended March 31, 2021 compared to $4.5 million for the three-month period ended March 31, 2020, an increase of $0.7 million. The increase was primarily attributable to amortization of the intangible assets from our acquisition of a majority interest in Cisneros Interactive during the fourth quarter of 2020, and fixed assets additions in our television segment as part of the broadcast television repack following the FCC auction for broadcast spectrum that concluded in 2017, partially offset by a decrease due to long-lived assets in our digital segment that were impaired in the first quarter of 2020.

Foreign currency (gain) loss. Historically, our revenues have primarily been denominated in U.S. dollars, and the majority of our current revenues continue to be, and are expected to remain, denominated in U.S. dollars. However, our operating expenses are generally denominated in the currencies of the countries in which our operations are located, and we have operations in countries other than the United States, primarily those operations related to our digital business. As a result, we have operating expense, attributable to foreign currency, that is primarily related to the operations related to our digital business. We had a foreign currency loss of $0.6 million for the three-month period ended March 31, 2021 compared to a foreign currency loss of $1.5 million for the three-month period ended March 31, 2020. Foreign currency loss was primarily due to currency fluctuations that affected our digital segment operations located outside the United States.

Other operating gain. Other operating gain increased to $1.9 million for the three-month period ended March 31, 2021 from $0.8 million for the three-month period ended March 31, 2020, primarily due to gains in connection with the required relocation of certain television stations to a different channel as part of the broadcast television repack following the FCC auction for broadcast spectrum that concluded in 2017.

Impairment. During the three-month period ended March 31, 2021 we recorded an impairment charge of $1.3 million related to assets held for sale. Due to the continuing economic crisis resulting from the COVID-19 pandemic, we experienced a decline in performance across all our reporting units beginning late in the first quarter of 2020. Additionally, our digital reporting unit was already facing declining results prior to the onset of the pandemic, caused by continuing competitive pressures and rapid changes in the digital advertising industry, which then further accelerated late in that quarter as a result of the economic crisis brought about by the pandemic. The results of our television and radio reporting units prior to the onset of the pandemic were exceeding internal budgets, driven in large part by political advertising revenue, but declined sharply in the last few weeks of that quarter. As a result, we updated our internal forecasts of future performance and determined that triggering events had occurred during the first quarter of 2020 that required interim impairment assessments related to goodwill, indefinite lived intangible assets and long-lived assets. As a result of these assessments, we recognized impairment charges totaling $39.8 million in the three-month period ended March 31, 2020.

Operating Income (Loss). As a result of the above factors, operating income was $11.4 million for the three-month period ended March 31, 2021, compared to operating loss of $35.2 million for the three-month period ended March 31, 2020.

Interest Expense, net. Interest expense, net decreased to $1.6 million for the three-month period ended March 31, 2021 from $2.1 million for the three-month period ended March 31, 2020, a decrease of $0.5 million. This decrease was primarily due to lower principal balance and a lower interest rate.

Income Tax Benefit (Expense).  Income tax expense for the three-month period ended March 31, 2021 was $2.8 million, or 29% of our pre-tax income. Income tax benefit for the three-month period ended March 31, 2020 was $1.7 million, or 4% of our pre-tax loss.  The effective tax rate for the three-month period ended March 31, 2021 was different from our statutory rate due to foreign and state taxes, a valuation allowance on deferred tax assets in the Spanish entity of our legacy digital business, and nondeductible expenses. We compute our interim tax expense by projecting our effective tax rate for the year and applying the projected annual effective tax rate to the year to date pre-tax income from continuing operations for the reporting quarter. Additional “discrete" items (such as excess tax benefits from share based compensation) may adjust the year-to-date tax expense in the quarter in which such items occur.

32


 

Our management periodically evaluates the realizability of the deferred tax assets and, if it is determined that it is more likely than not that the deferred tax assets are realizable, adjusts the valuation allowance accordingly. Valuation allowances are established and maintained for deferred tax assets on a “more likely than not” threshold. The process of evaluating the need to maintain a valuation allowance for deferred tax assets and the amount maintained in any such allowance is highly subjective and is based on many factors, several of which are subject to significant judgment calls.

Based on our analysis, we determined that it was more likely than not that our deferred tax assets would be realized for all jurisdictions with the exception of our digital operations located in Spain.  As a result of recurring losses from our digital operations in Spain, management has determined that it is more likely than not that deferred tax assets of approximately $1.6 million at March 31, 2021 will not be realized and therefore we have established a valuation allowance on those assets.

We intend to reinvest permanently our unremitted earnings in our foreign subsidiaries, and accordingly have not provided deferred tax liabilities on those earnings. We have not yet determined an estimate of the total amount of unremitted earnings.

Segment Operations

Television

Net Revenue. 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. We generated a total of $9.6 million in retransmission consent revenue for each of the three-month periods ended March 31, 2021 and 2020.

Direct Operating Expenses. Direct operating expenses in our television segment decreased to $15.0 million for the three-month period ended March 31, 2021 from $15.8 million for the three-month period ended March 31, 2020, a decrease of approximately $0.8 million. The decrease was primarily due to decreases in salary expense associated with furloughs and layoffs that occurred in 2020, payroll tax expense and expenses associated with the decrease in advertising revenue.

Selling, General and Administrative Expenses. Selling, general and administrative expenses in our television segment decreased to $4.9 million for the three-month period ended March 31, 2021 from $5.9 million for the three-month period ended March 31, 2020, a decrease of approximately $1.0 million. The decrease was primarily due to decreases in salary expense associated with furloughs and layoffs that occurred in 2020, and payroll tax expense.

Digital

Net Revenue.  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.

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Cost of revenue.  Cost of revenue in our digital segment increased to $84.8 million for the three-month period ended March 31, 2021 from $7.3 million for the three-month period ended March 31, 2020, an increase of $77.5 million, primarily due to increased costs of revenue associated with Cisneros Interactive during the first quarter of 2021, following our acquisition of a majority interest in Cisneros Interactive during the fourth quarter of 2020, which did not incur cost of revenue for us in the comparable period ended March 31, 2020. As a percentage of digital net revenue, cost of revenue increased to 84% for the three-month period ended March 31, 2021 from 55% for the three-month period ended March 31, 2020, primarily due to our acquisition of a majority interest in Cisneros Interactive, which operates with lower margins compared to our other digital operations.

Direct operating expenses. Direct operating expenses in our digital segment increased to $4.9 million for the three-month period ended March 31, 2021 from $3.2 million for the three-month period ended March 31, 2020, an increase of $1.7 million. The increase was primarily due to our acquisition of a majority interest in Cisneros Interactive during the fourth quarter of 2020, which did not incur direct operating expenses for us in the comparable period ended March 31, 2020, partially offset by decreases in salary expense associated with furloughs and layoffs that occurred in 2020.

Selling, general and administrative expenses. Selling, general and administrative expenses in our digital segment increased to $5.9 million for the three-month period ended March 31, 2021 from $3.7 million for the three-month period ended March 31, 2020, an increase of $2.2 million. The increase was primarily due to our acquisition of a majority interest in Cisneros Interactive during the fourth quarter of 2020, which did not incur selling, general and administrative expenses for us in the comparable period ended March 31, 2020, partially offset by decreases in salary expense associated with furloughs and layoffs that occurred in 2020.

Radio

Net Revenue.  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.

Direct Operating Expenses. Direct operating expenses in our radio segment decreased to $6.7 million for the three-month period ended March 31, 2021 from $7.7 million for the three-month period ended March 31, 2020, a decrease of $1.0 million. The decrease was primarily due a decreases in salary expense associated with furloughs and layoffs that occurred in 2020, payroll tax expense and expenses associated with the decrease in advertising revenue.

Selling, General and Administrative Expenses. Selling, general and administrative expenses in our radio segment decreased to $3.0 million for the three-month period ended March 31, 2021 from $4.0 million for the three-month period ended March 31, 2020, a decrease of $1.0 million. The decrease was primarily due to decreases in salary expense associated with furloughs and layoffs that occurred in 2020 and payroll tax expense.

Liquidity and Capital Resources

While we have a history of operating losses in some periods and operating income in other periods, we also have a history of generating significant positive cash flows from our operations. We had net losses attributable to common stockholders of $3.9 million and $19.7 million for the years ended December 31, 2020 and 2019, respectively, and net income attributable to common stockholders of $12.2 million for the year ended December 31, 2018. We had positive cash flow from operations of $63.4 million, $31.5 million and $33.8 million for the years ended December 31, 2020, 2019 and 2018, respectively. We had positive cash flow from operations of $23.5 million for the three-month period ended March 31, 2021. For at least the next twelve months, we expect to fund our working capital requirements, capital expenditures and payments of principal and interest on outstanding indebtedness, with cash on hand and cash flows from operations.

We currently believe that our cash position is capable of meeting our operating and capital expenses and debt service requirements for at least the next twelve months. We believe that our position is strengthened by cash and cash equivalents on hand, in the amount of $150.0 million, and available for sale marketable securities in the additional amount of $15.8 million, as of March 31, 2021. Our liquidity is not materially impacted by the amounts held in accounts outside the United States.

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2017 Credit Facility

On November 30, 2017 (the “Closing Date”), we entered into our 2017 Credit Facility pursuant to the 2017 Credit Agreement. The 2017 Credit Facility consists of a $300.0 million senior secured Term Loan B Facility (the “Term Loan B Facility”), which was drawn in full on the Closing Date. In addition, the 2017 Credit Facility provides that we may increase the aggregate principal amount of the 2017 Credit Facility by up to an additional $100.0 million plus the amount that would result in our first lien net leverage ratio (as such term is used in the 2017 Credit Agreement) not exceeding 4.0 to 1.0, subject to us satisfying certain conditions.

Borrowings under the Term Loan B Facility were used on the Closing Date (a) to repay in full all of our and our subsidiaries’ then outstanding obligations under the previous 2013 credit agreement, or 2013 Credit Agreement, and to terminate the 2013 Credit Agreement, (b) to pay fees and expenses in connection with the 2017 Credit Facility, and (c) for general corporate purposes.

The 2017 Credit Facility is guaranteed on a senior secured basis by certain of our existing and future wholly-owned domestic subsidiaries, and is secured on a first priority basis by our and those subsidiaries’ assets.

Our borrowings under the 2017 Credit Facility bear interest on the outstanding principal amount thereof from the date when made at a rate per annum equal to either: (i) the Eurodollar Rate (as defined in the 2017 Credit Agreement) plus 2.75%; or (ii) the Base Rate (as defined in the 2017 Credit Agreement) plus 1.75%. As of December 31, 2020, the interest rate on our Term Loan B was 2.90%. The Term Loan B Facility expires on November 30, 2024 (the “Maturity Date”).

Subject to certain exceptions, the 2017 Credit Facility contains covenants that limit the ability of us and our restricted subsidiaries to, among other things:

 

incur liens on our property or assets;

 

make certain investments;

 

incur additional indebtedness;

 

consummate any merger, dissolution, liquidation, consolidation or sale of substantially all assets;

 

dispose of certain assets;

 

make certain restricted payments;

 

make certain acquisitions;

 

enter into substantially different lines of business;

 

enter into certain transactions with affiliates;

 

use loan proceeds to purchase or carry margin stock or for any other prohibited purpose;

 

change or amend the terms of our organizational documents or the organization documents of certain restricted subsidiaries in a materially adverse way to the lenders, or change or amend the terms of certain indebtedness;

 

enter into sale and leaseback transactions;

 

make prepayments of any subordinated indebtedness, subject to certain conditions; and

 

change our fiscal year, or accounting policies or reporting practices.

The 2017 Credit Facility also provides for certain customary events of default, including the following:

 

default for three (3) business days in the payment of interest on borrowings under the 2017 Credit Facility when due;

 

default in payment when due of the principal amount of borrowings under the 2017 Credit Facility;

 

failure by us or any subsidiary to comply with the negative covenants and certain other covenants relating to maintaining the legal existence of the Company and certain of its restricted subsidiaries and compliance with anti-corruption laws;

 

failure by us or any subsidiary to comply with any of the other agreements in the 2017 Credit Agreement and related loan documents that continues for thirty (30) days (or ten (10) days in the case of failure to comply with covenants related to inspection rights of the administrative agent and lenders and permitted uses of proceeds from borrowings under the 2017 Credit Facility) after our officers first become aware of such failure or first receive written notice of such failure from any lender;

 

default in the payment of other indebtedness if the amount of such indebtedness aggregates to $15.0 million or more, or failure to comply with the terms of any agreements related to such indebtedness if the holder or holders of such indebtedness can cause such indebtedness to be declared due and payable;

 

certain events of bankruptcy or insolvency with respect to us or any significant subsidiary;

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final judgment is entered against us or any restricted subsidiary in an aggregate amount over $15.0 million, and either enforcement proceedings are commenced by any creditor or there is a period of thirty (30) consecutive days during which the judgment remains unpaid and no stay is in effect;

 

any material provision of any agreement or instrument governing the 2017 Credit Facility ceases to be in full force and effect; and

 

any revocation, termination, substantial and adverse modification, or refusal by final order to renew, any media license, or the requirement (by final non-appealable order) to sell a television or radio station, where any such event or failure is reasonably expected to have a material adverse effect.

The Term Loan B Facility does not contain any financial covenants. In connection with our entering into the 2017 Credit Agreement, we and our restricted subsidiaries also entered into a Security Agreement, pursuant to which we and the Credit Parties each granted a first priority security interest in the collateral securing the 2017 Credit Facility for the benefit of the lenders under the 2017 Credit Facility.

On April 30, 2019, we entered into an amendment to the 2017 Credit Agreement, which became effective on May 1, 2019.

The 2017 Credit Agreement contains a covenant that we deliver our financial statements and certain other information for each fiscal year within 90 days after the end of each fiscal year. As a result of our expanding business operations, primarily related to the acquisition of a majority interest in Cisneros Interactive, we did not deliver our financial statements for the year ended December 31, 2020 and other information within 90 days after the end of the fiscal year ended December 31, 2020, and therefore we did not satisfy the requirement of this covenant in the 2017 Credit Agreement. However, the 2017 Credit Agreement provides an additional period of 30 days for us to satisfy such covenant. On April 12, 2021, we filed our 2020 10-K with the SEC. We believe we are in compliance with all covenants in the 2017 Credit Agreement and have satisfied the requirements of the 2017 Credit Agreement with respect to the delivery of our financial statements and other information for the fiscal year ended December 31, 2020.

The carrying amount of the Term Loan B Facility as of March 31, 2021 was $212.8 million, net of $1.7 million of unamortized debt issuance costs and original issue discount. The estimated fair value of the Term Loan B Facility as of March 31, 2021 was $203.8 million. The estimated fair value is based on quoted prices in markets where trading occurs infrequently.

Share Repurchase Program

On July 13, 2017, our Board of Directors approved a share repurchase program of up to $15.0 million of our outstanding Class A common stock. On April 11, 2018, our Board of Directors approved the repurchase of up to an additional $15.0 million of our outstanding Class A common stock, for a total repurchase authorization of up to $30.0 million. On August 27, 2019, the Board of Directors approved the repurchase of up to an additional $15.0 million of the Company’s Class A common stock, for a total repurchase authorization of up to $45.0 million. Under the share repurchase program, we are authorized to purchase shares from time to time through open market purchases or negotiated purchases, subject to market conditions and other factors. The share repurchase program may be suspended or discontinued at any time without prior notice. On March 26, 2020, we suspended share repurchases under the plan in order to preserve cash during the continuing economic crisis resulting from the COVID-19 pandemic.

In the three-month period ended March 31, 2021, we did not repurchase any shares of our Class A common stock. As of March 31, 2021, we have repurchased a total of approximately 8.6 million shares of Class A common stock at an average price per share of $3.76, for an aggregate purchase price of approximately $32.2 million. All repurchased shares were retired as of March 31, 2021.

Consolidated Adjusted EBITDA

Consolidated adjusted EBITDA (as defined below) increased to $14.2 million for the three-month period ended March 31, 2021 compared to $9.7 million for the three-month period ended March 31, 2020. As a percentage of net revenue, consolidated adjusted EBITDA decreased to 10% for the three-month period ended March 31, 2021 compared to 15% for the three-month period ended March 31, 2020.

Consolidated adjusted EBITDA, as defined in our 2017 Credit Agreement, 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 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. 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), 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.

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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. For a reconciliation of consolidated adjusted EBITDA to cash flows from operating activities, its most directly comparable GAAP financial measure, please see page 30.

Cash Flow

Net cash flow provided by operating activities was $23.5 million for the three-month period ended March 31, 2021 compared to net cash flow provided by operating activities of $12.0 million for the three-month period ended March 31, 2020. We had net income of $7.0 million for the three-month period ended March 31, 2021, which included non-cash items such as deferred income taxes of $3.0 million, depreciation and amortization expense of $5.2 million, and non-cash stock-based compensation of $1.1 million. We had a net loss of $35.6 million for the three-month period ended March 31, 2020, which included non-cash items such as impairment loss of $39.8 million, depreciation and amortization expense of $4.5 million and non-cash stock-based compensation of $0.8 million. We expect to have positive cash flow from operating activities for the 2021 year.

 

Net cash flow provided by investing activities was $10.3 million for the three-month period ended March 31, 2021, compared to net cash flow provided by investing activities of $13.8 million for the three-month period ended March 31, 2020. During the three-month period ended March 31, 2021, we had proceeds of $12.1 million from the maturity of marketable securities and spent $1.8 million in net capital expenditures. During the three-month period ended March 31, 2020, we had proceeds of $16.6 million from the maturity of marketable securities, spent $2.7 million in net capital expenditures and spent $0.2 million to purchase intangible assets. We anticipate that our capital expenditures will be approximately $8.0 million during the full year 2021. Of this amount, we expect that approximately $0.2 million will be expended in connection with the required relocation of certain of our television stations to a different channel as part of the broadcast television repack following the FCC auction for broadcast spectrum that concluded in 2017, which amount we expect to be reimbursed to us by the FCC. The amount of our anticipated capital expenditures may change based on future changes in business plans and our financial condition and general economic conditions. We expect to fund capital expenditures with cash on hand and net cash flow from operations.

Net cash flow used in financing activities was $2.9 million for the three-month period ended March 31, 2021, compared to net cash flow used in financing activities of $5.5 million for the three-month period ended March 31, 2020. During the three-month period ended March 31, 2021, we made dividend payments of $2.1 million and debt payments of $0.8 million. During the three-month period ended March 31, 2020, we made dividend payments of $4.2 million, principal debt repayments of $0.8 million, and spent $0.5 million for the repurchase of Class A common stock.

37


 

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

General

Market risk represents the potential loss that may impact our financial position, results of operations or cash flows due to adverse changes in the financial markets. We are exposed to market risk from changes in the base rates on our Term Loan B.

Interest Rates

As of March 31, 2021, we had $214.5 million of variable rate bank debt outstanding under our 2017 Credit Facility. The debt bears interest at the three-month Eurodollar rate plus a margin of 2.75%.

Because our debt is subject to interest at a variable rate, our earnings will be affected in future periods by changes in interest rates. If the Eurodollar were to increase by a hypothetical 100 basis points, or one percentage point, from its March 31, 2021 level, our annual interest expense would increase and cash flow from operations would decrease by approximately $2.1 million based on the outstanding balance of our term loan as of March 31, 2021.

Foreign Currency

We have foreign currency risks related to our revenue and operating expenses denominated in currencies other than the U.S. dollar. Historically, our revenues have primarily been denominated in U.S. dollars, and the majority of our current revenues continue to be, and are expected to remain, denominated in U.S. dollars. However, we have operations in countries other than the United States, primarily related to our digital business, and as a result we expect an increasing portion of our future revenues to be denominated in currencies other than the U.S. dollar, primarily the Mexican peso, Argentine peso and various other Latin American currencies. The effect of an immediate and hypothetical 10% adverse change in foreign exchange rates on foreign-denominated accounts receivable at March 31, 2021 would not be material to our overall financial condition or consolidated results of operations. Our operating expenses are generally denominated in the currencies of the countries in which our operations are located, primarily the United States and, to a much lesser extent, Spain, Mexico, Argentina and other Latin American countries. Increases and decreases in our foreign-denominated revenue from movements in foreign exchange rates are partially offset by the corresponding decreases or increases in our foreign-denominated operating expenses.

Based on recent inflation trends, the economy in Argentina has been classified as highly inflationary. As a result, we applied the guidance in ASC 830 by remeasuring non-monetary assets and liabilities at historical exchange rates and monetary-assets and liabilities using current exchange rates (see Note 2 to Notes to Consolidated Financial Statements).

As our operations grow, our risks associated with fluctuation in currency rates will become greater, and we will continue to reassess our approach to managing this risk. In addition, currency fluctuations or a weakening U.S. dollar can increase the amount of operating expense of our international operations, which are primarily related to our digital business. To date, we have not entered into any foreign currency hedging contracts, since exchange rate fluctuations historically have not had a material impact on our operating results and cash flows.

ITEM 4.

CONTROLS AND PROCEDURES

We conducted an evaluation, under the supervision and with the participation of management, including our chief executive officer and chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this quarterly report. Based on this evaluation, our chief executive officer and chief financial officer concluded that, as of the evaluation date, our disclosure controls and procedures were not effective due to material weaknesses in our internal control over financial reporting identified in our 2020 10-K for the year ended December 31, 2020, as described below.  

Notwithstanding the conclusion that our disclosure controls and procedures were not effective as of the end of the period covered by this report, we believe that our consolidated financial statements and other information contained in this quarterly report present fairly, in all material respects, our business, financial condition and results of operations for the interim periods presented.

Material Weakness

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company's annual or interim financial statements will not be prevented or detected on a timely basis.  

38


 

As previously disclosed in our 2020 10-K, as a result of our expanding business operations and geographic scope, primarily related to our acquisition of a majority interest in Cisneros Interactive in October 2020, we have experienced a significant increase in the volume of accounting transactions, the number of jurisdictions in which we operate and the number of control activities necessary to properly present consolidated results. Cisneros Interactive operates in multiple countries, uses multiple currencies and, prior to the acquisition, was a private company with limited accounting and financial reporting personnel and other resources with which to address its internal controls and procedures.  Our acquisition was completed late in the year and there was a lack of sufficient accounting resources to appropriately address this increase in necessary control activities, which resulted in the following material weaknesses:

 

A material weakness related to opening balance sheet amounts related to our acquisition of Cisneros Interactive.

 

A material weakness over the revenue cycle of Cisneros Interactive.

 

A material weakness related to accounts payable, accrued liabilities, income taxes, payroll expenses, and other operating expenses of Cisneros Interactive.

Although these control weaknesses did not result in any material misstatement of our consolidated financial statements for the periods presented, they could lead to a material misstatement of account balances or disclosures.  Accordingly, management has concluded that these control weaknesses constitute material weaknesses.

Management’s Plan for Remediation

With respect to the material weaknesses identified above, management has discussed them with the Audit Committee, and we are formulating a remediation plan and taking certain initial steps to address the material weaknesses. In the latter regard, we are in the process of setting up and onboarding Cisneros Interactive’s enterprise reporting software to align with ours, in order to provide additional system controls.  Additionally, we are in the early stages of hiring additional accounting personnel in our corporate office as well as in certain of our foreign locations to strengthen our accounting resources to address the increase in control activities brought on by our acquisition of a majority interest in Cisneros Interactive.  

We believe that a remediation plan incorporating the measures described above, as well as any additional measures we may identify and implement, will remediate the previously-identified material weaknesses and strengthen our internal control over financial reporting.  As we continue to implement the remediation plan, we may also identify additional measures to address the material weaknesses or modify certain elements of the remediation plan. We also may implement additional changes to our internal control over financial reporting as may be appropriate in the course of remediating the material weaknesses. We will continue to review our financial reporting controls and procedures and, with the input and oversight of the Audit Committee, will continue to take steps to remedy the material weaknesses to reinforce the overall design and capability of our control environment.    

Inherent Limitations on Effectiveness of Controls

A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Because of its inherent limitations, internal control over financial reporting may not prevent or detect all control issues or misstatements.  Accordingly, our controls and procedures are designed to provide reasonable, not absolute, assurance that the objectives of our control system are met. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become adequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Changes in Internal Control

Other than changes noted above in relation to the material weaknesses identified in the fourth quarter of 2020 related to our acquisition of a majority interest in Cisneros Interactive described above, there have been no changes in our internal control over financial reporting that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

 

 

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PART II.

OTHER INFORMATION

 

ITEM 1.

We are subject to various outstanding claims and other legal proceedings that may arise in the ordinary course of business. In the opinion of management, any liability that may arise out of or with respect to these matters will not materially adversely affect our financial position, results of operations or cash flows.

 

ITEM 1A.

RISK FACTORS

None.

 

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Issuer Purchases of Equity Securities

On July 13, 2017, our Board of Directors approved a share repurchase program of up to $15.0 million of our outstanding Class A common stock. On April 11, 2018, our Board of Directors approved the repurchase of up to an additional $15.0 million of our outstanding Class A common stock, for a total repurchase authorization of up to $30.0 million. On August 27, 2019, the Board of Directors approved the repurchase of up to an additional $15.0 million of the Company’s Class A common stock, for a total repurchase authorization of up to $45.0 million. Under the share repurchase program, we are authorized to purchase shares from time to time through open market purchases or negotiated purchases, subject to market conditions and other factors. The share repurchase program may be suspended or discontinued at any time without prior notice. On March 26, 2020, we suspended share repurchases under the plan in order to preserve cash during the continuing economic crisis resulting from the COVID-19 pandemic.

In the three-month period ended March 31, 2021, we did not repurchase any shares of our Class A common stock. As of March 31, 2021, we have repurchased a total of approximately 8.6 million shares of Class A common stock at an average price per share of $3.76, for an aggregate purchase price of approximately $32.2 million. All repurchased shares were retired as of March 31, 2021.

 

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES

None.

 

ITEM 4.

MINE SAFETY DISCLOSURES

Not applicable.

 

ITEM 5.

OTHER INFORMATION

None.

40


 

ITEM 6.

EXHIBITS

 

  31.1*

  

Certification by the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 and Rules 13a-14 and 15d-14 under the Securities Exchange Act of 1934.

 

 

  31.2*

  

Certification by the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 and Rules 13a-14 and 15d-14 under the Securities Exchange Act of 1934.

 

 

  32*

  

Certification of Periodic Financial Report by the Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

101.INS*

  

Inline XBRL Instance Document.

 

 

101.SCH*

  

Inline XBRL Taxonomy Extension Schema Document.

 

 

101.CAL*

  

Inline XBRL Taxonomy Extension Calculation Linkbase Document.

 

 

101.LAB*

  

Inline XBRL Taxonomy Extension Label Linkbase Document.

 

 

101.PRE*

  

Inline XBRL Taxonomy Extension Presentation Linkbase Document.

 

 

101.DEF*

  

Inline XBRL Taxonomy Extension Definition Linkbase.

 

 

104

 

Cover Page Interactive Data File (formatted as Inline XBRL with applicable taxonomy extension information contained in Exhibits 101).

 

*

Filed herewith.

41


 

 

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

ENTRAVISION COMMUNICATIONS CORPORATION

 

 

 

 

By:

 

/s/ Christopher T. Young

 

 

 

Christopher T. Young

Chief Financial Officer and Treasurer

 

Date: May 7, 2021

 

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