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Section 1: 10-Q (10-Q)

evc-10q_20200630.htm
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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 JUNE 30, 2020

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 August 3, 2020, there were 59,905,386 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- AND SIX-MONTH PERIODS ENDED JUNE 30, 2020

TABLE OF CONTENTS

 

 

 

 

 

Page

Number

 

 

PART I. FINANCIAL INFORMATION

 

 

ITEM 1.

 

FINANCIAL STATEMENTS

 

4

 

 

CONSOLIDATED BALANCE SHEETS (UNAUDITED) AS OF JUNE 30, 2020 AND DECEMBER 31, 2019

 

4

 

 

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) FOR THE THREE- AND SIX-MONTH PERIODS ENDED JUNE 30, 2020 AND JUNE 30, 2019

 

5

 

 

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED) FOR THE THREE- AND SIX-MONTH PERIODS ENDED JUNE 30, 2020 AND JUNE 30, 2019

 

6

 

 

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’  EQUITY (UNAUDITED) FOR THE THREE-AND SIX-MONTH PERIODS ENDED JUNE 30, 2020 AND JUNE 30, 2019

 

7

 

 

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) FOR THE THREE- AND SIX-MONTH PERIODS ENDED JUNE 30, 2020 AND JUNE 30, 2019

 

9

 

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

10

ITEM 2.

 

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

 

28

ITEM 3.

 

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

45

ITEM 4.

 

CONTROLS AND PROCEDURES

 

45

 

 

PART II. OTHER INFORMATION

 

 

ITEM 1.

 

LEGAL PROCEEDINGS

 

47

ITEM 1A.

 

RISK FACTORS

 

47

ITEM 2.

 

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

47

ITEM 3.

 

DEFAULTS UPON SENIOR SECURITIES

 

47

ITEM 4.

 

MINE SAFETY DISCLOSURES

 

47

ITEM 5.

 

OTHER INFORMATION

 

47

ITEM 6.

 

EXHIBITS

 

48

 

 

 

 


 

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 over traditional media, such as 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 weakness 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 31 of our Annual Report on Form 10-K for the year ended December 31, 2019 and beginning on page 42 of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020.  

 

 

 

3


 

PART I

FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

ENTRAVISION COMMUNICATIONS CORPORATION

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(In thousands, except share and per share data)

 

 

June 30,

 

 

December 31,

 

 

2020

 

 

2019

 

ASSETS

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

Cash and cash equivalents

$

69,270

 

 

 

33,123

 

Marketable securities

 

65,098

 

 

 

91,662

 

Restricted cash

 

735

 

 

 

734

 

Trade receivables, (including related parties of $6,548 and $4,251) net of allowance for doubtful accounts of $3,683 and $2,890

 

51,706

 

 

 

71,406

 

Assets held for sale

 

3,099

 

 

 

950

 

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

 

16,586

 

 

 

11,557

 

Total current assets

 

206,494

 

 

 

209,432

 

Property and equipment, net of accumulated depreciation of $188,749 and $188,579

 

74,810

 

 

 

79,642

 

Intangible assets subject to amortization, net of accumulated amortization of $101,713 and $99,819 (including related parties of $6,484 and $7,098)

 

9,752

 

 

 

16,772

 

Intangible assets not subject to amortization

 

216,853

 

 

 

252,544

 

Goodwill

 

45,711

 

 

 

46,511

 

Operating leases right of use asset

 

35,126

 

 

 

43,837

 

Other assets

 

7,428

 

 

 

7,462

 

Total assets

$

596,174

 

 

$

656,200

 

 

 

 

 

 

 

 

 

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 $1,918 and $2,147)

 

48,572

 

 

 

53,931

 

Operating lease liabilities

 

7,830

 

 

 

9,056

 

Total current liabilities

 

59,402

 

 

 

65,987

 

Long-term debt, less current maturities, net of unamortized debt issuance costs of $2,014 and $2,226

 

211,736

 

 

 

213,024

 

Long-term operating lease liabilities

 

32,784

 

 

 

41,387

 

Other long-term liabilities

 

3,385

 

 

 

3,371

 

Deferred income taxes

 

38,607

 

 

 

44,259

 

Total liabilities

 

345,914

 

 

 

368,028

 

 

 

 

 

 

 

 

 

Commitments and contingencies (note 6)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders' equity

 

 

 

 

 

 

 

Class A common stock, $0.0001 par value, 260,000,000 shares authorized; shares issued and outstanding 2020 59,905,386 and 2019 60,074,698

 

6

 

 

 

6

 

Class B common stock, $0.0001 par value, 40,000,000 shares authorized; shares issued and outstanding 2020 and 2019 14,927,613

 

2

 

 

 

2

 

Class U common stock, $0.0001 par value, 40,000,000 shares authorized; shares issued and outstanding 2020 and 2019 9,352,729

 

1

 

 

 

1

 

Additional paid-in capital

 

830,900

 

 

 

836,170

 

Accumulated deficit

 

(581,130

)

 

 

(547,876

)

Accumulated other comprehensive income (loss)

 

481

 

 

 

(131

)

Total stockholders' equity

 

250,260

 

 

 

288,172

 

Total liabilities and stockholders' equity

$

596,174

 

 

$

656,200

 

 

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

 

 

Six-Month Period

 

 

 

Ended June 30,

 

 

Ended June 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Net Revenue

 

$

45,116

 

 

$

69,241

 

 

$

109,365

 

 

$

133,921

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of revenue - digital media

 

 

6,447

 

 

 

8,859

 

 

 

13,794

 

 

 

16,501

 

Direct operating expenses (including related parties of $1,386, $2,007, $3,605 and $3,969) (including non-cash stock-based compensation of $104, $116, $235 and $250)

 

 

22,140

 

 

 

29,655

 

 

 

48,819

 

 

 

58,585

 

Selling, general and administrative expenses

 

 

10,897

 

 

 

13,545

 

 

 

24,488

 

 

 

27,359

 

Corporate expenses (including non-cash stock-based compensation of $699, $719, $1,357 and $1,385)

 

 

5,384

 

 

 

6,501

 

 

 

12,224

 

 

 

13,395

 

Depreciation and amortization (includes direct operating of $2,800, $2,968, $5,931 and $5,462; selling, general and administrative of $891, $1,176, $2,099 and $2,445; and corporate of $182, $162, $355 and $315) (including related parties of $307, $307, $614 and $615)

 

 

3,873

 

 

 

4,306

 

 

 

8,385

 

 

 

8,222

 

Change in fair value contingent consideration

 

 

-

 

 

 

(2,735

)

 

 

-

 

 

 

(2,376

)

Impairment charge

 

 

-

 

 

 

22,368

 

 

 

39,835

 

 

 

22,368

 

Foreign currency (gain) loss

 

 

(155

)

 

 

(82

)

 

 

1,353

 

 

 

50

 

Other operating (gain) loss

 

 

(2,030

)

 

 

(1,597

)

 

 

(2,866

)

 

 

(3,593

)

Operating income (loss)

 

 

(1,440

)

 

 

(11,579

)

 

 

(36,667

)

 

 

(6,590

)

Interest expense

 

 

(2,024

)

 

 

(3,554

)

 

 

(4,704

)

 

 

(7,044

)

Interest income

 

 

539

 

 

 

857

 

 

 

1,162

 

 

 

1,776

 

Dividend income

 

 

-

 

 

 

251

 

 

 

24

 

 

 

506

 

Income (loss) before income taxes

 

 

(2,925

)

 

 

(14,025

)

 

 

(40,185

)

 

 

(11,352

)

Income tax benefit (expense)

 

 

5,263

 

 

 

(2,252

)

 

 

6,931

 

 

 

(3,345

)

Income (loss) before equity in net income (loss) of nonconsolidated affiliate

 

 

2,338

 

 

 

(16,277

)

 

 

(33,254

)

 

 

(14,697

)

Equity in net income (loss) of nonconsolidated affiliate, net of tax

 

 

-

 

 

 

(2

)

 

 

-

 

 

 

(158

)

Net income (loss)

 

$

2,338

 

 

$

(16,279

)

 

$

(33,254

)

 

$

(14,855

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) per share, basic and diluted

 

$

0.03

 

 

$

(0.19

)

 

$

(0.39

)

 

$

(0.17

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash dividends declared per common share

 

$

0.03

 

 

$

0.05

 

 

$

0.08

 

 

$

0.10

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding, basic

 

 

84,123,530

 

 

 

85,359,998

 

 

 

84,220,649

 

 

 

85,728,820

 

Weighted average common shares outstanding, diluted

 

 

84,669,250

 

 

 

85,359,998

 

 

 

84,220,649

 

 

 

85,728,820

 

 

See Notes to Consolidated Financial Statements

5


 

ENTRAVISION COMMUNICATIONS CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)

(In thousands)

 

 

 

Three-Month Period

 

 

Six-Month Period

 

 

 

Ended June 30,

 

 

Ended June 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Net income (loss)

 

$

2,338

 

 

$

(16,279

)

 

$

(33,254

)

 

$

(14,855

)

Other comprehensive income (loss), net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in foreign currency translation

 

 

467

 

 

 

(318

)

 

 

301

 

 

 

(288

)

Change in fair value of available for sale securities

 

 

534

 

 

 

523

 

 

 

311

 

 

 

1,286

 

Total other comprehensive income (loss)

 

 

1,001

 

 

 

205

 

 

 

612

 

 

 

998

 

Comprehensive income  (loss)

 

$

3,339

 

 

$

(16,074

)

 

$

(32,642

)

 

$

(13,857

)

 

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, 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) 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

 

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

 

 

90,188

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

(15

)

 

-

 

 

-

 

 

(15

)

Stock-based compensation expense

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

803

 

 

-

 

 

-

 

 

803

 

Dividends paid

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

(2,104

)

 

-

 

 

-

 

 

(2,104

)

Change in fair value of marketable securities

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

534

 

 

534

 

Foreign currency translation gain (loss)

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

467

 

 

467

 

Net income (loss) for the three-month period-ended June 30, 2020

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

2,338

 

 

-

 

 

2,338

 

Balance, June 30, 2020

 

 

59,905,386

 

 

14,927,613

 

 

9,352,729

 

 

-

 

 

6

 

 

2

 

 

1

 

 

830,900

 

 

(581,130

)

 

481

 

 

250,260

 

 

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, 2018

 

 

63,210,531

 

 

14,927,613

 

 

9,352,729

 

 

-

 

 

6

 

 

2

 

 

1

 

 

862,299

 

 

(528,164

)

 

(1,412

)

 

332,732

 

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

 

 

25,059

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

(42

)

 

-

 

 

-

 

 

(42

)

Stock-based compensation expense

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

800

 

 

-

 

 

-

 

 

800

 

Repurchase of Class A common stock

 

 

(