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Section 1: 10-Q (10-Q)

evc-10q_20200331.htm

 

 

 

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, 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 May 4, 2020, there were 59,815,198 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, 2020

TABLE OF CONTENTS

 

 

 

 

 

Page

Number

 

 

PART I. FINANCIAL INFORMATION

 

 

ITEM 1.

 

FINANCIAL STATEMENTS

 

4

 

 

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

 

4

 

 

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2020 AND MARCH 31, 2019

 

5

 

 

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED) FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2020 AND MARCH 31, 2019

 

6

 

 

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’  EQUITY (UNAUDITED) FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2020 AND MARCH 31, 2019

 

7

 

 

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2020 AND MARCH 31, 2019

 

8

 

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

9

ITEM 2.

 

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

 

26

ITEM 3.

 

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

40

ITEM 4.

 

CONTROLS AND PROCEDURES

 

40

 

 

PART II. OTHER INFORMATION

 

 

ITEM 1.

 

LEGAL PROCEEDINGS

 

42

ITEM 1A.

 

RISK FACTORS

 

42

ITEM 2.

 

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

44

ITEM 3.

 

DEFAULTS UPON SENIOR SECURITIES

 

44

ITEM 4.

 

MINE SAFETY DISCLOSURES

 

44

ITEM 5.

 

OTHER INFORMATION

 

44

ITEM 6.

 

EXHIBITS

 

45

 

 

 

 


 

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.  

 

 

 

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,

 

 

2020

 

 

2019

 

ASSETS

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

Cash and cash equivalents

$

53,512

 

 

 

33,123

 

Marketable securities

 

74,684

 

 

 

91,662

 

Restricted cash

 

734

 

 

 

734

 

Trade receivables, (including related parties of $6,759 and $4,251) net of allowance for doubtful accounts of $3,549 and $2,890

 

63,879

 

 

 

71,406

 

Assets held for sale

 

6,878

 

 

 

950

 

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

 

15,108

 

 

 

11,557

 

Total current assets

 

214,795

 

 

 

209,432

 

Property and equipment, net of accumulated depreciation of $190,381 and $188,579

 

76,315

 

 

 

79,642

 

Intangible assets subject to amortization, net of accumulated amortization of $101,268 and $99,819 (including related parties of $6,791 and $7,098)

 

10,192

 

 

 

16,772

 

Intangible assets not subject to amortization

 

216,853

 

 

 

252,544

 

Goodwill

 

45,711

 

 

 

46,511

 

Operating leases right of use asset

 

41,759

 

 

 

43,837

 

Other assets

 

7,506

 

 

 

7,462

 

Total assets

$

613,131

 

 

$

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 $2,236 and $2,147)

 

55,557

 

 

 

53,931

 

Operating lease liabilities

 

8,802

 

 

 

9,056

 

Total current liabilities

 

67,359

 

 

 

65,987

 

Long-term debt, less current maturities, net of unamortized debt issuance costs of $2,120 and $2,226

 

212,380

 

 

 

213,024

 

Long-term operating lease liabilities

 

39,476

 

 

 

41,387

 

Other long-term liabilities

 

3,611

 

 

 

3,371

 

Deferred income taxes

 

42,068

 

 

 

44,259

 

Total liabilities

 

364,894

 

 

 

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 59,815,198 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

 

832,216

 

 

 

836,170

 

Accumulated deficit

 

(583,468

)

 

 

(547,876

)

Accumulated other comprehensive income (loss)

 

(520

)

 

 

(131

)

Total stockholders' equity

 

248,237

 

 

 

288,172

 

Total liabilities and stockholders' equity

$

613,131

 

 

$

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

 

 

 

Ended March 31,

 

 

 

2020

 

 

2019

 

Net Revenue

 

$

64,249

 

 

$

64,680

 

 

 

 

 

 

 

 

 

 

Expenses:

 

 

 

 

 

 

 

 

Cost of revenue - digital media

 

 

7,347

 

 

 

7,642

 

Direct operating expenses (including related parties of $2,219 and $1,962) (including non-cash stock-based compensation of $131 and $134)

 

 

26,679

 

 

 

28,930

 

Selling, general and administrative expenses

 

 

13,591

 

 

 

13,814

 

Corporate expenses (including non-cash stock-based compensation of $658 and $666)

 

 

6,840

 

 

 

6,894

 

Depreciation and amortization (includes direct operating of $3,131 and $2,494; selling, general and administrative of $1,208 and $1,269; and corporate of $173 and $153) (including related parties of $307 and $308)

 

 

4,512

 

 

 

3,916

 

Change in fair value contingent consideration

 

 

-

 

 

 

359

 

Impairment charge

 

 

39,835

 

 

 

-

 

Foreign currency (gain) loss

 

 

1,508

 

 

 

132

 

Other operating (gain) loss

 

 

(836

)

 

 

(1,996

)

Operating income (loss)

 

 

(35,227

)

 

 

4,989

 

Interest expense

 

 

(2,680

)

 

 

(3,490

)

Interest income

 

 

624

 

 

 

919

 

Dividend income

 

 

23

 

 

 

255

 

Income (loss) before income taxes

 

 

(37,260

)

 

 

2,673

 

Income tax benefit (expense)

 

 

1,668

 

 

 

(1,093

)

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

 

 

(35,592

)

 

 

1,580

 

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

 

 

-

 

 

 

(156

)

Net income (loss)

 

$

(35,592

)

 

$

1,424

 

 

 

 

 

 

 

 

 

 

Basic and diluted earnings per share:

 

 

 

 

 

 

 

 

Net income (loss) per share, basic and diluted

 

$

(0.42

)

 

$

0.02

 

 

 

 

 

 

 

 

 

 

Cash dividends declared per common share

 

$

0.05

 

 

$

0.05

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding, basic

 

 

84,317,767

 

 

 

86,101,741

 

Weighted average common shares outstanding, diluted

 

 

84,317,767

 

 

 

87,152,987

 

 

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,

 

 

 

2020

 

 

2019

 

Net income (loss)

 

$

(35,592

)

 

$

1,424

 

Other comprehensive income (loss), net of tax:

 

 

 

 

 

 

 

 

Change in foreign currency translation

 

 

(166

)

 

 

30

 

Change in fair value of available for sale securities

 

 

(223

)

 

 

763

 

Total other comprehensive income (loss)

 

 

(389

)

 

 

793

 

Comprehensive income  (loss)

 

$

(35,981

)

 

$

2,217

 

 

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, 2019

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

(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

 

 

 

 

 

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

 

 

(2,098,443

)

 

-

 

 

-

 

 

2,098,443

 

 

-

 

 

-

 

 

-

 

 

(7,706

)

 

-

 

 

-

 

 

(7,706

)

Retirement of treasury stock

 

 

-

 

 

-

 

 

-

 

 

(2,098,443

)

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

Dividends paid

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

(4,271

)

 

-

 

 

-

 

 

(4,271

)

Change in fair value of marketable securities

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

763

 

 

763

 

Foreign currency translation gain (loss)

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

30

 

 

30

 

Net income (loss) for the three-month period-ended March 31, 2019

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

1,424

 

 

-

 

 

1,424

 

Balance, March 31, 2019

 

 

61,137,147

 

 

14,927,613

 

 

9,352,729

 

 

-

 

 

6

 

 

2

 

 

1

 

 

851,080

 

 

(526,740

)

 

(619

)

 

323,730

 

 

See Notes to Consolidated Financial Statements

 

 

7


 

ENTRAVISION COMMUNICATIONS CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(In thousands)

 

 

Three-Month Period

 

 

Ended March 31,

 

 

2020

 

 

2019

 

Cash flows from operating activities:

 

 

 

 

 

 

 

Net income (loss)

$

(35,592

)

 

$

1,424

 

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

 

 

 

 

 

 

 

Depreciation and amortization

 

4,512

 

 

 

3,916

 

Impairment charge

 

39,835

 

 

 

-

 

Deferred income taxes

 

(1,813

)

 

 

470

 

Non-cash interest

 

169

 

 

 

251

 

Amortization of syndication contracts

 

130

 

 

 

124

 

Payments on syndication contracts

 

(130

)

 

 

(135

)

Equity in net (income) loss of nonconsolidated affiliate

 

-

 

 

 

156

 

Non-cash stock-based compensation

 

789

 

 

 

800

 

(Gain) loss on disposal of property and equipment

 

-

 

 

 

86

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

(Increase) decrease in accounts receivable

 

7,482

 

 

 

13,657

 

(Increase) decrease in prepaid expenses and other assets

 

1,026

 

 

 

869

 

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

 

(4,394

)

 

 

(7,311

)

Net cash provided by operating activities

 

12,014

 

 

 

14,307

 

Cash flows from investing activities:

 

 

 

 

 

 

 

Purchases of property and equipment

 

(2,671

)

 

 

(6,072

)

Purchases of intangible assets

 

(155

)

 

 

-

 

Proceeds from marketable securities

 

16,617

 

 

 

10,721

 

Purchases of investments

 

-

 

 

 

(200

)

Net cash provided by (used in) investing activities

 

13,791

 

 

 

4,449

 

Cash flows from financing activities:

 

 

 

 

 

 

 

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

 

-

 

 

 

(751

)

Payments on long-term debt

 

(750

)

 

 

(750

)

Dividends paid

 

(4,218

)

 

 

(4,271

)

Repurchase of Class A common stock

 

(525

)

 

 

(7,706

)

Net cash used in financing activities

 

(5,493

)

 

 

(13,478

)

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

 

77

 

 

 

(8

)

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

 

20,389

 

 

 

5,270

 

Cash, cash equivalents and restricted cash:

 

 

 

 

 

 

 

Beginning

 

33,857

 

 

 

47,465

 

Ending

$

54,246

 

 

$

52,735

 

 

 

 

 

 

 

 

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

 

 

Cash payments for:

 

 

 

 

 

 

 

Interest

$

2,511

 

 

$

3,239

 

Income taxes

$

145

 

 

$

623

 

 

 

 

 

 

 

 

 

Supplemental disclosures of non-cash investing and financing activities:

 

 

 

 

 

 

 

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

$

1,770

 

 

$

1,460

 

Contingent consideration included in accounts payable, accrued expenses and other liabilities

$

1,641

 

 

$

8,478

 

 

See Notes to Consolidated Financial Statements


8


 

ENTRAVISION COMMUNICATIONS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

MARCH 31, 2020

 

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, 2019 included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019. 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, 2020 or any other future period.

Certain amounts in the Company’s prior year period consolidated financial statements and notes to the financial statements have been reclassified to conform to current period presentation.

 

 

2. THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES

Nature of Business

The Company is a leading global media 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, located primarily in Spain, Mexico, Argentina and other countries in Latin America, reaches a global market. Entravision’s operations encompass integrated 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, 2020, based upon the type of advertising medium, which segments are television, radio and digital. As of March 31, 2020, the Company owns and/or operates 56 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 49 operational radio stations, 38 FM and 11 AM, in 16 markets located in Arizona, California, Colorado, Florida, Nevada, New Mexico and Texas. Entravision also sells advertisements and syndicate 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 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.   

Restricted Cash

As of March 31, 2020 and December 31, 2019, 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 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.  

9


 

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, 2020 and 2019, the amount the Company paid Univision in this capacity was $2.2 million and $2.0 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 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, 2020, the amount due to the Company from Univision was $6.8 million related to the agreements for the carriage of its Univision and UniMás-affiliated television station signals. During the three-month periods ended March 31, 2020 and 2019, retransmission consent revenue accounted for approximately $9.6 and $8.8 million, respectively, of which $7.0 million and $6.7 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 FCC license with respect to television stations which are affiliates of Univision, among other things.

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 $0.8 million for each of the three-month periods ended March 31, 2020 and 2019. 

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.

As of March 31, 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, 2020, there was approximately $3.1 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 1.5 years.

10


 

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,

 

 

 

2020

 

 

2019

 

Basic earnings per share:

 

 

 

 

 

 

 

 

Numerator:

 

 

 

 

 

 

 

 

Net income (loss)

 

$

(35,592

)

 

$

1,424

 

 

 

 

 

 

 

 

 

 

Denominator:

 

 

 

 

 

 

 

 

Weighted average common shares outstanding

 

 

84,317,767

 

 

 

86,101,741

 

 

 

 

 

 

 

 

 

 

Per share:

 

 

 

 

 

 

 

 

Net income (loss) per share

 

$

(0.42

)

 

$

0.02

 

 

 

 

 

 

 

 

 

 

Diluted earnings per share:

 

 

 

 

 

 

 

 

Numerator:

 

 

 

 

 

 

 

 

Net income (loss)

 

$

(35,592

)

 

$

1,424

 

 

 

 

 

 

 

 

 

 

Denominator:

 

 

 

 

 

 

 

 

Weighted average common shares outstanding

 

 

84,317,767

 

 

 

86,101,741

 

Dilutive securities:

 

 

 

 

 

 

 

 

Stock options and restricted stock units

 

 

-

 

 

 

1,051,246

 

Diluted shares outstanding

 

 

84,317,767

 

 

 

87,152,987

 

 

 

 

 

 

 

 

 

 

Per share:

 

 

 

 

 

 

 

 

Net income (loss) per share

 

$

(0.42

)

 

$

0.02

 

 

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.

For the three-month period ended March 31, 2019 a total of 43,534 shares of dilutive securities were not included in the computation of diluted income per share because the exercise prices of the dilutive securities were greater than the average market price of the common shares.

 

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.

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 Annual Report on Form 10-K for the year ended December 31, 2019, the Company recorded impairment charges of goodwill in its digital reporting unit totaling $27.7 million during the year ended December 31, 2019. In addition, the Company recorded impairment charges of FCC licenses in its television and radio reporting units in the amount of $4.0 million and $0.2 million, respectively, during the year ended December 31, 2019.

11


 

Due to the current economic crisis resulting from the COVID-19 pandemic, the Company experienced a decline in performance across all its reporting units beginning late in the first quarter of 2020. Additionally, the 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 the quarter as a result of the economic crisis brought about from the pandemic. The results of the television and radio reporting units prior to the onset of the pandemic and the resulting economic crisis were exceeding internal budgets, driven in large part by political advertising revenue, but declined sharply in the last few weeks of the quarter.  As a result, the Company updated its internal forecasts of future performance and determined that triggering events had occurred during the first quarter of 2020 that required interim impairment assessments.

The Company conducted a review of the fair value of the television and digital reporting units in the first quarter of 2020. Although the radio unit also experienced declines, there is no goodwill in the radio reporting unit. The estimated fair value of each reporting unit assessed was determined by using a combination of a market approach and an income approach. The market approach estimates fair value by applying sales, earnings and cash flow multiples to the reporting unit’s operating performance. The multiples are derived from comparable publicly-traded companies with similar operating and investment characteristics to the Company’s reporting units. The market approach requires the Company to make a series of assumptions, such as selecting comparable companies and comparable transactions and transaction premiums.

The income approach estimates fair value based on the estimated future cash flows of each reporting unit, discounted by an estimated weighted-average cost of capital that reflects current market conditions, which reflect the overall level of inherent risk of the reporting unit. The income approach also requires the Company to make a series of assumptions, such as discount rates, revenue projections, profit margin projections and terminal value multiples. The Company estimated the discount rate on a blended rate of return considering both debt and equity for comparable publicly-traded companies in the television and digital media industries. These comparable publicly-traded companies have similar size, operating characteristics and/or financial profiles to the Company’s reporting units. The Company also estimated the terminal value multiple based on comparable publicly-traded companies in the television and digital media industries. The Company estimated its revenue projections and profit margin projections based on internal forecasts about future performance.

Based on the assumptions and estimates described above, the Company concluded that the digital reporting unit carrying value exceeded its fair value, resulting in a goodwill impairment charge of $0.8 million for the three-month period ended March 31, 2020. The fair value of our television reporting unit exceeded its carrying value by 28%, resulting in no impairment charge.

The carrying amount of goodwill for each of the Company’s operating segments for the three-months ended March 31, 2020 is as follows (in thousands):

 

 

 

December 31,

2019

 

 

Currency

 

 

Impairment

 

 

March 31,

2020

 

Television

 

$

40,549

 

 

 

-

 

 

 

-

 

 

$

40,549

 

Radio

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Digital

 

 

5,962

 

 

 

-

 

 

 

(800

)

 

 

5,162

 

Consolidated

 

$

46,511

 

 

$

-

 

 

$

(800

)

 

$

45,711

 

 

The Company also conducted a review of certain of the indefinite life intangible assets in its television and radio reporting units using an income approach. The income approach estimates fair value based on the estimated future cash flows of the station that a hypothetical buyer would expect to generate, discounted by an estimated weighted-average cost of capital that reflects current market conditions, which reflect the overall level of inherent risk. The income approach requires the Company to make a series of assumptions, such as discount rates, revenue projections, and profit margin projections. The Company estimates the discount rates on a blended rate of return considering both debt and equity for comparable publicly-traded companies in the television industry. These comparable publicly-traded companies have similar size, operating characteristics and/or financial profiles to the Company. The Company estimated the revenue projections and profit margin projections based on industry information for an average station within the market, as adjusted by the Company to reflect current market conditions. The information includes such things as estimated market share, estimated capital start-up costs, population, household income, retail sales and other expenditures that would influence advertising expenditures.

Based on the assumptions and estimates described above, the carrying values of certain FCC licenses exceeded their fair values. As a result, the Company recorded impairment charges of FCC licenses in its television and radio reporting units in the amount of $23.5 million and $8.8 million, respectively, during the three-month period ended March 31, 2020.     

12


 

The carrying amount of intangible assets not subject to amortization for each of the Company’s operating segments for the three-months ended March 31, 2020 is as follows (in thousands):

 

 

 

December 31,

2019

 

 

Impairment

 

 

Transfer to Assets Held for Sale

 

 

March 31,

2020

 

Television

 

$

157,165

 

 

$

(23,457

)

 

$

(3,434

)

 

$

130,274

 

Radio

 

 

95,379

 

 

 

(8,800

)

 

 

-

 

 

 

86,579

 

Digital

 

-

 

 

 

-

 

 

 

-

 

 

-

 

Consolidated

 

$

252,544

 

 

$

(32,257

)

 

$

(3,434

)

 

$

216,853

 

 

The Company also conducted a review of certain of its long-lived assets using a two-step approach. In the first step, the carrying value of the asset group is compared to the projected undiscounted cash flows to determine recoverability.  If the asset carrying value is not recoverable, then the fair value of the asset group is determined in the second step using an income approach.  The income approach requires the Company to make a series of assumptions, such as discount rates, revenue projections, profit margin projections and useful lives.

Based on the assumptions and estimates described above, the carrying values of long-lived assets in the digital reporting unit exceeded their fair values. As a result, the Company recorded impairment charges related to Intangibles subject to amortization of $5.3 million, and property and equipment of $1.5 million, during the three-month period ended March 31, 2020.

 

 

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 plans in order to preserve cash during the current 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, 2020, the Company repurchased 0.3 million shares of Class A common stock at an average price of $2.02, for an aggregate purchase price of approximately $0.5 million. As of March 31, 2020, the Company has repurchased a total of approximately 8.6 million shares of Class A common stock, for an aggregate purchase price of approximately $32.2 million, or an average price per share of $3.76, since the beginning of the share repurchase program. As of March 31, 2020, all such repurchased shares were retired.

 

 

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.

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.

13


 

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;

 

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;

14


 

 

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