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ENTRAVISION COMMUNICATIONS CORP - Quarter Report: 2023 September (Form 10-Q)

10-Q

 

(

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 SEPTEMBER 30, 2023

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 October 30, 2023, there were 78,644,012 shares, $0.0001 par value per share, of the registrant’s Class A common stock outstanding, 0 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 NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2023

TABLE OF CONTENTS

 

 

 

 

 

Page

Number

 

 

PART I. FINANCIAL INFORMATION

 

 

ITEM 1.

 

FINANCIAL STATEMENTS

 

4

 

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) AS OF SEPTEMBER 30, 2023 AND DECEMBER 31, 2022

 

4

 

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) FOR THE THREE- AND NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2023 AND SEPTEMBER 30, 2022

 

5

 

 

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED) FOR THE THREE- AND NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2023 AND SEPTEMBER 30, 2022

 

6

 

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED) FOR THE THREE- AND NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2023 AND SEPTEMBER 30, 2022

 

7

 

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2023 AND SEPTEMBER 30, 2022

 

9

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

10

ITEM 2.

 

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

 

34

ITEM 3.

 

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

48

ITEM 4.

 

CONTROLS AND PROCEDURES

 

48

 

PART II. OTHER INFORMATION

 

 

ITEM 1.

 

LEGAL PROCEEDINGS

 

50

ITEM 1A.

 

RISK FACTORS

 

50

ITEM 2.

 

UNREGISTERED SALES OF EQUITY SECURITIES, USE OF PROCEEDS, AND ISSUER PURCHASES OF EQUITY SECURITIES

 

50

ITEM 3.

 

DEFAULTS UPON SENIOR SECURITIES

 

50

ITEM 4.

 

MINE SAFETY DISCLOSURES

 

50

ITEM 5.

 

OTHER INFORMATION

 

50

ITEM 6.

 

EXHIBITS

 

51

 

 

 

 


 

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” 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 and restated as of March 17, 2023 (the "2023 Credit Agreement"), which governs our current credit facility (the "2023 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 2023 Credit Agreement, including compliance with financial covenants and ratios thereunder;
rapid changes in the digital advertising industry;
the impact of changing preferences 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 impact of existing and possible additional legislative and/or regulatory action, in various jurisdictions around the world, with respect to the digital media and digital advertising industries;
the impact of possible legislative and/or regulatory action, in various jurisdictions around the world, with respect to artificial intelligence, or AI, and/or similar technologies, which we use and may use in our digital operations;
the impact of existing and possible additional legislative and/or regulatory action, as well as evolving industry standards and controls, on data privacy; the collection and use of personal identifying information; or PII; and other protections for online users of Internet-connected devices;
the ability to integrate successfully recently acquired businesses, primarily those in our digital segment, into our operations;
the ability of management to oversee the rapid global expansion of our digital operations;
the ability to hire and retain qualified personnel to manage the day-to-day operations of our digital properties throughout the world, as well as local management to establish and maintain internal financial and reporting systems that are of the type required of U.S. public companies;
cancellations or reductions of advertising due to the then current economic environment or otherwise;
changes in advertising rates due to the then-current economic environment or otherwise;
the impact of rigorous competition in Spanish-language and digital media and in the advertising industry generally;
the impact of changing preferences among U.S. Hispanic audiences for Spanish-language programming, especially among younger age groups;
the possible impact on our business as a result of changes in the way market share is measured by third parties;
our relationship with TelevisaUnivision, Inc., or TelevisaUnivision;

2


 

the extent to which we continue to generate revenue under retransmission consent agreements;
subject to restrictions contained in the 2023 Credit Agreement, the overall success of our acquisition strategy and the integration of any acquired assets or businesses with our existing operations;
industry-wide market factors and regulatory and other developments affecting our operations;
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 as a result of the pandemic;
our dependence upon a single global media company for the majority of our revenue, which dependence we expect to continue;
the effect inflation may have on decision-making by our advertisers to place ads with or through us across our operating segments;
the effectiveness with which we handle credit risk in our digital segment insofar as we are required to pay the media companies for which we act as commercial partner for all inventory purchased regardless of whether we are able to collect on a transaction from the local advertiser or its ad agency;
the impact of a strengthening U.S. dollar on our overseas operations, including but not limited to our exposure between the time that we invoice in local currency and deposit the related collections into U.S. dollar-denominated accounts;
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 rapidly expanding 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 being 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 38 of our Annual Report on Form 10-K for the year ended December 31, 2022 (our “2022 10-K”).

3


 

PART I

FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

ENTRAVISION COMMUNICATIONS CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(In thousands, except share and per share data)

 

 

 

September 30,

 

 

December 31,

 

 

 

2023

 

 

2022

 

ASSETS

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

Cash and cash equivalents

 

$

110,624

 

 

$

110,691

 

Marketable securities

 

 

18,063

 

 

 

44,528

 

Restricted cash

 

 

765

 

 

 

753

 

Trade receivables, (including related parties of $10,334 and $5,814) net of allowance for doubtful accounts of $7,346 and $6,572

 

 

211,175

 

 

 

224,713

 

Assets held for sale

 

 

1,223

 

 

 

-

 

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

 

 

43,404

 

 

 

27,238

 

Total current assets

 

 

385,254

 

 

 

407,923

 

Property and equipment, net of accumulated depreciation of $199,275 and $194,448

 

 

67,750

 

 

 

61,362

 

Intangible assets subject to amortization, net of accumulated amortization of $85,058 and $75,992 (including related parties of $3,017 and $3,714)

 

 

55,706

 

 

 

61,811

 

Intangible assets not subject to amortization

 

 

207,453

 

 

 

207,453

 

Goodwill

 

 

90,672

 

 

 

86,991

 

Deferred income taxes

 

 

2,591

 

 

 

2,591

 

Operating leases right of use asset

 

 

45,159

 

 

 

44,413

 

Other assets

 

 

21,550

 

 

 

8,297

 

Total assets

 

$

876,135

 

 

$

880,841

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

Current maturities of long-term debt

 

$

8,643

 

 

$

5,256

 

Accounts payable and accrued expenses (including related parties of $1,222 and $1,215)

 

 

240,417

 

 

 

237,415

 

Operating lease liabilities

 

 

7,150

 

 

 

5,570

 

Total current liabilities

 

 

256,210

 

 

 

248,241

 

Long-term debt, less current maturities, net of unamortized debt issuance costs of $1,180 and $1,221

 

 

201,301

 

 

 

207,292

 

Long-term operating lease liabilities

 

 

46,849

 

 

 

42,151

 

Other long-term liabilities

 

 

17,294

 

 

 

30,198

 

Deferred income taxes

 

 

68,464

 

 

 

67,590

 

Total liabilities

 

 

590,118

 

 

 

595,472

 

Commitments and contingencies (note 6)

 

 

 

 

 

 

Redeemable noncontrolling interest

 

 

47,301

 

 

 

-

 

Stockholders' equity

 

 

 

 

 

 

Class A common stock, $0.0001 par value, 260,000,000 shares authorized; shares issued and outstanding at September 30, 2023 78,644,012 and December 31, 2022 78,172,827

 

 

8

 

 

 

8

 

Class B common stock, $0.0001 par value, 40,000,000 shares authorized; shares issued and outstanding at September 30, 2023 and December 31, 2022 0

 

 

-

 

 

 

-

 

Class U common stock, $0.0001 par value, 40,000,000 shares authorized; shares issued and outstanding at September 30, 2023 and December 31, 2022 9,352,729

 

 

1

 

 

 

1

 

Additional paid-in capital

 

 

742,040

 

 

 

776,298

 

Accumulated deficit

 

 

(501,604

)

 

 

(504,375

)

Accumulated other comprehensive income (loss)

 

 

(1,729

)

 

 

(1,510

)

Total stockholders' equity

 

 

238,716

 

 

 

270,422

 

Noncontrolling interest

 

 

-

 

 

 

14,947

 

Total equity

 

 

238,716

 

 

 

285,369

 

Total liabilities and equity

 

$

876,135

 

 

$

880,841

 

See Notes to Condensed Consolidated Financial Statements

 


 

ENTRAVISION COMMUNICATIONS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

(In thousands, except share and per share data)

 

 

 

Three-Month Period

 

 

Nine-Month Period

 

 

 

Ended September 30,

 

 

Ended September 30,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Net Revenue

 

$

274,417

 

 

$

241,014

 

 

$

786,804

 

 

$

659,881

 

Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Cost of revenue - digital

 

 

199,289

 

 

 

157,095

 

 

 

562,881

 

 

 

431,951

 

Direct operating expenses (including related parties of $1,523, $2,029, $4,487 and $5,357) (including non-cash stock-based compensation of $2,637, $981, $7,218 and $2,878)

 

 

31,855

 

 

 

30,086

 

 

 

94,782

 

 

 

87,505

 

Selling, general and administrative expenses

 

 

21,954

 

 

 

19,208

 

 

 

68,287

 

 

 

53,022

 

Corporate expenses (including non-cash stock-based compensation of $4,395, $1,805, $9,835 and $5,117)

 

 

13,292

 

 

 

9,525

 

 

 

35,836

 

 

 

26,769

 

Depreciation and amortization (including related parties of $232, $232, $696 and $695)

 

 

7,356

 

 

 

6,554

 

 

 

20,336

 

 

 

19,212

 

Change in fair value of contingent consideration

 

 

(5,997

)

 

 

734

 

 

 

(8,939

)

 

 

6,810

 

Impairment charge

 

 

989

 

 

 

-

 

 

 

989

 

 

 

-

 

Foreign currency (gain) loss

 

 

548

 

 

 

1,966

 

 

 

289

 

 

 

2,112

 

Other operating (gain) loss

 

 

-

 

 

 

(58

)

 

 

-

 

 

 

(1,011

)

Operating income (loss)

 

 

5,131

 

 

 

15,904

 

 

 

12,343

 

 

 

33,511

 

Interest expense

 

 

(4,454

)

 

 

(3,055

)

 

 

(12,788

)

 

 

(7,225

)

Interest income

 

 

1,558

 

 

 

788

 

 

 

3,455

 

 

 

1,916

 

Dividend income

 

 

-

 

 

 

6

 

 

 

32

 

 

 

20

 

Realized gain (loss) on marketable securities

 

 

(33

)

 

 

(473

)

 

 

(94

)

 

 

(473

)

Gain (loss) on debt extinguishment

 

 

-

 

 

 

-

 

 

 

(1,556

)

 

 

-

 

Income (loss) before income taxes

 

 

2,202

 

 

 

13,170

 

 

 

1,392

 

 

 

27,749

 

Income tax benefit (expense)

 

 

530

 

 

 

(4,080

)

 

 

1,038

 

 

 

(8,305

)

Net income (loss)

 

 

2,732

 

 

 

9,090

 

 

 

2,430

 

 

 

19,444

 

Net (income) loss attributable to redeemable noncontrolling interest

 

 

(13

)

 

 

-

 

 

 

(1

)

 

 

-

 

Net (income) loss attributable to noncontrolling interest

 

 

-

 

 

 

303

 

 

 

342

 

 

 

303

 

Net income (loss) attributable to common stockholders

 

$

2,719

 

 

$

9,393

 

 

$

2,771

 

 

$

19,747

 

Basic and diluted earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

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

 

$

0.03

 

 

$

0.11

 

 

$

0.03

 

 

$

0.23

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash dividends declared per common share

 

$

0.05

 

 

$

0.03

 

 

$

0.15

 

 

$

0.08

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding, basic

 

 

87,995,567

 

 

 

84,945,873

 

 

 

87,803,770

 

 

 

85,469,675

 

Weighted average common shares outstanding, diluted

 

 

89,888,721

 

 

 

87,417,501

 

 

 

89,835,363

 

 

 

87,671,726

 

 

See Notes to Condensed Consolidated Financial Statements

5


 

ENTRAVISION COMMUNICATIONS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)

(In thousands)

 

 

 

Three-Month Period

 

 

Nine-Month Period

 

 

 

Ended September 30,

 

 

Ended September 30,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Net income (loss)

 

$

2,732

 

 

$

9,090

 

 

$

2,430

 

 

$

19,444

 

Other comprehensive income (loss), net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

Change in foreign currency translation

 

 

(408

)

 

 

(23

)

 

 

(463

)

 

 

(66

)

Change in fair value of marketable securities

 

 

17

 

 

 

551

 

 

 

244

 

 

 

(982

)

Total other comprehensive income (loss)

 

 

(391

)

 

 

528

 

 

 

(219

)

 

 

(1,048

)

Comprehensive income (loss)

 

 

2,341

 

 

 

9,618

 

 

 

2,211

 

 

 

18,396

 

Comprehensive (income) loss attributable to redeemable noncontrolling interests

 

 

(13

)

 

 

-

 

 

 

(1

)

 

 

-

 

Comprehensive (income) loss attributable to noncontrolling interests

 

 

-

 

 

 

303

 

 

 

342

 

 

 

303

 

Comprehensive income (loss) attributable to common stockholders

 

$

2,328

 

 

$

9,921

 

 

$

2,552

 

 

$

18,699

 

 

See Notes to Condensed Consolidated Financial Statements

 

 

6


 

ENTRAVISION COMMUNICATIONS CORPORATION

CONDENSED 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

 

Noncontrolling

 

 

 

 

 

Class A

 

Class B

 

Class U

 

Stock

 

A

 

B

 

U

 

Capital

 

Deficit

 

Income (Loss)

 

Interest

 

Total

 

Balance, December 31, 2022

 

 

78,172,827

 

 

-

 

 

9,352,729

 

 

-

 

$

8

 

$

-

 

$

1

 

$

776,298

 

$

(504,375

)

$

(1,510

)

$

14,947

 

$

285,369

 

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

 

 

164,474

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

313

 

 

-

 

 

-

 

 

-

 

 

313

 

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

 

 

19,189

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

(80

)

 

-

 

 

-

 

 

-

 

 

(80

)

Stock-based compensation expense

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

4,053

 

 

-

 

 

-

 

 

-

 

 

4,053

 

Dividends paid

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

(4,386

)

 

-

 

 

-

 

 

-

 

 

(4,386

)

Distributions to noncontrolling interest

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

(546

)

 

(546

)

Change in fair value of marketable securities

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

103

 

 

-

 

 

103

 

OCI release due to realized gain (loss) on marketable securities

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

23

 

 

-

 

 

23

 

Foreign currency translation gain (loss)

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

16

 

 

-

 

 

16

 

Net income (loss) attributable to common stockholders

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

2,041

 

 

-

 

 

(342

)

 

1,699

 

Balance, March 31, 2023

 

 

78,356,490

 

 

-

 

 

9,352,729

 

 

-

 

 

8

 

 

-

 

 

1

 

 

776,198

 

 

(502,334

)

 

(1,368

)

 

14,059

 

 

286,564

 

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

 

 

260,527

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

241

 

 

-

 

 

-

 

 

-

 

 

241

 

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

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

(15

)

 

-

 

 

-

 

 

-

 

 

(15

)

Stock-based compensation expense

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

5,968

 

 

-

 

 

-

 

 

-

 

 

5,968

 

Dividend paid

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

(4,396

)

 

-

 

 

-

 

 

-

 

 

(4,396

)

Distributions to noncontrolling interest

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

(3,810

)

 

(3,810

)

Change in fair value of marketable securities

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

79

 

 

-

 

 

79

 

OCI release due to realized gain (loss) on marketable securities

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

22

 

 

-

 

 

22

 

Foreign currency translation gain (loss)

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

(71

)

 

-

 

 

(71

)

Acquisition of noncontrolling interest

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

(750

)

 

-

 

 

-

 

 

(624

)

 

(1,374

)

Accounting for Adsmurai transaction

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

(37,675

)

 

-

 

 

-

 

 

(9,625

)

 

(47,300

)

Net income (loss) attributable to common stockholders

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

(1,989

)

 

-

 

 

-

 

 

(1,989

)

Balance, June 30, 2023

 

 

78,617,017

 

 

-

 

 

9,352,729

 

 

-

 

$

8

 

$

-

 

$

1

 

$

739,571

 

$

(504,323

)

$

(1,338

)

$

-

 

$

233,919

 

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

 

 

26,995

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

(63

)

 

-

 

 

-

 

 

-

 

 

(63

)

Stock-based compensation expense

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

7,032

 

 

-

 

 

-

 

 

-

 

 

7,032

 

Dividends paid

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

(4,400

)

 

-

 

 

-

 

 

-

 

 

(4,400

)

Dividends payable

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

(100

)

 

-

 

 

-

 

 

-

 

 

(100

)

Change in fair value of marketable securities

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

(11

)

 

-

 

 

(11

)

OCI release due to realized gain (loss) on marketable securities

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

28

 

 

-

 

 

28

 

Foreign currency translation gain (loss)

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

(408

)

 

-

 

 

(408

)

Accounting for Adsmurai transaction

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

Net income (loss) attributable to common stockholders

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

2,719

 

 

-

 

 

-

 

 

2,719

 

Balance, September 30, 2023

 

 

78,644,012

 

 

-

 

 

9,352,729

 

 

-

 

$

8

 

$

-

 

$

1

 

$

742,040

 

$

(501,604

)

$

(1,729

)

$

-

 

$

238,716

 

 

See Notes to Condensed Consolidated Financial Statements

 


 

 

 

 

Number of Common Shares

 

Common Stock

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

Treasury

 

Class

 

Class

 

Class

 

Additional
Paid-in

 

Accumulated

 

Other
Comprehensive

 

Noncontrolling

 

 

 

 

 

Class A

 

Class B

 

Class U

 

Stock

 

A

 

B

 

U

 

Capital

 

Deficit

 

Income (Loss)

 

Interest

 

Total

 

Balance, December 31, 2021

 

 

63,116,896

 

 

14,127,613

 

 

9,352,729

 

 

-

 

$

6

 

$

2

 

$

1

 

$

780,388

 

$

(522,494

)

$

(977

)

$

-

 

$

256,926

 

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

 

 

66,000

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

218

 

 

-

 

 

-

 

 

-

 

 

218

 

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

 

 

14,955

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

(257

)

 

-

 

 

-

 

 

-

 

 

(257

)

Stock-based compensation expense

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

2,573

 

 

-

 

 

-

 

 

-

 

 

2,573

 

Repurchase of Class A common stock

 

 

(1,114,470

)

 

-

 

 

-

 

 

1,114,470

 

 

-

 

 

-

 

 

-

 

 

(7,142

)

 

-

 

 

-

 

 

-

 

 

(7,142

)

Retirement of treasury stock

 

 

-

 

 

-

 

 

-

 

 

(1,114,470

)

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

Dividends paid

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

(2,167

)

 

-

 

 

-

 

 

-

 

 

(2,167

)

Change in fair value of marketable securities

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

(283

)

 

-

 

 

(283

)

Net income (loss) attributable to common stockholders

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

1,887

 

 

-

 

 

-

 

 

1,887

 

Balance, March 31, 2022

 

 

62,083,381

 

 

14,127,613

 

 

9,352,729

 

 

-

 

$

6

 

$

2

 

$

1

 

$

773,613

 

$

(520,607

)

$

(1,260

)

$

-

 

$

251,755

 

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

 

 

20,681

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

(10

)

 

-

 

 

-

 

 

-

 

 

(10

)

Stock-based compensation expense

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

2,636

 

 

-

 

 

-

 

 

-

 

 

2,636

 

Repurchase of Class A common stock

 

 

(638,531

)

 

-

 

 

-

 

 

638,531

 

 

-

 

 

-

 

 

-

 

 

(4,138

)

 

-

 

 

-

 

 

-

 

 

(4,138

)

Retirement of treasury stock

 

 

-

 

 

-

 

 

-

 

 

(638,531

)

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

Dividends paid

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

(2,124

)

 

-

 

 

-

 

 

-

 

 

(2,124

)

Change in fair value of marketable securities

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

(1,250

)

 

-

 

 

(1,250

)

Foreign currency translation gain (loss)

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

(43

)

 

-

 

 

(43

)

Net income (loss) attributable to common stockholders

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

8,467

 

 

-

 

 

-

 

 

8,467

 

Balance, June 30, 2022

 

 

61,465,531

 

 

14,127,613

 

 

9,352,729

 

 

-

 

$

6

 

$

2

 

$

1

 

$

769,977

 

$

(512,140

)

$

(2,553

)

$

-

 

$

255,293

 

Stock-based compensation expense

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

2,786

 

 

-

 

 

-

 

 

-

 

 

2,786

 

Dividends paid

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

(2,124

)

 

-

 

 

-

 

 

-

 

 

(2,124

)

Change in fair value of marketable securities

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

199

 

 

-

 

 

199

 

OCI release due to realized gain (loss) on marketable securities

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

352

 

 

-

 

 

352

 

Foreign currency translation gain (loss)

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

(23

)

 

-

 

 

(23

)

Acquisition of noncontrolling interest

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

12,897

 

 

12,897

 

Net income (loss) attributable to common stockholders

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

9,393

 

 

-

 

 

(303

)

 

9,090

 

Balance, September 30, 2022

 

 

61,465,531

 

 

14,127,613

 

 

9,352,729

 

 

-

 

$

6

 

$

2

 

$

1

 

$

770,639

 

$

(502,747

)

$

(2,025

)

$

12,594

 

$

278,470

 

 

See Notes to Condensed Consolidated Financial Statements

8


 

ENTRAVISION COMMUNICATIONS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(In thousands)

 

 

Nine-Month Period

 

 

Ended September 30,

 

 

2023

 

 

2022

 

Cash flows from operating activities:

 

 

 

 

 

Net income (loss)

$

2,430

 

 

$

19,444

 

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

 

 

 

 

 

Depreciation and amortization

 

20,336

 

 

 

19,212

 

Impairment charge

 

989

 

 

 

-

 

Deferred income taxes

 

(169

)

 

 

(3,151

)

Non-cash interest

 

264

 

 

 

1,076

 

Amortization of syndication contracts

 

358

 

 

 

348

 

Payments on syndication contracts

 

(366

)

 

 

(304

)

Non-cash stock-based compensation

 

17,053

 

 

 

7,995

 

(Gain) loss on marketable securities

 

94

 

 

 

473

 

(Gain) loss on disposal of property and equipment

 

(11

)

 

 

(599

)

(Gain) loss on debt extinguishment

 

1,556

 

 

 

-

 

Change in fair value of contingent consideration

 

(8,939

)

 

 

6,810

 

Changes in assets and liabilities:

 

 

 

 

 

(Increase) decrease in accounts receivable

 

16,261

 

 

 

22,296

 

(Increase) decrease in prepaid expenses and other current assets, operating leases right of use asset and other assets

 

(7,199

)

 

 

(183

)

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

 

26,460

 

 

 

4,725

 

Net cash provided by operating activities

 

69,117

 

 

 

78,142

 

Cash flows from investing activities:

 

 

 

 

 

Proceeds from sale of property and equipment and intangibles

 

83

 

 

 

2,671

 

Purchases of property and equipment

 

(19,881

)

 

 

(7,882

)

Purchase of a business, net of cash acquired

 

(6,930

)

 

 

-

 

Investment in variable interest entities, net of cash consolidated

 

-

 

 

 

(5,164

)

Purchases of marketable securities

 

(11,355

)

 

 

(92,480

)

Proceeds from sale of marketable securities

 

38,093

 

 

 

46,868

 

Purchases of investments

 

(300

)

 

 

-

 

Issuance of loan receivable

 

(13,636

)

 

 

-

 

Net cash used in investing activities

 

(13,926

)

 

 

(55,987

)

Cash flows from financing activities:

 

 

 

 

 

Proceeds from stock option exercises

 

554

 

 

 

218

 

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

 

(158

)

 

 

(267

)

Payments on debt

 

(214,495

)

 

 

(2,501

)

Dividends paid

 

(13,182

)

 

 

(6,415

)

Distributions to noncontrolling interest

 

(3,380

)

 

 

-

 

Repurchase of Class A common stock

 

-

 

 

 

(11,280

)

Payment of contingent consideration

 

(35,113

)

 

 

(65,340

)

Principal payments under finance lease obligation

 

(113

)

 

 

(72

)

Proceeds from borrowings on debt

 

212,420

 

 

 

-

 

Payments for debt issuance costs

 

(1,777

)

 

 

-

 

Net cash used in financing activities

 

(55,244

)

 

 

(85,657

)

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

 

(2

)

 

 

(1

)

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

 

(55

)

 

 

(63,503

)

Cash, cash equivalents and restricted cash:

 

 

 

 

 

Beginning

 

111,444

 

 

 

185,843

 

Ending

$

111,389

 

 

$

122,340

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

Cash payments for:

 

 

 

 

 

Interest

$

12,524

 

 

$

6,149

 

Income taxes

$

5,929

 

 

$

11,456

 

Supplemental disclosures of non-cash investing and financing activities:

 

 

 

 

 

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

$

1,064

 

 

$

2,377

 

Fair value of contingent consideration related to acquisitions and purchase of noncontrolling interest

$

1,854

 

 

$

-

 

Fair value of put and call option of redeemable noncontrolling interest

$

47,300

 

 

$

-

 

Dividends payable

$

100

 

 

$

-

 

See Notes to Condensed Consolidated Financial Statements

 


 

ENTRAVISION COMMUNICATIONS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

SEPTEMBER 30, 2023

 

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, 2022 included in the Company’s 2022 Annual Report on Form 10-K for the year ended December 31, 2022 (the "2022 10-K"). 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, 2023 or any other future period.

 

 

2. THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES

Nature of Business

The Company is a global advertising solutions, media and technology company. The Company's operations encompass integrated, end-to-end advertising solutions across multiple media, comprised of digital, television and audio properties. The Company's digital segment, whose operations are located in Latin America, Europe, the United States, Asia and Africa, reaches a global market, with a focus on advertisers principally in emerging economies that wish to advertise on digital platforms owned and operated primarily by global media companies. The Company's television and audio operations reach and engage primarily Hispanics in the United States. The Company's management has determined that the Company operates in three reportable segments as of September 30, 2023, based upon the type of advertising medium: digital, television and audio.

The Company's digital segment provides digital end-to-end advertising solutions that allow advertisers to reach online users worldwide. These solutions are comprised of four business units:

the Company's digital commercial partnerships business;
Smadex, the Company's programmatic ad purchasing platform;
the Company's mobile growth solutions business; and
the Company's digital audio business.

Through the Company's digital commercial partnerships business – the largest of its digital business units – the Company acts as an intermediary between primarily global media companies and advertising customers or their ad agencies. The global media companies represented by the Company include Meta Platforms, or Meta (formerly known as Facebook Inc.); X Corp., or X (formerly known as Twitter); ByteDance Ltd., or ByteDance, which owns the TikTok platform; and Spotify AB, or Spotify, as well as other media companies, in 40 countries throughout the world. The Company's dedicated local sales teams sell advertising space on these media companies' digital platforms to its advertising customers or their ad agencies for the placement of ads directed to online users of a wide range of Internet-connected devices. The Company also provides some of its advertising customers billing, technological and other support, including strategic marketing and training, which it refers to as managed services.

Smadex is the Company's programmatic ad purchasing platform, on which advertisers can purchase ad inventory. This business – the purchase and sale of advertising inventory electronically – is referred to in the Company's industry as programmatic advertising. Smadex is also a “demand-side" platform, which allows advertisers to purchase space from online marketplaces on which media companies list their advertising inventory. Most advertisements acquired through Smadex are placed on mobile devices, but they may also be placed on computers and Internet-connected televisions. The Company also provides managed services to some of its advertising customers in connection with their use of the Company's Smadex platform.

The Company also offers a mobile growth solutions business, which provides managed services to advertisers looking to connect with consumers, primarily on mobile devices. This business allows the Company to manage programmatic media buys for its advertising customers or their ad agencies through multiple ad purchasing platforms in real time across multiple channels.

 


 

The Company's digital audio business provides digital audio advertising solutions for advertisers primarily in the Americas. The Company's advertising customers and their ad agencies use these solutions to promote their brands on online audio streams and provides them with tools to target specific users by demographic and geographic categories.

The Company also has a diversified media portfolio that targets primarily Hispanic audiences. The Company owns and/or operates 49 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 Univision television network of TelevisaUnivision Inc. (“TelevisaUnivision”) and TelevisaUnivision’s UniMás network. The Company owns and operates 45 radio stations in 14 U.S. markets. Its radio stations consist of 37 FM and 8 AM stations located in Arizona, California, Colorado, Florida, Nevada, New Mexico and Texas. The Company also sells advertisements and syndicates radio programming to more than 100 markets across the United States.

The Impact of the COVID-19 Pandemic on the Company’s Business

The COVID-19 pandemic did not have a material effect on the Company's business, from either an operational or financial perspective, during the three- and nine-month periods ended September 30, 2023. Subject to the extent and duration of possible resurgences of the pandemic from time to time and the continuing uncertain economic environment that has resulted, in part, from the pandemic, the Company anticipates that the pandemic will continue to have little or no material effect on its business, from either an operational or financial perspective, in future periods. Nonetheless, the Company cannot give any assurance whether a resurgence of the pandemic in any location where its operations have employees or in which it operates would not adversely affect its operations and/or results of operations.

Restricted Cash

As of September 30, 2023 and December 31, 2022, the Company’s balance sheet includes $0.8 million in restricted cash, which was deposited into a separate account as collateral for the Company’s letters of credit.

The Company's cash and cash equivalents and restricted cash, as presented in the Consolidated Statements of Cash Flows, was as follows (in thousands):

 

 

As of

 

 

September 30,

 

 

2023

 

 

2022

 

Cash and cash equivalents

$

110,624

 

 

$

121,589

 

Restricted cash

 

765

 

 

 

751

 

Total as presented in the Consolidated Statements of Cash Flows

$

111,389

 

 

$

122,340

 

Related Party

Substantially all of the Company’s television stations are Univision- or UniMás-affiliated television stations. The network affiliation agreement with TelevisaUnivision provides certain of the Company’s owned stations the exclusive right to broadcast TelvisaUnivision’s primary Univision 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 TelevisaUnivision.

Under the network affiliation agreement, TelevisaUnivision 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 TelevisaUnivision relating to sales of all advertising for broadcast on its Univision- and UniMás-affiliate television stations. During the three-month periods ended September 30, 2023 and 2022, the amount the Company paid TelevisaUnivision in this capacity was $1.5 million and $2.0 million, respectively. During the nine-month periods ended September 30, 2023 and 2022, the amount the Company paid TelevisaUnivision in this capacity was $4.5 million and $5.4 million, respectively. These amounts were included in Direct Operating Expenses in the Company's Condensed Consolidated Statements of Operations.

The Company also generates revenue under two marketing and sales agreements with TelevisaUnivision, which give it the right to manage the marketing and sales operations of TelevisaUnivision-owned Univision affiliates in three markets – Albuquerque, Boston and Denver.

 

Under the Company’s current proxy agreement with TelevisaUnivision, the Company grants TelevisaUnivision the right to negotiate the terms of retransmission consent agreements for its Univision- and UniMás-affiliated television station signals. Among

11


 

other things, the proxy agreement provides terms relating to compensation to be paid to the Company by TelevisaUnivision with respect to retransmission consent agreements entered into with multichannel video programming distributors, (“MVPDs”). As of September 30, 2023, the amount due to the Company from TelevisaUnivision was $10.3 million related to the agreements for the carriage of its Univision and UniMás-affiliated television station signals. During the three-month periods ended September 30, 2023 and 2022, retransmission consent revenue accounted for $8.9 million and $8.9 million, respectively, of which $6.2 million and $6.2 million, respectively, relate to the TelevisaUnivision proxy agreement. During the nine-month periods ended September 30, 2023 and 2022, retransmission consent revenue accounted for $27.9 million and $27.2 million, respectively, of which $19.3 million and $18.7 million, respectively, relate to the TelevisaUnivision proxy agreement.

On October 2, 2017, the Company entered into the current affiliation agreement with TelevisaUnivision, which superseded and replaced the Company's prior affiliation agreements with TelevisaUnivision. Additionally, on the same date, the Company entered into the current proxy agreement and current marketing and sales agreements with TelevisaUnivision, each of which superseded and replaced the prior comparable agreements with TelevisaUnivision. The term of each of these current agreements expires on December 31, 2026 for all of the Univision and UniMás network affiliate stations, except that each current agreement expired on December 31, 2021 with respect to the Univision and UniMás network affiliate stations in Orlando, Tampa and Washington, D.C.

TelevisaUnivision 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 TelevisaUnivision, 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 TelevisaUnivision. In addition, as the holder of all of the Company’s issued and outstanding Class U common stock, so long as TelevisaUnivision holds a certain number of shares of Class U common stock, the Company may not, without the consent of TelevisaUnivision, 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 TelevisaUnivision, 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.

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.

 

The following is a summary of non-vested restricted stock units granted (in thousands, except grant date fair value data):

 

 

 

Three-Month Period

 

 

Nine-Month Period

 

 

 

 

Ended September 30,

 

 

Ended September 30,

 

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

 

Restricted stock units granted

 

 

1,000

 

 

 

-

 

 

 

4,813

 

 

175

 

 

Weighted average fair value

 

$

4.39

 

 

$

-

 

 

$

6.08

 

 

$

5.41

 

 

 

The 2023 restricted stock units reflect the annual grant, which was made in February 2023, the Board of Directors grant, which was made in June 2023, and the Company's current Chief Executive Officer (the "CEO") restricted stock units grant, which was made in connection with his hiring in July 2023. In previous years, the annual grant was typically in December of the same year.

Stock-based compensation expense related to restricted stock units was $6.7 million and $2.8 million for the three-month periods ended September 30, 2023 and 2022, respectively. Stock-based compensation expense related to restricted stock units was $16.7 million and $8.0 million for the nine-month periods ended September 30, 2023 and 2022, respectively.

As of September 30, 2023, there was $22.9 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 1.8 years.

Performance Stock Units

In connection with the hiring of the Company's CEO in July 2023, the Company has granted the CEO Performance Stock Units ("PSUs"), which are subject to both time-based vesting conditions and market-based conditions. Both the service and the market condition must be satisfied for the PSUs to vest. The PSUs consist of five equal tranches (each, a "Performance Tranche"), based on

12


 

achievement of a share price condition if the Company achieves share price targets of $5.75, $7.25, $9.00, $11.20, and $13.75, respectively, over 30 consecutive trading days during a performance period commencing on July 1, 2023 and ending on July 1, 2028. The fair value of each of the Performance Tranches was $0.8 million, $0.7 million, $0.7 million, $0.6 million, and $0.5 million, respectively, and have a grant date fair value per share of restricted stock of $3.98, $3.64, $3.31, $2.93, and $2.58, respectively. To the extent that any of the performance-based requirements are met, the Company's CEO must also provide continued service to the Company through at least July 1, 2024 to receive any shares of common stock underlying the PSUs and through July 1, 2028 to receive all of the shares of common stock underlying the PSUs that have satisfied the applicable market-based requirement. The maximum number of shares that can be earned under this PSU grant is 1,000,000 shares, with 20% of the total award allocated to each Performance Tranche. Between 0% and 100% of each Performance Tranche of the PSUs will vest on each of the tranche dates.

The Company recognizes compensation expense related to the PSUs using the accelerated attribution method over the requisite service period. Stock-based compensation expense for PSUs is based on a performance measurement of 100%. The compensation expense will not be reversed even if the performance metrics are not met.

Stock-based compensation expense related to PSUs was $0.3 million for the three- and nine-month periods ended September 30, 2023. There was no stock-based compensation expense related to PSUs for the three- and nine-month periods ended September 30, 2022.

As of September 30, 2023, there was $2.9 million of total unrecognized compensation expense related to grants of PSUs that is expected to be recognized over a weighted-average period of 2.8 years.

The grant date fair value for each PSU was estimated using a Monte-Carlo simulation model that incorporates option-pricing inputs covering the period from the grant date through the end of the performance period. The unobservable significant inputs to the valuation model at the time of award issuance were as follows:

 

 

 

 

 

Stock price at issuance

 

$

4.39

 

Expected volatility

 

 

58.0

%

Risk-free interest rate

 

 

4.13

%

Expected term

 

 

5.0

 

Expected dividend yield

 

 

0

%

During the nine-month period ended September 30, 2023, the Company had the following non-vested PSUs activity (in thousands, except grant date fair value data):

 

 

 

Number of PSUs

 

 

Weighted-Average Grant Date Fair Value

 

Nonvested balance at December 31, 2022

 

 

-

 

 

$

-

 

Granted

 

 

1,000

 

 

 

3.29

 

Vested

 

 

-

 

 

 

-

 

Forfeited or cancelled

 

 

-

 

 

 

-

 

Nonvested balance at September 30, 2023

 

 

1,000

 

 

 

3.29

 

Income (Loss) Per Share

The following table illustrates the reconciliation of the basic and diluted income (loss) per share (in thousands, except share and per share data):

13


 

 

 

Three-Month Period

 

 

Nine-Month Period

 

 

 

Ended September 30,

 

 

Ended September 30,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Basic earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

Numerator:

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) attributable to common stockholders

 

$

2,719

 

 

$

9,393

 

 

$

2,771

 

 

$

19,747

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Denominator:

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding

 

 

87,995,567

 

 

 

84,945,873

 

 

 

87,803,770

 

 

 

85,469,675

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Per share:

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) per share attributable to common stockholders

 

$

0.03

 

 

$

0.11

 

 

$

0.03

 

 

$

0.23

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

Numerator:

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) attributable to common stockholders

 

$

2,719

 

 

$

9,393

 

 

$

2,771

 

 

$

19,747

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Denominator:

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding

 

 

87,995,567

 

 

 

84,945,873

 

 

 

87,803,770

 

 

 

85,469,675

 

Dilutive securities:

 

 

 

 

 

 

 

 

 

 

 

 

Stock options and restricted stock units

 

 

1,893,154

 

 

 

2,471,628

 

 

 

2,031,593

 

 

 

2,202,051

 

Diluted shares outstanding

 

 

89,888,721

 

 

 

87,417,501

 

 

 

89,835,363

 

 

 

87,671,726

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Per share:

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) per share attributable to common stockholders

 

$

0.03

 

 

$

0.11

 

 

$

0.03

 

 

$

0.23

 

For the three- and nine-month periods ended September 30, 2023, a total of 551,378 and 932,230 shares, respectively, 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.

For the three- and nine-month periods ended September 30, 2022, a total of 4,052 and 34,388 shares, respectively, 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

Long-lived assets, such as intangible assets subject to amortization, are evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable.

During the three- and nine-month periods ended September 30, 2023 the Company incurred an impairment charge related to intangible assets subject to amortization totaling $1.0 million, due to a termination of an agreement with a media company for which the Company acts as commercial partner in its digital segment.

Treasury Stock

On March 1, 2022, the Company's Board of Directors approved a share repurchase program of up to $20 million of the Company's Class A common stock. Under this share repurchase program, the Company is authorized to purchase shares of its Class A common stock from time to time through open market purchases or negotiated purchases, subject to market conditions and other factors.

In the three- and nine-month periods ended September 30, 2023, the Company did not repurchase any shares of its Class A common stock. As of September 30, 2023, the Company has repurchased a total of 1.8 million shares of its Class A common stock under the current share repurchase program for an aggregate purchase price of $11.3 million, or an average price per share of $6.43. All such repurchased shares were retired as of September 30, 2023.

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

 

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2017 Credit Facility

The following discussion pertains to the Company’s previous credit facility (the "2017 Credit Facility") and the agreement, as amended (the “2017 Credit Agreement”), governing the 2017 Credit Facility. It does not purport to be a complete discussion of the full terms and conditions of the 2017 Credit Facility or the 2017 Credit Agreement. For more information, please refer to the 2017 Credit Agreement itself.

The 2017 Credit Agreement was amended and restated as of March 17, 2023, when the Company entered into the Amended and Restated Credit Agreement (the "2023 Credit Agreement"), establishing its current credit facility (the "2023 Credit Facility"). A discussion of the 2023 Credit Facility and the 2023 Credit Agreement follows this discussion.

On November 30, 2017 (the “2017 Closing Date”), the Company entered into the 2017 Credit Facility pursuant to the 2017 Credit Agreement. The 2017 Credit Facility consisted of a $300.0 million senior secured Term Loan B Facility (the “Term Loan B Facility”), which was drawn in full on the 2017 Closing Date.

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

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

The Company’s borrowings under the 2017 Credit Facility bore 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 March 16, 2023, the interest rate on the Company's Term Loan B was 7.38%. The Term Loan B Facility had an expiration date on November 30, 2024 (the “Original Maturity Date”).

The amounts outstanding under the 2017 Credit Facility could be prepaid at the Company’s option without premium or penalty, provided that certain limitations were 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 was to 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 Original Maturity Date.

As further discussed below, on March 17, 2023, the Company repaid in full all of the outstanding obligations under the 2017 Credit Agreement and accounted for this repayment as an extinguishment of debt in accordance with Accounting Standards Codification ("ASC") 470, "Debt". The repayment resulted in a loss on debt extinguishment of $1.6 million, which included a write-off of unamortized debt issuance costs in the amount of $1.1 million.

 

2023 Credit Facility

The following discussion pertains to the 2023 Credit Facility and the 2023 Credit Agreement. It does not purport to be a complete discussion of the full terms and conditions of the 2023 Credit Facility or the 2023 Credit Agreement. For more information, please refer to the 2023 Credit Agreement itself.

On March 17, 2023 (the “2023 Closing Date”), the Company entered into the 2023 Credit Facility, pursuant to the 2023 Credit Agreement, by and among the Company, Bank of America, N.A., as Administrative Agent (the “Agent”), and the other financial institutions party thereto as Lenders (collectively, the “Lenders” and individually each a “Lender”).

As provided for in the 2023 Credit Agreement, the 2023 Credit Facility consists of (i) a $200.0 million senior secured Term A Facility (the "Term A Facility"), which was drawn in full on the 2023 Closing Date, and (ii) a $75.0 million Revolving Credit Facility (the “Revolving Credit Facility”), of which $11.5 million was drawn on the 2023 Closing Date. In addition, the 2023 Credit Agreement provides that the Company may increase the aggregate principal amount of the 2023 Credit Facility by an additional

15


 

amount equal to $100.0 million plus the amount that would result in the Company’s first lien net leverage ratio (as such term is used in the 2023 Credit Agreement) not exceeding 2.25 to 1.0, subject to the Company satisfying certain conditions.

Borrowings under the 2023 Credit Facility were used on the 2023 Closing Date (a) to repay in full all of the outstanding obligations of the Company and its subsidiaries under the 2017 Credit Facility, (b) to pay fees and expenses in connection the 2023 Credit Facility and (c) for general corporate purposes. The 2023 Credit Facility matures on March 17, 2028 (the “Maturity Date”).

The 2023 Credit Facility is guaranteed on a senior secured basis by certain of the Company’s existing and future wholly-owned domestic subsidiaries, and secured on a first priority basis by the Company’s and those subsidiaries’ assets.

The Company’s borrowings under the 2023 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 Term SOFR (as defined in the 2023 Credit Agreement) plus a margin between 2.50% and 3.00%, depending on the Total Net Leverage Ratio or (ii) the Base Rate (as defined in the 2023 Credit Agreement) plus a margin between 1.50% and 2.00%, depending on the Total Net Leverage Ratio. In addition, the unused portion of the Revolving Credit Facility is subject to a rate per annum between 0.30% and 0.40%, depending on the Total Net Leverage Ratio.

As of September 30, 2023, the interest rate on the Company's Term A Facility and the drawn portion of the Revolving Credit Facility was 8.16%.

The amounts outstanding under the 2023 Credit Facility may be prepaid at the option of the Company without premium or penalty, provided that certain limitations are observed, and subject to customary breakage fees in connection with the prepayment of a Term SOFR loan. The principal amount of the Term A Facility shall be paid in installments on the dates and in the respective amounts set forth in the 2023 Credit Agreement, with the final balance due on the Maturity Date.

The Company incurred debt issuance costs of $1.8 million associated with the 2023 Credit Facility. Debt outstanding under the 2023 Credit Facility is presented net of issuance costs on the Company's condensed consolidated balance sheets. The debt issuance costs are amortized on an effective interest basis over the term of the 2023 Credit Facility, and are included in interest expense in the Company's Condensed Consolidated Statements of Operations.

Subject to certain exceptions, the 2023 Credit Agreement contains covenants that limit the ability of the Company and its restricted subsidiaries to, among other things:

incur certain liens on its property or assets;
make certain investments;
incur certain 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 organizational documents of the Company or certain restricted subsidiaries in a materially adverse way to the lenders, or change or amend the terms of certain indebtedness;
permit certain financial ratios to fall out of compliance;
enter into sale and leaseback transactions;
make prepayments of any subordinated indebtedness, subject to certain conditions;
violate the Foreign Corrupt Practices Act or other anti-bribery laws of other jurisdictions; or
change its fiscal year, or accounting policies or reporting practices.

16


 

The 2023 Credit Facility also requires compliance with financial covenants related to total net leverage ratio and interest coverage ratio (calculated as set forth in the 2023 Credit Agreement).

The 2023 Credit Agreement includes the following events of default and certain other customary events of default:

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 interruption of operations of any television or radio station for more than 96 consecutive hours during any period of seven consecutive days;
default for three (3) business days in the payment when due of principal or interest on borrowings under the 2023 Credit Facility;
default for five (5) business days in the payment when due of any other amounts due under the 2023 Credit Facility;
failure by the Company or any subsidiary to comply with the negative covenants (including the financial covenants) and certain other covenants contained in the 2023 Credit Agreement;
material breaches of certain representations and warranties by the Company or any subsidiary;
failure by the Company or any subsidiary to comply with certain other covenants in the 2023 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 2023 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;
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 2023 Credit Facility ceases to be in full force and effect;
a change of control of the Company; or
the failure to create, or the cessation of, any liens contemplated by the 2023 Credit Agreement.

The security agreement that the Company entered into with respect to its 2017 Credit Facility remains in effect with respect to its 2023 Credit Facility.

The carrying amount of the Term Loan A Facility as of September 30, 2023 approximated its fair value and was $196.3 million, net of $1.2 million of unamortized debt issuance costs and original issue discount.

As of September 30, 2023, the Company believes that it is in compliance with all covenants in the 2023 Credit Agreement.

Concentrations of Credit Risk and Trade Receivables

The Company’s financial instruments that are exposed to concentrations of credit risk consist primarily of cash and cash equivalents and trade accounts receivable. From time to time, the Company has had, and may have, bank deposits in excess of Federal Deposit Insurance Corporation ("FDIC") insurance limits. As of September 30, 2023, the majority of all U.S. deposits are maintained in two financial institutions. The Company has not experienced any losses in such accounts and believes that it is not exposed to significant credit risk on cash and cash equivalents. In addition, to the Company's knowledge, all of the bank deposits held in banks outside the United States are not insured.

The Company’s credit risk is spread across a large number of customers in the United States, Latin America, Asia and various other countries, therefore spreading the trade receivable credit risk. The Company routinely assesses the financial strength of its customers and, as a consequence, believes that it is managing its trade receivable credit risk effectively. Trade receivables are carried at original invoice amount less an estimate made for doubtful receivables based on a review of all outstanding amounts on a monthly

17


 

basis. An allowance for doubtful accounts is provided for known and anticipated credit losses, as determined by management in the course of regularly evaluating individual customer receivables. This evaluation takes into consideration a customer’s financial condition and credit history, as well as current economic conditions. Trade receivables are written off when deemed uncollectible. Recoveries of trade receivables previously written off are recorded when received. No interest is charged on customer accounts.

Aggregate receivables from the largest five advertisers represented 5% and 2% of the Company's total trade receivables as of September 30, 2023 and December 31, 2022, respectively. No single advertiser represents more than 5% of the Company's total trade receivables.

Revenue from the largest advertiser represented 14% and 11% of the Company's total revenue for the three-month periods ended September 30, 2023 and 2022, respectively, and 13% of the Company's total revenue for each of the nine-month periods ended September 30, 2023 and 2022. This advertiser is a global media company and pays on a frequent basis and therefore management does not believe that this concentration of credit represents a significant risk to the Company. No other advertiser represented more than 5% of the Company's total revenue.

Estimated losses for bad debts are provided for in the consolidated financial statements through a charge to expense that aggregated $0.3 million and $1.2 million for the three-month periods ended September 30, 2023 and 2022, respectively, and $2.0 million and $2.2 million for the nine-month periods ended September 30, 2023 and 2022, respectively. The net charge off of bad debts aggregated $1.0 million and $1.3 million for the three-month periods ended September 30, 2023 and 2022, respectively, and $1.3 million and $1.8 million for the nine-month periods ended September 30, 2023 and 2022, respectively.

Dependence on Global Media Companies

The Company is dependent on the continued commercial agreements with, as well as the financial and business strength of, the global media companies for which the Company acts as a commercial partner in the digital segment, as well as the companies from which it obtains programming in the television and audio segments. The Company could be at risk should any of these entities fail to perform its respective obligations to the Company or terminate its relationship with the Company. This in turn could materially adversely affect the Company’s business, results of operations and financial condition.

Revenue related to a single global media company for which the Company acts as a commercial partner represented 54% and 49% of the Company's total revenue for the three-month periods ended September 30, 2023 and 2022, respectively, and 53% and 51% of the Company's total revenue for the nine-month periods ended September 30, 2023 and 2022, respectively. The Company expects that this dependence will continue. Based on communications with this media company, the Company has received a lower rate of payment on the Company's sales made on behalf of this media company beginning in the second half of 2023, resulting in lower margins.

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.

18


 

The following table presents the Company’s financial assets and liabilities measured at fair value on a recurring and nonrecurring basis in the condensed consolidated balance sheets (in millions):

 

September 30, 2023

Total Fair Value

and Carrying

Value on

Balance Sheet

Fair Value Measurement Category

 

 

 

 Recurring fair value measurements

Level 1

Level 2

Level 3

 

 

Total Gains (Losses)

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market account

 

$

0.4

 

 

$

0.4

 

 

$

 

 

$

 

 

 

 

Corporate bonds and notes

 

$

17.4

 

 

 

 

 

$

17.4

 

 

 

 

 

 

 

Asset-backed securities

 

$

0.6

 

 

 

 

 

$

0.6

 

 

 

 

 

 

 

U.S. Government securities

 

$

0.1

 

 

 

 

 

$

0.1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Contingent consideration

 

$

21.6

 

 

$

 

 

 

 

 

$

21.6

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2022

Total Fair Value

and Carrying

Value on

Balance Sheet

Fair Value Measurement Category

 

 

 

 Recurring fair value measurements

Level 1

Level 2

Level 3

 

 

Total Gains (Losses)

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market account

 

$

1.4

 

 

$

1.4

 

 

$

 

 

$

 

 

 

 

Corporate bonds and notes

 

$

44.5

 

 

 

 

 

$

44.5

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Contingent consideration

 

$

63.8

 

 

$

 

 

 

 

 

$

63.8

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nonrecurring fair value measurements:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

FCC licenses

 

$

24.5

 

 

 

 

 

 

 

 

$

24.5

 

$

(1.6

)

The Company’s money market account is comprised of cash and cash equivalents, which are recorded at their fair market value within Cash and cash equivalents in the Condensed Consolidated Balance Sheets.

The Company’s available for sale debt securities are comprised of corporate bonds and notes, asset-backed securities, and U.S. Government securities. The majority of the carrying value of these securities held by the Company are investment grade. 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 Marketable securities in the Condensed Consolidated Balance Sheets and their unrealized gains or losses are included in other comprehensive income. Realized gains and losses from the sale of available for sale securities are included in the Condensed Consolidated Statements of Operations and were determined on a specific identification basis.

As of September 30, 2023, the following table summarizes the amortized cost and the unrealized gains (losses) of the available for sale securities (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate Bonds and Notes

 

 

Asset-Backed Securities

 

 

U.S. Government securities

 

 

 

Amortized Cost

 

 

Unrealized gains (losses)

 

 

Amortized Cost

 

 

Unrealized gains (losses)

 

 

Amortized Cost

 

 

Unrealized gains (losses)

 

Due within a year

 

$

5,893

 

 

$

(92

)

 

$

-

 

 

$

-

 

 

$

98

 

 

$

-

 

Due after one year

 

 

11,991

 

 

 

(415

)

 

 

591

 

 

 

(3

)

 

 

-

 

 

 

-

 

Total

 

$

17,884

 

 

$

(507

)

 

$

591

 

 

$

(3

)

 

$

98

 

 

$

-

 

 

19


 

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). As of September 30, 2023 and December 31, 2022, the Company determined that a credit loss allowance is not required.

Included in interest income for the three-month periods ended September 30, 2023 and 2022 was interest income related to the Company’s available for sale securities of $0.2 million and $0.6 million, respectively. Included in interest income for the nine-month periods ended September 30, 2023 and 2022 was interest income related to the Company’s available for sale securities of $1.0 million and $1.7 million, respectively.

The fair value of the contingent consideration is related to the acquisitions of:

the remaining 49% of the issued and outstanding shares of stock of a digital advertising solutions company that, together with its subsidiaries, does business under the name Cisneros Interactive ("Cisneros Interactive").

 

As of December 31, 2022, the contingent liability was $41.4 million, of which $30.0 million was a current liability and $11.4 million was a noncurrent liability. As of September 30, 2023 the contingent liability was $8.0 million, of which $7.1 million is a current liability and $0.9 million is a noncurrent liability. The change in the fair value of the contingent liability during the three-month periods ended September 30, 2023 and 2022, of $0.0 million expense and $5.9 million expense, respectively, is reflected in the Condensed Consolidated Statements of Operations. The change in the fair value of the contingent liability during the nine-month periods ended September 30, 2023 and 2022, of $5.8 million income and $6.9 million expense, respectively, is reflected in the Condensed Consolidated Statements of Operations.

100% of the issued and outstanding shares of stock of a digital advertising solutions company in Southeast Asia that, together with its subsidiaries, does business under the name MediaDonuts ("MediaDonuts").

 

As of December 31, 2022, the contingent liability was $22.2 million, of which $6.5 million was a current liability and $15.7 million was a noncurrent liability. As of September 30, 2023 the contingent liability was $11.6 million, all of which is a noncurrent liability. The change in the fair value of the contingent liability during the three-month periods ended September 30, 2023 and 2022, of $5.9 million income and $2.0 million income, respectively, is reflected in the Condensed Consolidated Statements of Operations. The change in the fair value of the contingent liability during the nine-month periods ended September 30, 2023 and 2022, of $3.7 million income and $1.3 million expense, respectively, is reflected in the Condensed Consolidated Statements of Operations.

100% of the issued and outstanding shares of stock of a digital advertising solutions company headquartered in South Africa, that, together with its subsidiaries, does business under the name 365 Digital ("365 Digital").

 

As of December 31, 2022, the contingent liability was $0.2 million, all of which was a noncurrent liability. As of September 30, 2023 the contingent liability fair value was $0.0 million. The change in the fair value of the contingent liability during the three-month periods ended September 30, 2023 and 2022, of $0.2 million income and $3.2 million income, respectively, is reflected in the Condensed Consolidated Statements of Operations. The change in the fair value of the contingent liability during the nine-month periods ended September 30, 2023 and 2022, of $0.5 million expense and $1.4 million income, respectively, is reflected in the Condensed Consolidated Statements of Operations.

the remaining 85% of the issued and outstanding shares of stock of a digital marketing services company that, together with its subsidiaries, does business under the name Jack of Digital ("Jack of Digital").

 

As of September 30, 2023, the contingent liability fair value was $0.3 million, all of which is a noncurrent liability.

100% of the issued and outstanding shares of stock of a global mobile app marketing solutions company that, together with its subsidiaries, does business under the name BCNMonetize ("BCNMonetize").

 

As of September 30, 2023, the contingent liability fair value was $1.7 million, of which $1.1 million is a current liability and $0.6 million is a noncurrent liability. The change in the fair value of the contingent liability during each of the three- and nine-month periods ended September 30, 2023, of $0.1 million expense, is reflected in the Condensed Consolidated Statements of Operations.

The fair value of the contingent consideration was estimated by applying the real options approach. Key assumptions include risk-neutral expected growth rates based on management’s assessments of expected growth in EBITDA, adjusted by appropriate factors capturing their correlation with the market and volatility, discounted at a cost of debt. These are significant inputs that are not observable in the market, which ASC 820-10-35 refers to as Level 3 inputs. The following table presents the changes in the contingent consideration (in millions):

20


 

 

 

Nine-Month Period

 

 

Ended September 30,

 

 

2023

 

 

2022

 

Beginning balance

$

63.8

 

 

$

114.9

 

Additions from acquisitions

 

1.8

 

 

 

-

 

Payments to sellers

 

(35.1

)

 

 

(65.3

)

(Gain) loss recognized in earnings

 

(8.9

)

 

 

6.8

 

Ending balance

$

21.6

 

 

$

56.4

 

 

As of September 30, 2023 the contingent liability fair value was included in the Condensed Consolidated Balance Sheets in the amount of $8.2 million as a current liability within Accounts payable and accrued expenses, and $13.4 million as a noncurrent liability within Other long-term liabilities.

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) (in thousands):

 

 

 

Foreign
Currency
Translation

 

 

Marketable
Securities

 

 

Total

 

Accumulated other comprehensive income (loss) as of December 31, 2022

 

$

(1,345

)

 

$

(165

)

 

$

(1,510

)

Other comprehensive income (loss)

 

 

16

 

 

 

138

 

 

 

154

 

Income tax (expense) benefit

 

 

-

 

 

 

(35

)

 

 

(35

)

Amounts reclassified from AOCI

 

 

-

 

 

 

31

 

 

 

31

 

Income tax (expense) benefit

 

 

-

 

 

 

(8

)

 

 

(8

)

Other comprehensive income (loss), net of tax

 

 

16

 

 

 

126

 

 

 

142

 

Accumulated other comprehensive income (loss) as of March 31, 2023

 

 

(1,329

)

 

 

(39

)

 

 

(1,368

)

Other comprehensive income (loss)

 

 

(71

)

 

 

106

 

 

 

35

 

Income tax (expense) benefit

 

 

-

 

 

 

(27

)

 

 

(27

)

Amounts reclassified from AOCI

 

 

-

 

 

 

29

 

 

 

29

 

Income tax (expense) benefit

 

 

-

 

 

 

(7

)

 

 

(7

)

Other comprehensive income (loss), net of tax

 

 

(71

)

 

 

101

 

 

 

30

 

Accumulated other comprehensive income (loss) as of June 30, 2023

 

 

(1,400

)

 

 

62

 

 

 

(1,338

)

Other comprehensive income (loss)

 

 

(408

)

 

 

(11

)

 

 

(419

)

Amounts reclassified from AOCI

 

 

-

 

 

 

33

 

 

 

33

 

Income tax (expense) benefit

 

 

-

 

 

 

(5

)

 

 

(5

)

Other comprehensive income (loss), net of tax

 

 

(408

)

 

 

17

 

 

 

(391

)

Accumulated other comprehensive income (loss) as of September 30, 2023

 

 

(1,808

)

 

 

79

 

 

 

(1,729

)

 

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 830, “Foreign Currency Matters” and the related rate fluctuation on transactions is included in the Condensed Consolidated Statements of Operations.

For foreign operations with the local currency as the functional currency, assets and liabilities are translated from the respective local currencies into U.S. dollars at the exchange rate prevailing at the balance sheet date, and equity and long-term assets are 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 data reported by the International Monetary Fund, Argentina has been identified as a country with a highly inflationary economy. According to 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.

21


 

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 media companies.

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.

During 2023, the Company entered into a sales agreement for a tower site in the Phoenix market for $2.5 million. The transaction met the criteria for classification as assets held for sale and the carrying value of $0.9 million is presented as Assets Held for Sale in the Consolidated Balance Sheet as of September 30, 2023. In addition, during 2023, the Company entered into a sales agreement for a tower site in the Boston market for $1.3 million. The transaction met the criteria for classification as assets held for sale and the carrying value of $0.3 million is presented as Assets Held for Sale in the Consolidated Balance Sheet as of September 30, 2023. These transactions are expected to close in the fourth quarter of 2023.

Variable Interest Entities

In accordance with the provisions of the Financial Accounting Standards Board or ASC 810, “Consolidation,” the Company evaluates entities for which control is achieved through means other than voting rights to determine if the Company is the primary beneficiary of a variable interest entity (a "VIE"). An entity is a VIE if it has any of the following characteristics:(1) the entity has insufficient equity to permit it to finance its activities without additional subordinated financial support; (2) equity holders, as a group, lack the characteristics of a controlling financial interest; or (3) the entity is structured with non-substantive voting rights. The primary beneficiary of a VIE is generally the entity that has (a) the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and (b) the obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE. The Company consolidates its investment in a VIE when it determines that the Company is the primary beneficiary of such entity.

In determining whether it is the primary beneficiary of a VIE, the Company considers qualitative and quantitative factors, including, but not limited to: which activities most significantly impact the VIE’s economic performance and which party controls such activities; and the significance of the Company’s investment and other means of participation in the VIE’s expected profits/losses. Significant judgments related to these determinations include estimates about the current and future fair values and performance of assets held by these VIEs and general market conditions.

The Company may change its original assessment of a VIE upon subsequent events such as the modification of contractual arrangements that affect the characteristics or adequacy of the entity’s equity investments at risk and the disposition of all or a portion of an interest held by the primary beneficiary. The Company performs this analysis on an ongoing basis. See Note 7 for more details.

Recent Accounting Pronouncements

There were no new accounting pronouncements that were issued or became effective since the issuance of the 2022 10-K that had, or are expected to have, a material impact on the Company’s consolidated financial statements.

Newly Adopted Accounting Standards

There were no new accounting standards that were adopted since the issuance of the 2022 10-K.

3. REVENUES

Revenue Recognition

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

Digital Advertising. Revenue from digital advertising is earned primarily from sales of advertising that are placed by the Company's advertising customers or their ad agencies on the digital platforms of third-party media companies for which the Company acts as commercial partner or placed directly with online digital marketplaces through the Company's Smadex programmatic ad purchasing platform. Revenue in the digital segment is recognized when display or other digital advertisements record impressions on

22


 

the websites and mobile and Internet-connected television apps of media companies on whose digital platforms the advertisements are placed or as the advertiser’s previously agreed-upon performance criteria are satisfied.

Broadcast Advertising. Revenue related to the sale of advertising in the television and audio segments 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.

Broadcast and digital advertising revenue is recognized over time in a series as a single performance obligation as the ad, 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 typically due in 30 days. Value added taxes collected concurrently with advertising revenue producing activities are excluded from revenue. Cash payments received prior to services being 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 the Company's 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.

Revenue generated by spectrum usage rights agreements are recognized in accordance with the contractual fees over the term of the agreement 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 noted above, the Company does not control the distinct service, that being the commercial advertisement, prior to delivery and therefore it recognizes revenue on a net basis. Similarly for joint service agreements, the Company does not own or control the station providing the airtime, and is not the principal in the arrangement, and therefore it 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 substantially all of the Company's 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 (in thousands):

 

 

 

Three-Month Period

 

 

Nine-Month Period

 

 

 

Ended September 30,

 

 

Ended September 30,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Digital advertising

 

$

231,487

 

 

$

188,877

 

 

$

657,865

 

 

$

516,966

 

Broadcast advertising

 

 

30,791

 

 

 

39,965

 

 

 

91,401

 

 

 

106,769

 

Spectrum usage rights

 

 

2,086

 

 

 

1,584

 

 

 

6,310

 

 

 

4,793

 

Retransmission consent

 

 

8,925

 

 

 

8,926

 

 

 

27,872

 

 

 

27,159

 

Other

 

 

1,128

 

 

 

1,662

 

 

 

3,356

 

 

 

4,194

 

Total revenue

 

$

274,417

 

 

$

241,014

 

 

$

786,804

 

 

$

659,881

 

 

23


 

 

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 DMA are referred to as national revenue. The following table further disaggregates the Company’s broadcast advertising revenue by sales channel (in thousands):

 

 

 

Three-Month Period

 

 

Nine-Month Period

 

 

 

Ended September 30,

 

 

Ended September 30,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Local direct

 

$

5,485

 

 

$

5,935

 

 

$

16,273

 

 

$

17,365

 

Local agency

 

 

13,946

 

 

 

13,410

 

 

 

40,505

 

 

 

38,980

 

National agency

 

 

11,360

 

 

 

20,620

 

 

 

34,623

 

 

 

50,424

 

Total revenue

 

$

30,791

 

 

$

39,965

 

 

$

91,401

 

 

$

106,769

 

 

The following table further disaggregates the Company’s revenue by geographical region, based on the location of the sales office (in thousands):

 

 

 

Three-Month Period

 

 

Nine-Month Period

 

 

 

Ended September 30,

 

 

Ended September 30,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

United States

 

$

57,497

 

 

$

61,735

 

 

$

156,413

 

 

$

173,075

 

Latin America

 

 

152,926

 

 

 

130,515

 

 

 

439,075

 

 

 

373,353

 

EMEA (1)

 

 

36,350

 

 

 

27,287

 

 

 

110,107

 

 

 

55,902

 

Asia

 

 

27,644

 

 

 

21,477

 

 

 

81,209

 

 

 

57,551

 

Total revenue

 

$

274,417

 

 

$

241,014

 

 

$

786,804

 

 

$

659,881

 

(1) EMEA means Europe, Middle East and Africa.

Deferred Revenue

The Company records deferred revenues within Accounts payable and accrued expenses in the Condensed Consolidated Balance Sheets, when cash payments are received or due in advance of its performance, including amounts which are refundable. The change in the deferred revenue balance for the nine-month period ended September 30, 2023 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, 2022.

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 typically 30 days. For certain individual customers and customer types, the Company generally requires payment before the services are delivered to the customer.

 

(in thousands)

December 31, 2022

 

Increase

 

Decrease *

 

 

September 30, 2023

 

Deferred revenue

$

7,175

 

6,302

 

(7,175)

 

 

$

6,302

 

 

* The amount reflects revenue that was deferred as of December 31, 2022 and has been recorded as revenue in the nine-month period ended September 30, 2023.

 

 

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. A Right of Use (“ROU”) asset and lease liability is recognized as of the 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 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.

24


 

The operating leases are reflected within the condensed consolidated balance sheet as Operating leases right of use asset with the related liability presented as Operating lease liabilities and Long-term operating lease liabilities. 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 applicable accounting 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 27 years. Certain of the Company’s lease agreements include rental payments based on changes in the consumer price index (the “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 Company’s corporate headquarters are located in Santa Monica, California. The Company leased approximately 16,000 square feet of space in the building housing its corporate headquarters under a lease that was most recently amended as of June 7, 2022. The lease, as amended, provided that the Company would relocate and expand its corporate headquarters within the same building to a space consisting of approximately 38,000 square feet, at which point the term of the lease will be extended until January 31, 2034. The Company moved into temporary premises in December 2022 and completed its relocation into the permanent premises during the second quarter of 2023.

The Company also leased approximately 41,000 square feet of space in a building housing its radio network headquarters in Los Angeles, California. In 2021, the Company amended the lease to terminate it in September 2022 and paid a termination fee of $0.4 million in 2022. The Company leased this space on a month-to-month basis until June 2023 and then relocated all of its personnel into its new, permanent premises in Santa Monica.

The types of properties required to support each of the Company’s television and radio stations typically include offices, broadcasting studios and antenna towers where broadcasting transmitters and antenna equipment are located. The majority of the Company’s office, studio and tower facilities are leased pursuant to non-cancelable long-term leases. The Company also owns the buildings and/or land used for office, studio and tower facilities at certain of its television and/or radio properties. The Company owns substantially all of the equipment used in its television and radio broadcasting business.

 

The following table summarizes the expected future payments related to operating lease liabilities as of September 30, 2023:

 

(in thousands)

 

 

 

Remainder of 2023

 

$

2,459

 

2024

 

 

10,301

 

2025

 

 

9,752

 

2026

 

 

8,108

 

2027

 

 

6,440

 

2028 and thereafter

 

 

34,345

 

Total minimum payments

 

$

71,405

 

Less amounts representing interest

 

 

(17,007

)

Less amounts representing tenant improvement allowance

 

 

(399

)

Present value of minimum lease payments

 

 

53,999

 

Less current operating lease liabilities

 

 

(7,150

)

Long-term operating lease liabilities

 

$

46,849

 

 

The weighted average remaining lease term and the weighted average discount rate used to calculate the Company’s lease liabilities as of September 30, 2023 were 8.7 years and 6.2%, respectively. The weighted average remaining lease term and the weighted average discount rate used to calculate the Company’s lease liabilities as of September 30, 2022 were 9.1 years and 6.3%, respectively.

25


 

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

 

 

Nine-Month Period

Ended September 30,

(in thousands)

2023

2022

Cash paid for amounts included in lease liabilities:

Operating cash flows from operating leases

$

6,027

$

7,661

Non-cash additions to operating lease assets

$

6,550

$

26,871

 

 

The following table summarizes the components of operating lease expense:

 

 

 

Three-Month Period

Three-Month Period

 

 

Nine-Month Period

 

 

Nine-Month Period

 

 

 

Ended September 30,

Ended September 30,

 

 

Ended September 30,

 

 

Ended September 30,

 

(in thousands)

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Operating lease cost

$

2,442

 

 

$

2,432

 

 

$

7,390

 

 

$

6,805

 

Variable lease cost

 

483

 

 

 

263

 

 

 

1,066

 

 

 

855

 

Short-term lease cost

 

402

 

 

 

504

 

 

 

3,023

 

 

 

1,510

 

 Total lease cost

$

3,327

 

 

$

3,199

 

 

$

11,479

 

 

$

9,170

 

 

For the three-month period ended September 30, 2023, lease cost of $1.4 million, $1.6 million and $0.3 million, were recorded to direct operating expenses, selling, general and administrative expenses and corporate expenses, respectively. For the nine-month period ended September 30, 2023, lease cost of $4.3 million, $6.2 million and $1.0 million, were recorded to direct operating expenses, selling, general and administrative expenses and corporate expenses, respectively.

For the three-month period ended September 30, 2022, lease cost of $1.5 million, $1.5 million and $0.2 million, were recorded to direct operating expenses, selling, general and administrative expenses and corporate expenses, respectively. For the nine-month period ended September 30, 2022, lease cost of $4.5 million, $4.2 million and $0.5 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 September 30, 2023, based upon the type of advertising medium, which segments are digital, television and audio. 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.

Digital

The Company's digital segment, whose operations are located in Latin America, Europe, the United States, Asia and Africa, reaches a global market, with a focus on advertisers principally in emerging economies that wish to advertise on digital platforms owned and operated primarily by global media companies.

The Company provides digital end-to-end advertising solutions that allow advertisers to reach online users worldwide. These solutions are comprised of four business units:

the Company's digital commercial partnerships business;
Smadex, the Company's programmatic ad purchasing platform;
the Company's mobile growth solutions business; and
the Company's digital audio business.
 

Through the Company's digital commercial partnerships business – the largest of its digital business units – the Company acts as an intermediary between primarily global media companies and advertising customers or their ad agencies. The global media companies represented by the Company include Meta (formerly known as Facebook Inc.), Spotify, ByteDance and X (formerly known as Twitter), as well as other media companies throughout the world. The Company's dedicated local sales teams sell advertising space on these and other media companies' digital platforms to its advertising customers or their ad agencies for the placement of ads directed to online users of a wide range of Internet-connected devices. The Company also provides some of its advertising customers billing, technological and other support, including strategic marketing and training, which it refers to as managed services.

Smadex is the Company's programmatic ad purchasing platform, on which advertisers can purchase ad inventory. This business – the purchase and sale of advertising inventory electronically – is referred to in the Company's industry as programmatic advertising.

26


 

Smadex is also a “demand-side" platform, which allows advertisers to purchase space from online marketplaces on which media companies list their advertising inventory. Most advertisements acquired through Smadex are placed on mobile devices, but they may also be placed on computers and other Internet-connected devices. The Company also provides managed services to some of its advertising customers in connection with their use of its Smadex platform.

The Company also offers a mobile growth solutions business, which provides managed services to advertisers looking to connect with consumers, primarily on mobile devices. This business allows the Company to manage programmatic media buys for its advertising customers or their ad agencies through multiple ad purchasing platforms in real time across multiple channels.

The Company's digital audio business provides digital audio advertising solutions for advertisers in the Americas. The Company's advertising customers and their ad agencies use these solutions to promote their brands on online audio streams, and provides them with tools to target specific users by demographic and geographic categories.

Television

The Company's television operations reach and engage primarily U.S. Hispanics in the United States. The Company owns and/or operates 49 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.

Audio

The Company's audio operations reach and engage primarily U.S. Hispanics in the United States. The Company owns and operates 45 radio stations (37 FM and 8 AM) located primarily in Arizona, California, Colorado, Florida, Nevada, New Mexico and Texas. The Company also sells advertisements and syndicates radio programming to more than 100 markets across the United States.

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 of contingent consideration, impairment charge, foreign currency (gain) loss and other operating (gain) loss. The Company generated 79% and 74% of its revenue outside the United States during the three-month periods ended September 30, 2023 and 2022, respectively. The Company generated 80% and 74% of its

27


 

revenue outside the United States during the nine-month periods ended September 30, 2023 and 2022, respectively. The Company evaluates the performance of its operating segments based on the following (in thousands):

 

 

 

Three-Month Period

 

 

 

 

 

Nine-Month Period

 

 

 

 

 

 

Ended September 30,

 

 

%

 

 

Ended September 30,

 

 

%

 

 

 

2023

 

 

2022

 

 

Change

 

 

2023

 

 

2022

 

 

Change

 

Net revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Digital

 

$

231,487

 

 

$

188,877

 

 

 

23

%

 

$

657,865

 

 

$

516,966

 

 

 

27

%

Television

 

 

29,552

 

 

 

35,678

 

 

 

(17

)%

 

 

89,807

 

 

 

98,918

 

 

 

(9

)%

Audio

 

 

13,378

 

 

 

16,459

 

 

 

(19

)%

 

 

39,132

 

 

 

43,997

 

 

 

(11

)%

Consolidated

 

 

274,417

 

 

 

241,014

 

 

 

14

%

 

 

786,804

 

 

 

659,881

 

 

 

19

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of revenue - digital

 

 

199,289

 

 

 

157,095

 

 

 

27

%

 

 

562,881

 

 

 

431,951

 

 

 

30

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Direct operating expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Digital

 

 

9,307

 

 

 

8,041

 

 

 

16

%

 

 

27,600

 

 

 

23,017

 

 

 

20

%

Television

 

 

14,967

 

 

 

14,941

 

 

 

0

%

 

 

44,750

 

 

 

43,712

 

 

 

2

%

Audio

 

 

7,581

 

 

 

7,104

 

 

 

7

%

 

 

22,432

 

 

 

20,776

 

 

 

8

%

Consolidated

 

 

31,855

 

 

 

30,086

 

 

 

6

%

 

 

94,782

 

 

 

87,505

 

 

 

8

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Digital

 

 

13,866

 

 

 

11,039

 

 

 

26

%

 

 

42,155

 

 

 

28,560

 

 

 

48

%

Television

 

 

4,925

 

 

 

5,062

 

 

 

(3

)%

 

 

15,109

 

 

 

15,257

 

 

 

(1

)%

Audio

 

 

3,163

 

 

 

3,107

 

 

 

2

%

 

 

11,023

 

 

 

9,205

 

 

 

20

%

Consolidated

 

 

21,954

 

 

 

19,208

 

 

 

14

%

 

 

68,287

 

 

 

53,022

 

 

 

29

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Digital

 

 

4,068

 

 

 

3,230

 

 

 

26

%

 

 

11,428

 

 

 

8,551

 

 

 

34

%

Television

 

 

2,722

 

 

 

2,723

 

 

 

(0

)%

 

 

7,931

 

 

 

8,424

 

 

 

(6

)%

Audio

 

 

566

 

 

 

601

 

 

 

(6

)%

 

 

977

 

 

 

2,237

 

 

 

(56

)%

Consolidated

 

 

7,356

 

 

 

6,554

 

 

 

12

%

 

 

20,336

 

 

 

19,212

 

 

 

6

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Segment operating profit (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Digital

 

 

4,957

 

 

 

9,472

 

 

 

(48

)%

 

 

13,801

 

 

 

24,887

 

 

 

(45

)%

Television

 

 

6,938

 

 

 

12,952

 

 

 

(46

)%

 

 

22,017

 

 

 

31,525

 

 

 

(30

)%

Audio

 

 

2,068

 

 

 

5,647

 

 

 

(63

)%

 

 

4,700

 

 

 

11,779

 

 

 

(60

)%

Consolidated

 

 

13,963

 

 

 

28,071

 

 

 

(50

)%

 

 

40,518

 

 

 

68,191

 

 

 

(41

)%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate expenses

 

 

13,292

 

 

 

9,525

 

 

 

40

%

 

 

35,836

 

 

 

26,769

 

 

 

34

%

Change in fair value of contingent consideration

 

 

(5,997

)

 

 

734

 

 

*

 

 

 

(8,939

)

 

 

6,810

 

 

*

 

Impairment charge

 

 

989

 

 

 

-

 

 

*

 

 

 

989

 

 

 

-

 

 

*

 

Foreign currency (gain) loss

 

 

548

 

 

 

1,966

 

 

 

(72

)%

 

 

289

 

 

 

2,112

 

 

 

(86

)%

Other operating (gain) loss

 

 

-

 

 

 

(58

)

 

 

(100

)%

 

 

-

 

 

 

(1,011

)

 

 

(100

)%

Operating income (loss)

 

 

5,131

 

 

 

15,904

 

 

 

(68

)%

 

 

12,343

 

 

 

33,511

 

 

 

(63

)%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

$

(4,454

)

 

$

(3,055

)

 

 

46

%

 

$

(12,788

)

 

$

(7,225

)

 

 

77

%

Interest income

 

 

1,558

 

 

 

788

 

 

 

98

%

 

 

3,455

 

 

 

1,916

 

 

 

80

%

Dividend income

 

 

-

 

 

 

6

 

 

 

(100

)%

 

 

32

 

 

 

20

 

 

 

60

%

Realized gain (loss) on marketable securities

 

 

(33

)

 

 

(473

)

 

 

(93

)%

 

 

(94

)

 

 

(473

)

 

 

(80

)%

Gain (loss) on debt extinguishment

 

 

-

 

 

 

-

 

 

*

 

 

 

(1,556

)

 

 

-

 

 

*

 

Income (loss) before income taxes

 

 

2,202

 

 

 

13,170

 

 

 

(83

)%

 

 

1,392

 

 

 

27,749

 

 

 

(95

)%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital expenditures

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Digital

 

$

1,304

 

 

$

977

 

 

 

 

 

$

3,785

 

 

$

2,838

 

 

 

 

Television

 

 

1,108

 

 

 

3,121

 

 

 

 

 

 

7,983

 

 

 

4,257

 

 

 

 

Audio

 

 

1,579

 

 

 

123

 

 

 

 

 

 

7,069

 

 

 

534

 

 

 

 

Consolidated

 

$

3,991

 

 

$

4,221

 

 

 

 

 

$

18,837

 

 

$

7,629

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30,

 

 

December 31,

 

 

 

 

 

 

 

 

 

 

 

 

 

Total assets

 

2023

 

 

2022

 

 

 

 

 

 

 

 

 

 

 

 

 

Digital

 

 

397,144

 

 

 

408,027

 

 

 

 

 

 

 

 

 

 

 

 

 

Television

 

 

367,681

 

 

 

363,904

 

 

 

 

 

 

 

 

 

 

 

 

 

Audio

 

 

111,310

 

 

 

108,910

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated

 

$

876,135

 

 

$

880,841

 

 

 

 

 

 

 

 

 

 

 

 

 

* Percentage not meaningful.

 

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.

 

 

28


 

7. ACQUISITIONS

Adsmurai

On August 5, 2022, the Company made a loan (the "Adsmurai Loan") in the principal amount of €12,535,000 ($12.8 million as of that date) to an entity affiliated with owners of a majority interest in Adsmurai, S.L. (“Adsmurai”), a company engaged in the sale and marketing of digital advertising. The loan had a two-year term, an interest rate of 5% annually, and could be converted into 51% of the issued and outstanding shares of stock of Adsmurai at the Company’s sole discretion. If the Company elected not to convert the loan, the borrower had the option to repay the loan at maturity either in cash or with 51% of the issued and outstanding shares of stock of Adsmurai.

As of that date, the Company determined for accounting purposes that (i) Adsmurai was a VIE because the equity investors at risk, as a group, lacked the characteristics of a controlling financial interest; and (ii) the Company was the primary beneficiary because the conversion right gave it the power to direct the activities of the entity that most significantly impacted the entity’s economic performance.

The Company determined that Adsmurai was a business and accounted for its consolidation under the provisions of ASC 805, “Business Combinations”, and included Adsmurai's results of operations since the date of the loan in the Company's Condensed Consolidated Statements of Operations. The following is a summary of the final purchase price allocation (in millions):

 

Cash

$

7.4

Accounts receivable

 

11.9

 

Other assets

 

0.7

Fixed assets

 

2.8

 

Intangible assets subject to amortization

 

8.2

 

Goodwill

13.3

Current liabilities

(14.4

)

Deferred tax

(2.0

)

Debt

 

(2.8

)

Noncontrolling interest

 

(12.3

)

Convertible loan

 

(12.8

)

Intangible assets subject to amortization acquired includes:

 

Intangible Asset

Estimated

Fair Value

(in millions)

Weighted

average

life (in years)

Advertiser relationships

$

4.7

7.0

Existing technology

2.4

5.0

Trade name

1.1

5.0

The fair value of the trade receivables is $11.9 million. The gross amount due under contract is $12.3 million, of which $0.4 million is expected to be uncollectable.

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

On April 3, 2023, the Company entered into an agreement (the “Adsmurai Acquisition Agreement”) among the Company and the selling stockholders of Adsmurai (the “Adsmurai Sellers”), pursuant to which the Company acquired a 51% equity interest in Adsmurai (the “Adsmurai Acquisition”) on the same date.

The Company acquired 51% of the issued and outstanding shares of stock of Adsmurai by means of conversion of the Adsmurai Loan, for total purchase consideration of €13.0 million ($14.2 million as of April 3, 2023), including interest. The Adsmurai Acquisition Agreement also contains representations, warranties, covenants and indemnities of the parties thereto.

In connection with the Adsmurai Acquisition, on April 3, 2023 the Company made a loan to entities affiliated with owners of the remaining 49% interest in Adsmurai in the principal amount of €7,355,500 ($8.1 million as of April 3, 2023) and a second loan on July 11, 2023 in the principal amount of €4,993,344 ($5.6 million as of July 11, 2023) based on Adsmurai’s EBITDA for calendar year 2022 (the “New Adsmurai Loan”). The New Adsmurai Loan has a seven-year term, bears interest at a rate of 5% annually and can be repaid upon the exercise of the option rights set forth in the Adsmurai Options Agreement (defined below). The loan receivable is recorded within Other assets in the Condensed Consolidated Balance Sheets.

In connection with the Adsmurai Acquisition, the Company and the Adsmurai Sellers also entered into an Options Agreement (the “Adsmurai Options Agreement”). Subject to the terms of the Adsmurai Options Agreement, for a purchase price based on a

29


 

predetermined multiple of Adsmurai’s EBITDA in the trailing four fiscal quarters, plus amounts outstanding under the Adsmurai Loan:

the Adsmurai Sellers have the right to cause the Company to purchase:
o
10% of the issued and outstanding shares of Adsmurai stock between January and March 2024, 10% of the issued and outstanding shares of Adsmurai stock between January and March 2025, and all of the remaining issued and outstanding shares of Adsmurai stock between July and September 2027; or
o
all of the issued and outstanding shares of Adsmurai owned by such Adsmurai Seller each January, in the sole discretion of such Adsmurai Seller; or
o
all of the issued and outstanding shares of Adsmurai owned by such Adsmurai Seller, in the event such Adsmurai Seller's employment is terminated by the Company; and
the Company has the right to purchase all of the remaining issued and outstanding shares of Adsmurai stock between January and June 2027.

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 Condensed 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. In addition, because the noncontrolling interest is not currently redeemable, but is probable that it will become redeemable, and because the Company has elected the immediate method to recognize changes in the redemption value as they occur, each reporting period a measurement period adjustment, if any, is recorded to adjust the noncontrolling interest to the higher of either the redemption value, assuming it was redeemable at the reporting date, or its carrying value. The fair value of the redeemable noncontrolling interest, which includes the Adsmurai Options Agreement, recognized on the acquisition date was $47.3 million. The fair value was estimated by applying the real options approach. Key assumptions include risk-neutral expected growth rates based on management’s assessments of expected growth in EBITDA, adjusted by appropriate factors capturing their correlation with the market and volatility, discounted at a cost of debt rate.

The following unaudited pro forma information has been prepared to give effect to the Company’s consolidation of Adsmurai as if the transaction had occurred on January 1, 2022. This pro forma information was adjusted to exclude acquisition fees and costs of $0.3 million for each of the three- and nine-month periods ended September 30, 2022, which were expensed in connection with the transaction. This pro forma information does not purport to represent what the actual results of operations of the Company would have been had this transaction occurred on such date, nor does it purport to predict the results of operations for any future periods.

 

In thousands, except share and per share data

 

Three-Month Period

 

 

Nine-Month Period

 

 

 

 

Ended September 30,

 

 

Ended September 30,

 

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

 

Pro Forma:

 

 

 

 

 

 

 

 

 

 

 

 

 

Total revenue

 

$

274,417

 

 

$

244,963

 

 

$

786,804

 

 

$

688,241

 

 

Net income (loss) attributable to common stockholders

 

$

2,719

 

 

$

9,706

 

 

$

2,622

 

 

$

20,557

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

$

0.03

 

 

$

0.11

 

 

$

0.03

 

 

$

0.24

 

 

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

 

$

0.03

 

 

$

0.11

 

 

$

0.03

 

 

$

0.23

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding, basic

 

 

87,995,567

 

 

 

84,945,873

 

 

 

87,803,770

 

 

 

85,469,675

 

 

Weighted average common shares outstanding, diluted

 

 

89,888,721

 

 

 

87,417,501

 

 

 

89,835,363

 

 

 

87,671,726

 

 

 

30


 

The table below presents the reconciliation of changes in redeemable noncontrolling interests (in thousands):

 

 

 

Three-Month Period

 

 

Nine-Month Period

 

 

 

Ended September 30,

 

 

Ended September 30,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Beginning balance

 

$

47,288

 

 

$

-

 

 

$

-

 

 

$

-

 

Transfer of noncontrolling interest to redeemable noncontrolling interest

 

 

-

 

 

 

-

 

 

 

9,625

 

 

 

-

 

Acquisition of redeemable noncontrolling interest

 

 

-

 

 

 

-

 

 

 

37,675

 

 

 

-

 

Net income (loss) attributable to redeemable noncontrolling interest

 

 

13

 

 

 

-

 

 

 

1

 

 

 

-

 

Ending balance

 

$

47,301

 

 

$

-

 

 

$

47,301

 

 

$

-

 

Jack of Digital

On August 3, 2022, the Company acquired 15% of the issued and outstanding stock of Jack of Digital, a digital marketing services company that serves as the exclusive advertising sales partner of ByteDance in Pakistan, for $0.1 million.

As of that date, the Company determined for accounting purposes that (i) Jack of Digital was a VIE because the equity investors at risk, as a group, lacked the characteristics of a controlling financial interest; and (ii) the Company was the primary beneficiary because it had the power to direct the activities of the entity that most significantly impacted the entity’s economic performance.

On April 3, 2023, the Company acquired the remaining issued and outstanding stock of Jack of Digital for $1.1 million. Of that amount, the Company paid an initial installment payment of $0.5 million and the balance will be paid in annual installments through December 2025. Additionally, the transaction includes a contingent earn-out payment based upon the achievement of an EBITDA target in calendar year 2026, calculated as a predetermined multiple of EBITDA for that year. The total purchase price for the acquisition, including the fair value of the contingent consideration, was $1.4 million.

The following unaudited pro forma information has been prepared to give effect to the Company’s consolidation of Jack of Digital as if the transaction had occurred on January 1, 2022. This pro forma information was adjusted to exclude acquisition fees and costs of $0.3 million for the nine-month period ended September 30, 2022, which were expensed in connection with the transaction. This pro forma information does not purport to represent what the actual results of operations of the Company would have been had this transaction occurred on such date, nor does it purport to predict the results of operations for any future periods.

 

In thousands, except share and per share data

 

Three-Month Period

 

 

Nine-Month Period

 

 

 

 

Ended September 30,

 

 

Ended September 30,

 

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

 

Pro Forma:

 

 

 

 

 

 

 

 

 

 

 

 

 

Total revenue

 

$

274,417

 

 

$

241,186

 

 

$

786,804

 

 

$

661,429

 

 

Net income (loss) attributable to common stockholders

 

$

2,719

 

 

$

9,421

 

 

$

2,809

 

 

$

20,166

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

$

0.03

 

 

$

0.11

 

 

$

0.03

 

 

$

0.24

 

 

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

 

$

0.03

 

 

$

0.11

 

 

$

0.03

 

 

$

0.23

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding, basic

 

 

87,995,567

 

 

 

84,945,873

 

 

 

87,803,770

 

 

 

85,469,675

 

 

Weighted average common shares outstanding, diluted

 

 

89,888,721

 

 

 

87,417,501

 

 

 

89,835,363

 

 

 

87,671,726

 

 

 

31


 

The table below presents the reconciliation of changes in noncontrolling interests (in thousands):

 

 

 

Three-Month Period

 

 

Nine-Month Period

 

 

 

Ended September 30,

 

 

Ended September 30,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Beginning balance

 

$

-

 

 

$

-

 

 

$

14,947

 

 

$

-

 

Distributions to noncontrolling interest

 

 

-

 

 

 

-

 

 

 

(4,356

)

 

 

-

 

Transfer of noncontrolling interest to redeemable noncontrolling interest

 

 

-

 

 

 

-

 

 

 

(9,625

)

 

 

-

 

Acquisition of noncontrolling interest

 

 

-

 

 

 

12,897

 

 

 

(624

)

 

 

12,897

 

Net income (loss) attributable to noncontrolling interest

 

 

-

 

 

 

(303

)

 

 

(342

)

 

 

(303

)

Ending balance

 

$

-

 

 

$

12,594

 

 

$

-

 

 

$

12,594

 

BCNMonetize

On May 19, 2023, the Company acquired 100% of the issued and outstanding shares of stock of BCNMonetize, a global mobile app marketing solutions company headquartered in Barcelona, Spain. The acquisition, funded from the Company’s cash on hand, included an initial purchase price of $6.0 million in cash, which amount was adjusted at closing to $7.2 million due to customary purchase price adjustments for cash, indebtedness and estimated working capital. Additionally, the transaction includes contingent earn-out payments based upon the achievement of certain EBITDA targets in calendar years 2023 through 2026, calculated as a predetermined multiple of EBITDA for each of those years. The total purchase price for the acquisition, including the fair value of the contingent consideration, was $8.8 million.

The Company is in the process of completing the purchase price allocation for BCNMonetize. The following is a summary of the preliminary purchase price allocation (in millions):

 

Cash

$

0.8

Accounts receivable

 

2.8

 

Other assets

 

0.7

Intangible assets subject to amortization

 

4.2

 

Goodwill

3.5

Current liabilities

(2.1

)

Deferred tax

 

(1.1

)

Intangible assets subject to amortization acquired includes:

 

Intangible Asset

Estimated

Fair Value

(in millions)

Weighted

average

life (in years)

Publisher relationships

$

2.2

3.0

Advertiser relationships

1.5

1.0

Trade name

0.3

1.0

Non-Compete agreements

0.2

1.5

The fair value of the assets acquired includes trade receivables of $2.8 million. The gross amount due under contract was $2.9 million, of which $0.1 million was expected to be uncollectable.

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

As noted above, the acquisition of BCNMonetize includes a contingent consideration arrangement that requires additional consideration to be paid by the Company to the selling stockholders of BCNMonetize, based on a pre-determined multiple of BCNMonetize's 12-month EBITDA in calendar years 2023 through 2026. The fair value of the contingent consideration recognized on the acquisition date of $1.6 million was estimated by applying the real options approach. Key assumptions include risk-neutral expected growth rates based on management’s assessments of expected growth in EBITDA, adjusted by appropriate factors capturing their correlation with the market and volatility, discounted at a cost of debt rate ranging from 8.2% to 8.4% over the three-year period. These are significant inputs that are not observable in the market, which ASC 820-10-35 refers to as Level 3 inputs.

During the three-and nine-month periods ended September 30, 2023, BCNMonetize generated net revenue of $4.1 million and $4.9 million, respectively. During the three-and nine-month periods ended September 30, 2023, BCNMonetize generated net income, excluding the impact of contingent consideration liability adjustments, of $0.2 million and $0.3 million, respectively.

The following unaudited pro forma information has been prepared to give effect to the Company’s acquisition of BCNMonetize as if the acquisition had occurred on January 1, 2022. This pro forma information was adjusted to exclude acquisition fees and costs of

32


 

$0.2 million for the nine-month period ended September 30, 2023, which were expensed in connection with the acquisition. 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.

 

In thousands, except share and per share data

 

Three-Month Period

 

 

Nine-Month Period

 

 

 

 

Ended September 30,

 

 

Ended September 30,

 

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

 

Pro Forma:

 

 

 

 

 

 

 

 

 

 

 

 

 

Total revenue

 

$

274,417

 

 

$

244,179

 

 

$

792,817

 

 

$

671,171

 

 

Net income (loss) attributable to common stockholders

 

$

2,719

 

 

$

10,241

 

 

$

4,312

 

 

$

23,095

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

$

0.03

 

 

$

0.12

 

 

$

0.05

 

 

$

0.27

 

 

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

 

$

0.03

 

 

$

0.12

 

 

$

0.05

 

 

$

0.26

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding, basic

 

 

87,995,567

 

 

 

84,945,873

 

 

 

87,803,770

 

 

 

85,469,675

 

 

Weighted average common shares outstanding, diluted

 

 

89,888,721

 

 

 

87,417,501

 

 

 

89,835,363

 

 

 

87,671,726

 

 

The changes in the carrying amount of goodwill for each of the Company’s operating segments for the nine-month period ended September 30, 2023 are as follows (in thousands):

 

 

 

December 31,

 

 

Purchase Price

 

 

Additions From

 

 

September 30,

 

(in thousands)

 

2022

 

 

Adjustments

 

 

Acquisitions

 

 

2023

 

Digital

$

46,442

 

 

$

201

 

 

$

3,480

 

 

$

50,123

 

Television

 

40,549

 

 

 

-

 

 

 

-

 

 

 

40,549

 

 Consolidated

$

86,991

 

 

$

201

 

 

$

3,480

 

 

$

90,672

 

 

33


 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

We are a leading global advertising solutions, media and technology company. Our operations encompass integrated, end-to-end advertising solutions across multiple media, comprised of digital, television and audio properties. For financial reporting purposes, we report in three segments based upon the type of advertising medium: digital, television and audio (formerly radio).

Our digital segment, whose operations are primarily located in Latin America, Europe, the United States, Asia and Africa, reaches a global market, with a focus on advertisers in emerging economies that wish to advertise on digital platforms owned and operated primarily by global media companies. Our television and audio operations reach and engage primarily U.S. Hispanics in the United States.

Our net revenue for the three-month period ended September 30, 2023 was $274.4 million. Of that amount, revenue attributed to our digital segment accounted for 84%, revenue attributed to our television segment accounted for 11% and revenue attributed to our audio segment accounted for 5%. Our digital segment now accounts for the majority of our revenues and we expect this to continue in future periods.

We provide digital end-to-end advertising solutions that allow advertisers to reach online users worldwide. These solutions are comprised of four business units:

 

our digital commercial partnerships business;
Smadex, our programmatic ad purchasing platform;
our mobile growth solutions business; and
our digital audio business.

Through our digital commercial partnerships business – the largest of our digital business units – we act as an intermediary between primarily global media companies and advertising customers or their ad agencies. The global media companies we represent include Meta Platforms, or Meta (formerly known as Facebook Inc.), X Corp., or X (formerly known as Twitter), ByteDance Ltd., or ByteDance, which owns the TikTok platform, and Spotify AB, or Spotify, as well as other media companies, in 40 countries throughout the world. Our dedicated local sales teams sell advertising space on these media companies' digital platforms to our advertising customers or their ad agencies for the placement of ads directed to online users of a wide range of Internet-connected devices. We also provide some of these customers billing, technological and other support services, including strategic marketing and training, which we refer to as managed services.

Smadex is our programmatic ad purchasing platform, on which advertisers can purchase ad inventory. This practice – the purchase and sale of advertising inventory electronically – is referred to in our industry as programmatic advertising. Smadex is also a “demand-side platform”, which allows advertisers to purchase space from online marketplaces on which media companies list their advertising inventory. Most advertisements acquired through Smadex are placed on mobile devices, but they may also be placed on computers and Internet-connected televisions. We also provide managed services to some of our advertising customers in connection with their use of our Smadex platform.

We also offer a mobile growth solutions business, which provides managed services to advertisers looking to connect with consumers, primarily on mobile devices. This business allows us to manage programmatic media buys for our advertising customers or their ad agencies through multiple ad purchasing platforms in real time across multiple channels.

Our digital audio business provides digital audio advertising solutions for advertisers in the Americas. Our advertising customers and their ad agencies use these solutions to promote their brands on online audio streams, and provides them with tools to target specific users by demographic and geographic categories.

We have a diversified media portfolio that targets primarily Hispanic audiences. We own and/or operate 49 primary television stations located primarily in California, Colorado, Connecticut, Florida, Kansas, Massachusetts, Nevada, New Mexico, Texas and Washington, D.C. Our television operations comprise the largest affiliate group of both the top-ranked primary Univision television network of TelevisaUnivision Inc., or TelevisaUnivision, and TelevisaUnivision’s UniMás network. We own and operate 45 radio stations in 14 U.S. markets. Our radio stations consist of 37 FM and 8 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.

In our digital segment, we generate revenue primarily from sales of advertising that are placed by our advertising customers or their ad agencies on the digital platforms of third-party media companies for which we act as commercial partner or placed directly with online digital marketplaces through our Smadex platform. In our television and audio segments, we generate revenue primarily from sales of national and local advertising time on television stations and radio stations, retransmission consent agreements that are

34


 

entered into with 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 digital segment, we recognize advertising revenue when display or other digital advertisements record impressions on the websites and mobile and Internet-connected television apps of media companies on whose digital platforms the advertisements are placed or as the advertiser’s previously agreed-upon performance criteria are satisfied. In our television and audio segments, we recognize advertising revenue when commercials are broadcast. We do not obtain long-term commitments from our advertisers across any of our operations and, consequently, they may cancel, reduce or postpone orders without penalties. In our television and audio segments, we pay commissions to agencies for local and national advertising. For contracts we have entered into directly with agencies, we record net revenue from these agencies.

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 agreement 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 2023 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.

In our digital segment, our primary expense is cost of revenue, which consists primarily of the costs of online media acquired from the media companies for which we act as commercial partner or purchased directly from online digital marketplaces through our Smadex platform, as well as third party server costs. Our primary expenses in our television and audio segments, and a secondary expense in our digital segment, is 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.

Highlights

During the third quarter of 2023, our consolidated revenue increased to $274.4 million from $241.0 million in the prior year period, primarily due to an increase in revenue in our digital segment, partially offset by a decrease in revenue in our television and audio segments.

Net revenue in our digital segment increased to $231.5 million for the three-month period ended September 30, 2023 from $188.9 million for the three-month period ended September 30, 2022. This increase of $42.6 million, or 23%, in net revenue was primarily due to advertising revenue growth from our digital commercial partnerships business, and due to various acquisitions, which did not fully contribute to our financial results in our digital segment in the comparable prior period.

Net revenue in our television segment decreased to $29.6 million for the three-month period ended September 30, 2023 from $35.7 million for the three-month period ended September 30, 2022. This decrease of $6.1 million, or 17%, in net revenue was primarily due to decreases in political advertising revenue and national advertising revenue, partially offset by increases in local advertising revenue and spectrum usage rights revenue.

Net revenue in our audio segment decreased to $13.4 million for the three-month period ended September 30, 2023 from $16.5 million for the three-month period ended September 30, 2022. This decrease of $3.1 million, or 19%, in net revenue was primarily due to a decrease in political advertising revenue, and decreases in local and national advertising revenue.

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 did not have a material effect on our business, from either an operational or financial perspective, during the three- and nine-month periods ended September 30, 2023. Subject to the extent and duration of possible resurgences of the

35


 

pandemic from time to time and the continuing uncertain economic environment that has resulted, in part, from the pandemic, we anticipate that the pandemic will continue to have little or no material effect on our business, from either an operational or financial perspective, in future periods. Nonetheless, we cannot give any assurance whether a resurgence of the pandemic in any location where our operations have employees or where we operate would not adversely affect our operations and/or results of operations.

Relationship with TelevisaUnivision

Substantially all of our television stations are Univision- or UniMás-affiliated television stations. Our network affiliation agreement with TelevisaUnivision provides certain of our owned stations the exclusive right to broadcast TelevisaUnivision’s primary Univision 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 TelevisaUnivision.

Under the network affiliation agreement, TelevisaUnivision 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 TelevisaUnivision relating to sales of all advertising for broadcast on our Univision- and UniMás-affiliate television stations. During the three-month periods ended September 30, 2023 and 2022, the amount we paid TelevisaUnivision in this capacity was $1.5 million and $2.0 million, respectively. During the nine-month periods ended September 30, 2023 and 2022, the amount we paid TelevisaUnivision in this capacity was $4.5 million and $5.4 million, respectively These amounts were included in Direct Operating Expenses in our Condensed Consolidated Statements of Operations.

We also generate revenue under a marketing and sales agreement with TelevisaUnivision, which give us the right to manage the marketing and sales operations of TelevisaUnivision-owned Univision affiliates in three markets – Albuquerque, Boston and Denver.

Under our proxy agreement with TelevisaUnivision, we grant TelevisaUnivision 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 TelevisaUnivision with respect to retransmission consent agreements entered into with MVPDs. During the three-month periods ended September 30, 2023 and 2022, retransmission consent revenue accounted for $8.9 million and $8.9 million, respectively, of which $6.2 million and $6.2 million, respectively, relate to the TelevisaUnivision proxy agreement. During the nine-month periods ended September 30, 2023 and 2022, retransmission consent revenue accounted for $27.9 million and $27.2 million, respectively, of which $19.3 million and $18.7 million, respectively, relate to the TelevisaUnivision 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.

On October 2, 2017, we entered into the current affiliation agreement with TelevisaUnivision, which superseded and replaced our prior affiliation agreements with TelevisaUnivision. Additionally, on the same date, we entered into the current proxy agreement and current marketing and sales agreements with TelevisaUnivision, each of which superseded and replaced the prior comparable agreements with TelevisaUnivision. The term of each of these current agreements expires on December 31, 2026 for all of our Univision and UniMás network affiliate stations, except that each current agreement expired on December 31, 2021 with respect to our Univision and UniMás network affiliate stations in Orlando, Tampa and Washington, D.C.

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 TelevisaUnivision, 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 TelevisaUnivision. In addition, as the holder of all of our issued and outstanding Class U common stock, so long as TelevisaUnivision holds a certain number of shares of Class U common stock, we may not, without the consent of TelevisaUnivision, 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 TelevisaUnivision, 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 2022 10-K.

36


 

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 Condensed Consolidated Financial Statements.

Three- and Nine-Month Periods Ended September 30, 2023 and 2022

The following table sets forth selected data from our operating results for the three- and nine-month periods ended September 30, 2023 and 2022 (in thousands):

 

 

 

Three-Month Period

 

 

 

 

 

Nine-Month Period

 

 

 

 

 

 

Ended September 30,

 

 

%

 

 

Ended September 30,

 

 

%

 

 

 

2023

 

 

2022

 

 

Change

 

 

2023

 

 

2022

 

 

Change

 

Statements of Operations Data:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Revenue

 

$

274,417

 

 

$

241,014

 

 

 

14

%

 

$

786,804

 

 

$

659,881

 

 

 

19

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of revenue - digital

 

 

199,289

 

 

 

157,095

 

 

 

27

%

 

 

562,881

 

 

 

431,951

 

 

 

30

%

Direct operating expenses

 

 

31,855

 

 

 

30,086

 

 

 

6

%

 

 

94,782

 

 

 

87,505

 

 

 

8

%

Selling, general and administrative expenses

 

 

21,954

 

 

 

19,208

 

 

 

14

%

 

 

68,287

 

 

 

53,022

 

 

 

29

%

Corporate expenses

 

 

13,292

 

 

 

9,525

 

 

 

40

%

 

 

35,836

 

 

 

26,769

 

 

 

34

%

Depreciation and amortization

 

 

7,356

 

 

 

6,554

 

 

 

12

%

 

 

20,336

 

 

 

19,212

 

 

 

6

%

Change in fair value of contingent consideration

 

 

(5,997

)

 

 

734

 

 

*

 

 

 

(8,939

)

 

 

6,810

 

 

*

 

Impairment charge

 

 

989

 

 

 

-

 

 

*

 

 

 

989

 

 

 

-

 

 

*

 

Foreign currency (gain) loss

 

 

548

 

 

 

1,966

 

 

 

(72

)%

 

 

289

 

 

 

2,112

 

 

 

(86

)%

Other operating (gain) loss

 

 

-

 

 

 

(58

)

 

 

(100

)%

 

 

-

 

 

 

(1,011

)

 

 

(100

)%

 

 

269,286

 

 

 

225,110

 

 

 

20

%

 

 

774,461

 

 

 

626,370

 

 

 

24

%

Operating income (loss)

 

 

5,131

 

 

 

15,904

 

 

 

(68

)%

 

 

12,343

 

 

 

33,511

 

 

 

(63

)%

Interest expense

 

 

(4,454

)

 

 

(3,055

)

 

 

46

%

 

 

(12,788

)

 

 

(7,225

)

 

 

77

%

Interest income

 

 

1,558

 

 

 

788

 

 

 

98

%

 

 

3,455

 

 

 

1,916

 

 

 

80

%

Dividend income

 

 

-

 

 

 

6

 

 

 

(100

)%

 

 

32

 

 

 

20

 

 

 

60

%

Realized gain (loss) on marketable securities

 

 

(33

)

 

 

(473

)

 

 

(93

)%

 

 

(94

)

 

 

(473

)

 

 

(80

)%

Loss on debt extinguishment

 

 

-

 

 

 

-

 

 

*

 

 

 

(1,556

)

 

 

-

 

 

*

 

Income before income (loss) taxes

 

 

2,202

 

 

 

13,170

 

 

 

(83

)%

 

 

1,392

 

 

 

27,749

 

 

 

(95

)%

Income tax benefit (expense)

 

 

530

 

 

 

(4,080

)

 

*

 

 

 

1,038

 

 

 

(8,305

)

 

*

 

Net income (loss)

 

 

2,732

 

 

 

9,090

 

 

 

(70

)%

 

 

2,430

 

 

 

19,444

 

 

 

(88

)%

Net (income) loss attributable to redeemable noncontrolling interest

 

 

(13

)

 

 

-

 

 

*

 

 

 

(1

)

 

 

-

 

 

*

 

Net (income) loss attributable to noncontrolling interest

 

 

-

 

 

 

303

 

 

 

(100

)%

 

 

342

 

 

 

303

 

 

 

13

%

Net income (loss) attributable to common stockholders

 

$

2,719

 

 

$

9,393

 

 

 

(71

)%

 

$

2,771

 

 

$

19,747

 

 

 

(86

)%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Data:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital expenditures

 

 

3,991

 

 

 

4,221

 

 

 

 

 

 

18,837

 

 

 

7,629

 

 

 

 

Consolidated EBITDA (1)

 

 

 

 

 

 

 

 

 

 

 

41,420

 

 

 

66,566

 

 

 

 

Net cash provided by operating activities

 

 

 

 

 

 

 

 

 

 

 

69,117

 

 

 

78,142

 

 

 

 

Net cash used in investing activities

 

 

 

 

 

 

 

 

 

 

 

(13,926

)

 

 

(55,987

)

 

 

 

Net cash used in financing activities

 

 

 

 

 

 

 

 

 

 

 

(55,244

)

 

 

(85,657

)

 

 

 

 

(1)
Consolidated 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 EBITDA because that measure is defined in both the 2017 Credit Agreement and the 2023 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,

37


 

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.

Because consolidated EBITDA is a measure governing several critical aspects of our 2023 Credit Facility, and since our ability to borrow under our Revolving Credit Facility is subject to compliance with a consolidated EBITDA financial covenant, we believe that it is important to disclose consolidated EBITDA to our investors. Our 2023 Credit Facility contains a total net leverage ratio financial covenant. The total net leverage ratio, or the ratio of consolidated total debt (net of up to $50.0 million of unrestricted cash) to trailing-twelve-month consolidated adjusted EBITDA, affects both our ability to borrow from our Revolving Credit Facility and our applicable margin for the interest rate calculation. Under our 2023 Credit Agreement, our maximum total leverage ratio may not exceed 3.25 to 1.00. In addition, our 2023 Credit Agreement contains interest coverage ratio financial covenant (calculated as set forth in the 2023 Credit Agreement), with a minimum permitted ratio of 3.00 to 1.00. As of September 30, 2023, we believe that we are in compliance with all covenants in the 2023 Credit Agreement.

While many in the financial community and we consider consolidated 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 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 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 EBITDA is also used to make executive compensation decisions.

38


 

Consolidated EBITDA is a non-GAAP measure. The most directly comparable GAAP financial measure to consolidated EBITDA is cash flows from operating activities. A reconciliation of this non-GAAP measure to cash flows from operating activities follows (in thousands):

 

 

 

Nine-Month Period

 

 

 

Ended September 30,

 

 

 

2023

 

 

2022

 

Consolidated EBITDA

 

$

41,420

 

 

$

66,566

 

EBITDA attributable to redeemable noncontrolling interest

 

 

736

 

 

 

 

EBITDA attributable to noncontrolling interest

 

 

230

 

 

 

(5

)

Interest expense

 

 

(12,788

)

 

 

(7,225

)

Interest income

 

 

3,455

 

 

 

1,916

 

Dividend income

 

 

32

 

 

 

20

 

Realized gain (loss) on marketable securities

 

 

(94

)

 

 

(473

)

Income tax expense

 

 

1,038

 

 

 

(8,305

)

Amortization of syndication contracts

 

 

(358

)

 

 

(348

)

Payments on syndication contracts

 

 

366

 

 

 

304

 

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

 

 

(7,218

)

 

 

(2,878

)

Non-cash stock-based compensation included in corporate expenses

 

 

(9,835

)

 

 

(5,117

)

Depreciation and amortization

 

 

(20,336

)

 

 

(19,212

)

Change in fair value of contingent consideration

 

 

8,939

 

 

 

(6,810

)

Impairment charge

 

 

(989

)

 

 

 

Non-recurring cash severance charge

 

 

(612

)

 

 

 

Other operating gain (loss)

 

 

 

 

 

1,011

 

Gain (loss) on debt extinguishment

 

 

(1,556

)

 

 

 

Net (income) loss attributable to redeemable noncontrolling interest

 

 

(1

)

 

 

 

Net (income) loss attributable to noncontrolling interest

 

 

342

 

 

 

303

 

Net income (loss) attributable to common stockholders

 

 

2,771

 

 

 

19,747

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

20,336

 

 

 

19,212

 

Impairment charge

 

 

989

 

 

 

 

Deferred income taxes

 

 

(169

)

 

 

(3,151

)

Non-cash interest

 

 

264

 

 

 

1,076

 

Amortization of syndication contracts

 

 

358

 

 

 

348

 

Payments on syndication contracts

 

 

(366

)

 

 

(304

)

Non-cash stock-based compensation

 

 

17,053

 

 

 

7,995

 

Realized (gain) loss on marketable securities

 

 

94

 

 

 

473

 

(Gain) loss on debt extinguishment

 

 

1,556

 

 

 

 

(Gain) loss on disposal of property and equipment

 

 

(11

)

 

 

(599

)

Change in fair value of contingent consideration

 

 

(8,939

)

 

 

6,810

 

Net income (loss) attributable to redeemable noncontrolling interest

 

 

1

 

 

 

 

Net income (loss) attributable to noncontrolling interest

 

 

(342

)

 

 

(303

)

Changes in assets and liabilities:

 

 

 

 

 

 

(Increase) decrease in accounts receivable

 

 

16,261

 

 

 

22,296

 

(Increase) decrease in prepaid expenses and other current assets, operating leases right of use asset and other assets

 

 

(7,199

)

 

 

(183

)

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

 

 

26,460

 

 

 

4,725

 

Cash flows from operating activities

 

$

69,117

 

 

$

78,142

 

 

Consolidated Operations

Net Revenue. Net revenue increased to $274.4 million for the three-month period ended September 30, 2023 from $241.0 million for the three-month period ended September 30, 2022, an increase of $33.4 million, or 14%. Of the overall increase, $42.6 million was attributable to our digital segment and was primarily due to advertising revenue growth from our digital commercial partnerships business, and due to various acquisitions, which did not fully contribute to our financial results in our digital segment in the comparable prior period. The overall increase was partially offset by a decrease of $6.1 million attributable to our television segment, primarily due to decreases in political advertising revenue and national advertising revenue, partially offset by increases in local advertising revenue and spectrum usage rights revenue. In addition, the overall increase was partially offset by a decrease of $3.1

39


 

million attributable to our audio segment, primarily due to a decrease in political advertising revenue, and decreases in local and national advertising revenue.

Net revenue increased to $786.8 million for the nine-month period ended September 30, 2023 from $659.9 million for the nine-month period ended September 30, 2022, an increase of $126.9 million, or 19%. Of the overall increase, $140.9 million was attributable to our digital segment and was primarily due to advertising revenue growth from our digital commercial partnerships business, and due to various acquisitions, which did not fully contribute to our financial results in our digital segment in the comparable prior period. The overall increase was partially offset by a decrease of $9.1 million attributable to our television segment, primarily due to decreases in political advertising revenue and national advertising revenue, partially offset by increases in local advertising revenue, spectrum usage rights revenue and retransmission consent revenue. In addition, the overall increase was partially offset by a decrease of $4.9 million attributable to our audio segment, primarily due to a decrease in political advertising revenue, and decreases in local and national advertising revenue.

We believe that for the full year 2023, net revenue will increase, primarily as a result of growth in our digital segment and operating various acquisitions, which did not fully contribute to our financial results in our digital segment in 2022.

Cost of revenue-Digital. Cost of revenue in our digital segment increased to $199.3 million for the three-month period ended September 30, 2023 from $157.1 million for the three-month period ended September 30, 2022, an increase of $42.2 million, or 27%, primarily due to increased cost of revenue related to advertising revenue growth from our digital commercial partnerships business, and due to various acquisitions, which did not fully contribute to our financial results in our digital segment in the comparable prior period. As a percentage of digital net revenue, cost of revenue increased to 86% for the three-month period ended September 30, 2023 from 83% for the three-month period ended September 30, 2022.

Cost of revenue in our digital segment increased to $562.9 million for the nine-month period ended September 30, 2023 from $432.0 million for the nine-month period ended September 30, 2022, an increase of $130.9 million, or 30%, primarily due to increased cost of revenue related to advertising revenue growth from our digital commercial partnerships business, and due to various acquisitions, which did not fully contribute to our financial results in our digital segment in the comparable prior period. As a percentage of digital net revenue, cost of revenue increased to 86% for the nine-month period ended September 30, 2023 from 84% for the nine-month period ended September 30, 2022.

Direct Operating Expenses. Direct operating expenses increased to $31.9 million for the three-month period ended September 30, 2023 from $30.1 million for the three-month period ended September 30, 2022, an increase of $1.8 million, or 6%. Of the overall increase, $1.3 million was attributable to our digital segment, primarily due to an increase in non-cash stock-based compensation, which is mainly a result of the timing of the 2023 annual restricted stock unit ("RSU") grant to certain employees, which was made in February 2023 compared to the 2022 annual grant, which was made in December 2022, and due to an increase in expenses associated with the increase in digital advertising revenue. In addition, of the overall increase, $0.1 million was attributable to our television segment. Additionally, of the overall increase, $0.5 million was attributable to our audio segment, primarily due to an increase in non-cash stock-based compensation, which is mainly a result of the 2023 annual RSU grant timing mentioned above, and due to an increase in salaries. As a percentage of net revenue, direct operating expenses remained constant at 12% for each of the three-month periods ended September 30, 2023 and 2022.

Direct operating expenses increased to $94.8 million for the nine-month period ended September 30, 2023 from $87.5 million for the nine-month period ended September 30, 2022, an increase of $7.3 million, or 8%. Of the overall increase, $4.6 million was attributable to our digital segment, primarily due to an increase in non-cash stock-based compensation, which is mainly a result of the 2023 annual RSU grant timing mentioned above, and due to an increase in expenses associated with the increase in digital advertising revenue. In addition, of the overall increase, $1.0 million was attributable to our television segment, primarily due to an increase in non-cash stock-based compensation, which is mainly a result of the 2023 annual RSU grant timing mentioned above. Additionally, of the overall increase, $1.6 million was attributable to our audio segment, primarily due to an increase in non-cash stock-based compensation, which is mainly a result of the 2023 annual RSU grant timing mentioned above, and due to an increase in salaries. As a percentage of net revenue, direct operating expenses decreased to 12% for the nine-month period ended September 30, 2023 from 13% for the nine-month period ended September 30, 2022.

We believe that for the full year 2023 direct operating expenses will increase, primarily as a result of growth in our digital segment and due to an increase in non-cash stock-based compensation.

Selling, General and Administrative Expenses. Selling, general and administrative expenses increased to $22.0 million for the three-month period ended September 30, 2023 from $19.2 million for the three-month period ended September 30, 2022, an increase of $2.8 million, or 14%. Of the overall increase, $2.9 million was attributable to our digital segment and was primarily due to an increase in salary expense, and due to various acquisitions, which did not fully contribute to our financial results in our digital segment in the comparable prior period. Additionally, of the overall increase, $0.1 million was attributable to our audio segment. The overall increase was partially offset by a decrease of $0.2 million in our television segment, primarily due to a decrease in bad debt expense.

40


 

As a percentage of net revenue, selling, general and administrative expenses remained constant at 8% for each of the three-month periods ended September 30, 2023 and 2022.

Selling, general and administrative expenses increased to $68.3 million for the nine-month period ended September 30, 2023 from $53.0 million for the nine-month period ended September 30, 2022, an increase of $15.3 million, or 29%. Of the overall increase, $13.6 million was attributable to our digital segment and was primarily due to an increase in salary expense, and due to various acquisitions, which did not fully contribute to our financial results in our digital segment in the comparable prior period. Additionally, of the overall increase, $1.8 million was attributable to our audio segment, primarily due to increased rent expense in the temporary office space until the move to our new permanent offices, which was completed in June 2023. The overall increase was partially offset by a decrease of $0.2 million in our television segment, primarily due to a decrease in bad debt expense. As a percentage of net revenue, selling, general and administrative expenses increased to 9% for the nine-month period ended September 30, 2023 from 8% for the nine-month period ended September 30, 2022.

We believe that for the full year 2023 selling, general and administrative expenses will increase, primarily as a result of growth in our digital segment and operating various acquisitions, which did not fully contribute to our financial results in our digital segment in 2022.

Corporate Expenses. Corporate expenses increased to $13.3 million for the three-month period ended September 30, 2023 from $9.5 million for the three-month period ended September 30, 2022, an increase of $3.8 million or 40%. The increase was primarily due to an increase in non-cash stock-based compensation, which is mainly a result of the 2023 annual RSU grant timing mentioned above and RSU grant to our new CEO, and increases in professional service fees. As a percentage of net revenue, corporate expenses increased to 5% for the three-month period ended September 30, 2023 from 4% for the three-month period ended September 30, 2022.

Corporate expenses increased to $35.8 million for the nine-month period ended September 30, 2023 from $26.8 million for the nine-month period ended September 30, 2022, an increase of $9.0 million or 34%. The increase was primarily due to an increase in non-cash stock-based compensation, which is mainly a result of the 2023 annual RSU grant timing mentioned above and RSU grant to our new CEO, and increases in professional service fees, audit fees and rent expense. As a percentage of net revenue, corporate expenses increased to 5% for the nine-month period ended September 30, 2023 from 4% for the nine-month period ended September 30, 2022.

We believe that for the full year 2023 corporate expenses will increase, without taking into consideration the expense incurred in 2022 upon the passing of our late CEO, primarily as a result of an increase in non-cash stock-based compensation and an increase in professional service fees.

Depreciation and Amortization. Depreciation and amortization increased to $7.4 million for the three-month period ended September 30, 2023 compared to $6.6 million for the three-month period ended September 30, 2022, an increase of $0.8 million or 12%. The increase was primarily attributable to amortization of intangible assets from our various acquisitions.

Depreciation and amortization increased to $20.3 million for the nine-month period ended September 30, 2023 compared to $19.2 million for the nine-month period ended September 30, 2022, an increase of $1.1 million or 6%. The increase was primarily attributable to amortization of intangible assets from our various acquisitions.

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, we have operations in countries other than the United States, primarily related to our digital business, and as a result, a portion of our revenues is denominated in currencies other than the U.S. dollar, primarily the Mexican peso, Argentine peso, Uruguayan peso, Euro, certain other Latin American currencies and various Asian and African currencies. As a result, we have operating expense, attributable to foreign currency, that is primarily related to the operations of our digital business. We had a foreign currency loss of $0.5 million for the three-month period ended September 30, 2023 compared to a foreign currency loss of $2.0 million for the three-month period ended September 30, 2022. We had a foreign currency loss of $0.3 million for the nine-month period ended September 30, 2023 compared to a foreign currency loss of $2.1 million for the nine-month period ended September 30, 2022. Foreign currency gains and losses are primarily due to currency fluctuations that affect our digital segment operations located outside the United States. In our digital operations outside the United States, we typically pay our global media partners in U.S. dollars but bill certain of our customers in their local currency. Therefore, during times of a strengthening U.S. dollar relative to other currencies, we may incur a loss based on the difference in value between what we pay in U.S dollars and what we ultimately receive in a local currency, when expressed in U.S. dollars, and conversely, during times of a weakening U.S. dollar relative to other currencies we may have a gain.

Other operating gain. We did not have other operating gain for the three-month period ended September 30, 2023, compared to $0.1 million for the three-month period ended September 30, 2022. We did not have other operating gain for the nine-month period ended September 30, 2023, compared to $1.0 million for the nine-month period ended September 30, 2022.

41


 

Impairment. During the three- and nine-month periods ended September 30, 2023 we incurred an impairment charge related to intangible assets subject to amortization totaling $1.0 million, due to a termination of an agreement with a media company for which we act as commercial partner in our digital segment.

Change in fair value of contingent consideration. As a result of changes in the fair value of contingent consideration related to our various acquisitions, we recognized income of $6.0 million and incurred an expense of $0.7 million for the three-month periods ended September 30, 2023 and 2022, respectively. As a result of changes in the fair value of contingent consideration related to our various acquisitions, we recognized income of $8.9 million and incurred an expense of $6.8 million for the nine-month periods ended September 30, 2023 and 2022, respectively.

Operating income (loss). As a result of the above factors, operating income was $5.1 million for the three-month period ended September 30, 2023, compared to operating income of $15.9 million for the three-month period ended September 30, 2022.

As a result of the above factors, operating income was $12.3 million for the nine-month period ended September 30, 2023, compared to operating income of $33.5 million for the nine-month period ended September 30, 2022.

Interest Expense, net. Interest expense, net increased to $2.9 million for the three-month period ended September 30, 2023 from $2.3 million for the three-month period ended September 30, 2022. This increase was primarily due to a higher interest rate on our debt, partially offset by interest income on our available for sale securities.

Interest expense, net increased to $9.3 million for the nine-month period ended September 30, 2023 from $5.3 million for the nine-month period ended September 30, 2022. This increase was primarily due to a higher interest rate on our debt, partially offset by interest income on our available for sale securities.

We anticipate that interest expense will continue to increase in future periods as long as interest rates increase, since our borrowings under our 2023 Credit Facility bear interest at a variable rate.

Realized gain (loss) on marketable securities. For the three and nine-month periods ended September 30, 2023 we recorded a de minimis amount and $0.1 million, respectively, of realized loss, related to our available for sale securities. For each of the three- and nine-month periods ended September 30, 2022 we recorded a realized loss of $0.5 million, related to our available for sale securities.

Loss on debt extinguishment. We recorded a loss on debt extinguishment of $1.6 million for the nine-month period ended September 30, 2023 due to the refinancing of our 2017 Credit Facility with our 2023 Credit Facility.

Income Tax Benefit (Expense). Income tax benefit for the nine-month period ended September 30, 2023 was $1.0 million, or 75% of our pre-tax income. Income tax expense for the nine-month period ended September 30, 2022 was $8.3 million, or 30% of our pre-tax income. The effective tax rate for the nine-month period ended September 30, 2023 was different from our statutory rate due to foreign and state taxes, changes in valuation allowances on deferred tax assets, non deductible executive compensation, changes in the fair value of the contingent consideration liability, and non-taxable non-territorial income.

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, or are not, 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 certain of our digital operations and certain U.S. Foreign Tax Credit carryovers. As a result of historical losses from our digital operations primarily in Spain, Uruguay, Mexico and Argentina and certain U.S. Foreign Tax Credit carryovers, management has determined that it is more likely than not that deferred tax assets of $5.0 million at September 30, 2023 will not be realized and therefore we have established a valuation allowance in that amount on those assets.

The Organization for Economic Co-operation and Development (“OECD”) Pillar 2 guidelines address the increasing digitalization of the global economy, re-allocating taxing rights among countries. The European Union, many other member states and various other governments have adopted, or are in the process of adopting, Pillar 2 which calls for a global minimum tax of 15% to be effective for tax years beginning in 2024. The OECD guidelines published to date include transition and safe harbor rules around the implementation of the Pillar 2 global minimum tax. We are monitoring developments and evaluating the impacts these new rules will have on our tax rate, including eligibility to qualify for these safe harbor rules.

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Segment Operations

Digital

Net Revenue. Net revenue in our digital segment increased to $231.5 million for the three-month period ended September 30, 2023 from $188.9 million for the three-month period ended September 30, 2022. This increase of $42.6 million, or 23%, in net revenue was primarily due to advertising revenue growth from our digital commercial partnerships business, and due to various acquisitions, which did not fully contribute to our financial results in our digital segment in the comparable prior period.

Net revenue in our digital segment increased to $657.9 million for the nine-month period ended September 30, 2023 from $517.0 million for the nine-month period ended September 30, 2022. This increase of $140.9 million, or 27%, in net revenue was primarily due to advertising revenue growth from our digital commercial partnerships business, and due to various acquisitions, which did not fully contribute to our financial results in our digital segment in the comparable prior period.

Cost of revenue. Cost of revenue in our digital segment increased to $199.3 million for the three-month period ended September 30, 2023 from $157.1 million for the three-month period ended September 30, 2022, an increase of $42.2 million, or 27%, primarily due to increased cost of revenue related to advertising revenue growth from our digital commercial partnerships business, and due to various acquisitions, which did not fully contribute to our financial results in our digital segment in the comparable prior period.

Cost of revenue in our digital segment increased to $562.9 million for the nine-month period ended September 30, 2023 from $432.0 million for the nine-month period ended September 30, 2022, an increase of $130.9 million, or 30%, primarily due to increased cost of revenue related to advertising revenue growth from our digital commercial partnerships business, and due to various acquisitions, which did not fully contribute to our financial results in our digital segment in the comparable prior period.

We have previously noted a trend in our digital operations globally whereby revenue is shifting more to programmatic revenue. As a result, advertisers are demanding more efficiency and lower cost from intermediaries like us. In response to this trend, we have been offering programmatic alternatives to advertisers, which continues to put pressure on margins. Among our programmatic solutions is our Smadex ad purchasing platform. Additionally, we are experiencing lower margins related to revenue generated from the primarily global media companies for which we act as commercial partner, as a result of relative negotiating strength and industry trends generally. We expect these trends will continue in future periods, likely further resulting in a more pronounced lower margin business in our digital segment. For example, based on communications with our largest commercial partner, we have received a lower rate of payment on our sales made on behalf of this company beginning in the second half of 2023, resulting in further lower margins. The digital advertising industry remains dynamic and is continuing to undergo rapid changes in technology, customer expectation 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.

Direct operating expenses. Direct operating expenses in our digital segment increased to $9.3 million for the three-month period ended September 30, 2023 from $8.0 million for the three-month period ended September 30, 2022, an increase of $1.3 million, or 16%. The increase was primarily due to an increase in non-cash stock-based compensation, which is mainly a result of the 2023 annual RSU grant timing mentioned above, and due to an increase in expenses associated with the increase in digital advertising revenue.

Direct operating expenses in our digital segment increased to $27.6 million for the nine-month period ended September 30, 2023 from $23.0 million for the nine-month period ended September 30, 2022, an increase of $4.6 million, or 20%. The increase was primarily due to an increase in non-cash stock-based compensation, which is mainly a result of the 2023 annual RSU grant timing mentioned above, and due to an increase in expenses associated with the increase in digital advertising revenue.

Selling, general and administrative expenses. Selling, general and administrative expenses in our digital segment increased to $13.9 million for the three-month period ended September 30, 2023 from $11.0 million for the three-month period ended September 30, 2022, an increase of $2.9 million, or 26%. The increase was primarily due to an increase in salary expense, and due to various acquisitions, which did not fully contribute to our financial results in our digital segment in the comparable prior period.

Selling, general and administrative expenses in our digital segment increased to $42.2 million for the nine-month period ended September 30, 2023 from $28.6 million for the nine-month period ended September 30, 2022, an increase of $13.6 million, or 48%. The increase was primarily due to an increase in salary expense, and due to various acquisitions, which did not fully contribute to our financial results in our digital segment in the comparable prior period.

Television

Net Revenue. Net revenue in our television segment decreased to $29.6 million for the three-month period ended September 30, 2023 from $35.7 million for the three-month period ended September 30, 2022. This decrease of $6.1 million, or 17%, in net revenue

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was primarily due to decreases in political advertising revenue and national advertising revenue, partially offset by increases in local advertising revenue and spectrum usage rights revenue.

Net revenue in our television segment decreased to $89.8 million for the nine-month period ended September 30, 2023 from $98.9 million for the nine-month period ended September 30, 2022. This decrease of $9.1 million, or 9%, in net revenue was primarily due to decreases in political advertising revenue and national advertising revenue, partially offset by increases in local advertising revenue, spectrum usage rights revenue and retransmission consent revenue.

In general, our television segment faces declining audiences, which we believe is present across the industry, competitive factors with the other major Spanish-language broadcasters, and changing demographics and preferences of audiences, particularly younger audiences, in terms of the media they prefer to view, including streaming and social media. We anticipate that these changes in viewer habits will persist and may accelerate at least for the foreseeable future and possibly permanently. Additionally, notwithstanding the increase in local 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 will also continue.

Direct Operating Expenses. Direct operating expenses in our television segment increased to $15.0 million for the three-month period ended September 30, 2023 from $14.9 million for the three-month period ended September 30, 2022.

Direct operating expenses in our television segment increased to $44.7 million for the nine-month period ended September 30, 2023 from $43.7 million for the nine-month period ended September 30, 2022, an increase of $1.0 million, or 2%. The increase was primarily due to an increase in non-cash stock-based compensation, which is mainly a result of the 2023 annual RSU grant timing mentioned above.

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 September 30, 2023 from $5.1 million for the three-month period ended September 30, 2022, a decrease of $0.2 million, or 3%. The decrease was primarily due to a decrease in bad debt expense.

Selling, general and administrative expenses in our television segment decreased to $15.1 million for the nine-month period ended September 30, 2023 from $15.3 million for the nine-month period ended September 30, 2022, a decrease of $0.2 million, or 1%. The decrease was primarily due to a decrease in bad debt expense.

Audio

Net Revenue. Net revenue in our audio segment decreased to $13.4 million for the three-month period ended September 30, 2023 from $16.5 million for the three-month period ended September 30, 2022. This decrease of $3.1 million, or 19%, in net revenue was primarily due to a decrease in political advertising revenue, and decreases in local and national advertising revenue.

Net revenue in our audio segment decreased to $39.1 million for the nine-month period ended September 30, 2023 from $44.0 million for the nine-month period ended September 30, 2022. This decrease of $4.9 million, or 11%, in net revenue was primarily due to a decrease in political advertising revenue, and decreases in local and national advertising revenue.

In general, our audio segment faces declining audiences, which we believe is present across the industry, competitive factors with other major Spanish-language broadcasters, and changing demographics and preferences of listening audiences, particularly younger audiences, including podcasts and other streaming services. We anticipate that these changes in listener habits will persist and may accelerate at least for at least for the foreseeable future and possibly permanently. Additionally, 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 will also continue.

Direct Operating Expenses. Direct operating expenses in our audio segment increased to $7.6 million for the three-month period ended September 30, 2023 from $7.1 million for the three-month period ended September 30, 2022, an increase of $0.5 million, or 7%. The increase was primarily due to an increase in non-cash stock-based compensation, which is mainly a result of the 2023 annual RSU grant timing mentioned above, and due to an increase in salaries.

Direct operating expenses in our audio segment increased to $22.4 million for the nine-month period ended September 30, 2023 from $20.8 million for the nine-month period ended September 30, 2022, an increase of $1.6 million, or 8%. The increase was primarily due to an increase in non-cash stock-based compensation, which is mainly a result of the 2023 annual RSU grant timing mentioned above, and due to an increase in salaries.

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Selling, General and Administrative Expenses. Selling, general and administrative expenses in our audio segment increased to $3.2 million for the three-month period ended September 30, 2023 from $3.1 million for the three-month period ended September 30, 2022.

Selling, general and administrative expenses in our audio segment increased to $11.0 million for the nine-month period ended September 30, 2023 from $9.2 million for the nine-month period ended September 30, 2022, an increase of $1.8 million, or 20%. The increase was primarily due to increased rent expense in temporary office space until the move to our new permanent offices, which was completed in June 2023.

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 income attributable to common stockholders of $18.1 million and $29.3 million for the years ended December 31, 2022 and 2021, respectively, and a net loss attributable to common stockholders of $3.9 million for the year ended December 31, 2020. We had positive cash flow from operations of $78.9 million, $65.3 million and $63.4 million for the years ended December 31, 2022, 2021 and 2020, respectively. We had positive cash flow from operations of $69.1 million for the nine-month period ended September 30, 2023. 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 from the issuance of this report. We believe that our position is strengthened by cash and cash equivalents on hand, in the amount of $110.6 million, and available for sale marketable securities in the additional amount of $18.1 million, as of September 30, 2023.

Our liquidity is not materially affected by the amounts held in accounts outside the United States. The majority of our cash and cash equivalents is held outside the United States, primarily in Uruguay, Spain, Ecuador and Singapore, none of which countries have foreign currency controls. We hold smaller amounts of cash in certain countries that do have foreign currency controls, including South Africa and Argentina, which could impact our ability to freely repatriate such funds from those countries to the United States.

2017 Credit Facility

The following discussion pertains to the 2017 Credit Facility and the 2017 Credit Agreement. It does not purport to be a complete discussion of the full terms and conditions of the 2017 Credit Facility or the 2017 Credit Agreement. For more information, please refer to Note 2 to Notes to Consolidated Financial Statements and the 2017 Credit Agreement itself.

On November 30, 2017 (the “2017 Closing Date”), we entered into its 2017 Credit Facility pursuant to the 2017 Credit Agreement. The 2017 Credit Facility consisted of a $300.0 million senior secured Term Loan B Facility (the “Term Loan B Facility”), which was drawn in full on the 2017 Closing Date.

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

Our borrowings under the 2017 Credit Facility bore 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 March 16, 2023, the interest rate on our Term Loan B was 7.38%. The Term Loan B Facility had an expiration date on November 30, 2024.

For information regarding other provisions, terms and conditions of the 2017 Credit Agreement and our 2017 Credit Facility, please see the discussion beginning on page 12 in Note 2 to Notes to Condensed Consolidated Financial Statements.

2023 Credit Facility

The following discussion pertains to the 2023 Credit Facility and the 2023 Credit Agreement. It does not purport to be a complete discussion of the full terms and conditions of the 2023 Credit Facility or the 2023 Credit Agreement. For more information, please refer to Note 2 to Notes to Consolidated Financial Statements and the 2023 Credit Agreement itself.

On March 17, 2023 (the “2023 Closing Date”), we entered into the 2023 Credit Facility, pursuant to the 2023 Credit Agreement, by and among us, Bank of America, N.A., as Administrative Agent (the “Agent”), and the other financial institutions party thereto as Lenders (collectively, the “Lenders” and individually each a “Lender”).

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As provided for in the 2023 Credit Agreement, our 2023 Credit Facility consists of (i) a $200.0 million senior secured Term A Facility, which was drawn in full on the 2023 Closing Date, and (ii) a $75.0 million Revolving Credit Facility (the “Revolving Credit Facility”), of which $11.5 million was drawn on the 2023 Closing Date. In addition, the 2023 Credit Agreement provides that we may increase the aggregate principal amount of our 2023 Credit Facility by an additional amount equal to $100.0 million plus the amount that would result in our first lien net leverage ratio (as such term is used in the 2023 Credit Agreement) not exceeding 2.25 to 1.0, subject to our satisfying certain conditions.

Borrowings under our 2023 Credit Facility were used on the 2023 Closing Date (a) to repay in full all of our and our subsidiaries' outstanding obligations under the 2017 Credit Agreement, (b) to pay fees and expenses in connection with our 2023 Credit Facility and (c) for general corporate purposes. The 2023 Credit Facility matures on March 17, 2028 (the “Maturity Date”).

The 2023 Credit Facility is guaranteed on a senior secured basis by certain of our existing and future wholly-owned domestic subsidiaries, and secured on a first priority basis by our and those subsidiaries’ assets.

Our borrowings under the 2023 Credit Facility will bear interest on the outstanding principal amount thereof from the date when made at a rate per annum equal to either: (i) the Term SOFR (as defined in the 2023 Credit Agreement) plus a margin between 2.50% and 3.00%, depending on the Total Net Leverage Ratio or (ii) the Base Rate (as defined in the 2023 Credit Agreement) plus a margin between 1.50% and 2.00%, depending on the Total Net Leverage Ratio. In addition, the unused portion of the Revolving Credit Facility is subject to a rate per annum between 0.30% and 0.40%, depending on the Total Net Leverage Ratio.

As of September 30, 2023, the interest rate on our Term A Facility and the drawn portion of the Revolving Credit Facility was 8.16%.

The amounts outstanding under the 2023 Credit Facility may be prepaid at our option without premium or penalty, provided that certain limitations are observed, and subject to customary breakage fees in connection with the prepayment of a Term SOFR loan. The principal amount of the Term A Facility shall be paid in installments on the dates and in the respective amounts set forth in the 2023 Credit Agreement, with the final balance due on the Maturity Date.

Consolidated EBITDA

Consolidated EBITDA decreased to $41.4 million for the nine-month period ended September 30, 2023 compared to $66.6 million for the nine-month period ended September 30, 2022. As a percentage of net revenue, consolidated EBITDA decreased to 5% for the nine-month periods ended September 30, 2023 from 10% for the nine-month periods ended September 30, 2022.

Consolidated EBITDA, which is defined in the 2023 Credit Agreement, is a non-GAAP measure. For a reconciliation of consolidated EBITDA to cash flows from operating activities, its most directly comparable GAAP financial measure, please see page 39.

Share Repurchase Program

On March 1, 2022, our Board of Directors approved a share repurchase program of up to $20 million of our Class A common stock. Under this share repurchase program, we are authorized to purchase shares of our Class A common stock from time to time through open market purchases or negotiated purchases, subject to market conditions and other factors.

In the three- and nine-month periods ended September 30, 2023, we did not repurchase any shares of our Class A common stock. As of September 30, 2023, we have repurchased a total of 1.8 million shares of our Class A common stock under the current share repurchase program for an aggregate purchase price of $11.3 million, or an average price per share of $6.43. All such repurchased shares were retired as of September 30, 2023.

Cash Flow

Net cash flow provided by operating activities was $69.1 million for the nine-month period ended September 30, 2023, compared to net cash flow provided by operating activities of $78.1 million for the nine-month period ended September 30, 2022. We had net income of $2.4 million for the nine-month period ended September 30, 2023, which included non-cash items such as deferred income taxes of $0.2 million, depreciation and amortization expense of $20.3 million, change in fair value of contingent consideration of $8.9 million, non-cash stock-based compensation of $17.1 million, and loss on debt extinguishment of $1.6 million. We had net income of $19.4 million for the nine-month period ended September 30, 2022, which included non-cash items such as deferred income taxes of $3.2 million, depreciation and amortization expense of $19.2 million, change in fair value of contingent consideration of $6.8 million, non-cash stock-based compensation of $8.0 million, and gain on disposal of property and equipment of $0.6 million. We expect to have positive cash flow from operating activities for the 2023 year.

 

Net cash flow used in investing activities was $13.9 million for the nine-month period ended September 30, 2023, compared to net cash flow used in investing activities of $56.0 million for the nine-month period ended September 30, 2022. During the nine-month period ended September 30, 2023, we spent $11.4 million on purchases of marketable securities and $19.9 million in net capital expenditures, made a loan of $13.6 million, spent $6.9 million on purchase of businesses, and received $38.1 million from the sale of marketable securities. During the nine-month period ended September 30, 2022, we spent $92.5 million on purchases of marketable

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securities, spent $7.9 million in net capital expenditures, spent $5.2 million on investments in VIEs, net of cash consolidated, received $46.9 million from the sale of marketable securities, and received $2.7 million from the sale of property and equipment and intangibles. We anticipate that our capital expenditures will be $21.5 million during the full year 2023. Of this amount, we have been reimbursed $3.5 million in connection with our new office lease as of September 30, 2023, and expect that an additional amount of $0.4 million will be reimbursed in connection therewith. 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 $55.2 million for the nine-month period ended September 30, 2023, compared to net cash flow used in financing activities of $85.7 million for the nine-month period ended September 30, 2022. During the nine-month period ended September 30, 2023, we made debt payments of $214.5 million, dividend payments of $13.2 million, distributions to noncontrolling interest of $3.4 million, payments of contingent consideration of $35.1 million, payments of $1.8 million of debt issuance costs, payments for taxes related to shares withheld for share-based compensation plans of $0.2 million, and received $212.4 million proceeds from borrowings on debt and $0.6 million related to the issuance of common stock upon the exercise of stock options. During the nine-month period ended September 30, 2022, we made payments of contingent consideration of $65.3 million, dividend payments of $6.4 million, debt payments of $2.5 million, payments for taxes related to shares withheld for share-based compensation plans of $0.3 million, spent $11.3 million for the repurchase of Class A common stock, and received $0.2 million related to the issuance of common stock upon the exercise of stock options.

Credit Risk

We have credit risk in our digital segment insofar as we are required to pay the media companies for which we act as commercial partner for all inventory purchased regardless of whether we are able to collect on a transaction from the local advertiser or its ad agency. We believe that we manage this credit risk effectively, in part by analyzing the creditworthiness of these customers; however, we can give no assurance that this will continue to be the case in future periods.

Additionally, we are dependent upon one single global media company for the majority of our consolidated revenue, which amounted to 54% and 53% of our consolidated revenue for the three- and nine-month periods ended September 30, 2023, respectively, and 49% and 51% of our consolidated revenue for the three- and nine-month periods ended September 30, 2022, respectively. We expect that this dependence will continue. The loss of all or a substantial part of this revenue would have a significant adverse effect on our liquidity and cash flow.

 

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

General

Market risk represents the potential loss that may affect our financial position, results of operations and/or cash flows due to adverse changes in the financial markets. We are also exposed to market risk from changes in the base rates on our 2023 Credit Facility.

Interest Rates

As of September 30, 2023, we had $209.0 million of variable rate bank debt outstanding under our 2023 Credit Facility. Our borrowings bear interest on the outstanding principal amount thereof from the date when made at a rate per annum equal to either: (i) the Term SOFR (as defined in the 2023 Credit Agreement) plus a margin between 2.50% and 3.00%, depending on the Total Net Leverage Ratio or (ii) the Base Rate (as defined in the 2023 Credit Agreement) plus a margin between 1.50% and 2.00%, depending on the Total Net Leverage Ratio. In addition, the unused portion of the Revolving Credit Facility is subject to a rate per annum between 0.30% and 0.40%, depending on the Total Net Leverage Ratio.

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 SOFR were to increase by a hypothetical 100 basis points, or one percentage point, from its September 30, 2023 level, our annual interest expense would increase and cash flow from operations would decrease by $2.1 million based on the outstanding balance of our term loan as of September 30, 2023.

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, certain other Latin American currencies and various Asian currencies. The effect of an immediate and hypothetical 10% adverse change in foreign exchange rates on foreign-denominated accounts receivable at September 30, 2023 would not be material to our consolidated results of operations or overall financial condition. Our operating expenses are primarily denominated in U.S. dollars. In addition, certain of our operating expenses are denominated in the currencies of the countries in which our operations are located, such as Spain, Latin American countries and other 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 inflation data, 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 Condensed Consolidated Financial Statements).

We maintain certain cash and cash equivalents in Argentina and South Africa, which countries have foreign exchange controls that could impact our ability to freely repatriate such funds from those countries to the United States.

As our international operations continue to 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 effect 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 effective.

Our disclosure controls and procedures are designed to ensure that the information relating to our company, including our consolidated subsidiaries, required to be disclosed in our SEC reports is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate to allow for timely decisions regarding required disclosure.

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Our management, including our chief executive officer and chief financial officer, does not expect that our disclosure controls or our internal control over financial reporting will prevent or detect all errors and all fraud. 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. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

There have not been any changes in our internal control over financial reporting during the period covered by this quarterly report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II.

OTHER INFORMATION

 

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, USE OF PROCEEDS, AND ISSUER PURCHASES OF EQUITY SECURITIES

Issuer Purchases of Equity Securities

On March 1, 2022, our Board of Directors approved a share repurchase program of up to $20 million of our Class A common stock. Under this share repurchase program, we are authorized to purchase shares of our Class A common stock from time to time through open market purchases or negotiated purchases, subject to market conditions and other factors.

In the three- and nine-month periods ended September 30, 2023, we did not repurchase any shares of our Class A common stock. As of September 30, 2023, we have repurchased a total of 1.8 million shares of our Class A common stock under the current share repurchase program for an aggregate purchase price of $11.3 million, or an average price per share of $6.43. All such repurchased shares were retired as of September 30, 2023.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

Insider Trading Arrangements

During the quarter ended September 30, 2023, none of our directors or officers informed us of the adoption or termination of a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as those terms are defined in Regulation S-K, Item 408.

 

 

 


 

ITEM 6. EXHIBITS

  10.1(1)†

 

Executive Compensation Letter Agreement effective as of July 1, 2023 by and between the Company and Juan Saldívar von Wuthenau

 

 

 

  10.2(1)†

 

Participation Agreement effective as of July 1, 2023 by and between the Company and Juan Saldívar von Wuthenau

 

 

 

  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.

† Management contract or compensatory plan, contract or arrangement.

(1) Incorporated by reference from our Current Report on Form 8-K, filed with the SEC on July 14, 2023.

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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: November 2, 2023

 

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