UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
(MARK ONE)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE QUARTERLY PERIOD ENDED
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
(Exact name of registrant as specified in its charter)
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(State or other jurisdiction of incorporation or organization) |
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(I.R.S. Employer Identification No.) |
(Address of principal executive offices) (Zip Code)
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(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 |
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Trading Symbol(s) |
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Name of each exchange on which registered |
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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.
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).
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 |
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Non-accelerated filer |
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Smaller reporting company |
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Emerging growth company |
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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 November 1, 2021, there were
ENTRAVISION COMMUNICATIONS CORPORATION
FORM 10-Q FOR THE THREE- AND NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2021
TABLE OF CONTENTS
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Page Number |
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ITEM 1. |
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4 |
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CONSOLIDATED BALANCE SHEETS (UNAUDITED) AS OF SEPTEMBER 30, 2021 AND DECEMBER 31, 2020 |
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5 |
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6 |
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7 |
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9 |
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ITEM 2. |
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
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29 |
ITEM 3. |
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44 |
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ITEM 4. |
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44 |
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ITEM 1. |
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46 |
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ITEM 1A. |
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46 |
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ITEM 2. |
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46 |
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ITEM 3. |
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46 |
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ITEM 4. |
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46 |
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ITEM 5. |
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46 |
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ITEM 6. |
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47 |
Forward-Looking Statements
This document contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. All statements other than statements of historical fact are “forward-looking statements” for purposes of federal and state securities laws, including, but not limited to, any projections of earnings, revenue or other financial items; any statements of the plans, strategies and objectives of management for future operations; any statements concerning proposed new services or developments; any statements regarding future economic conditions or performance; any statements of belief; and any statements of assumptions underlying any of the foregoing.
Forward-looking statements may include the words “may,” “could,” “will,” “estimate,” “intend,” “continue,” “believe,” “expect”, “anticipate”, “hope” or other similar words. These forward-looking statements present our estimates and assumptions only as of the date of this report. Except for our ongoing obligation to disclose material information as required by the federal securities laws, we do not intend, and undertake no obligation, to update any forward-looking statement.
Although we believe that the expectations reflected in any of our forward-looking statements are reasonable, actual results could differ materially from those projected or assumed in any of our forward-looking statements. Our future financial condition and results of operations, as well as any forward-looking statements, are subject to change and inherent risks and uncertainties. Some of the key factors impacting these risks and uncertainties include, but are not limited to:
2
For a detailed description of these and other factors that could cause actual results to differ materially from those expressed in any forward-looking statement, please see the section entitled “Risk Factors,” beginning on page 33 of our Annual Report on Form 10-K for the year ended December 31, 2020 (our “2020 10-K”).
3
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ENTRAVISION COMMUNICATIONS CORPORATION
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(In thousands, except share and per share data)
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September 30, |
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December 31, |
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2021 |
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2020 |
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ASSETS |
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Current assets |
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Cash and cash equivalents |
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$ |
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$ |
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Marketable securities |
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- |
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Restricted cash |
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Trade receivables, (including related parties of $ |
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Assets held for sale |
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Prepaid expenses and other current assets (including related parties of $ |
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Total current assets |
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Property and equipment, net of accumulated depreciation of $ |
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Intangible assets subject to amortization, net of accumulated amortization of $ |
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Intangible assets not subject to amortization |
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Goodwill |
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Operating leases right of use asset |
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Other assets |
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Total assets |
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$ |
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$ |
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LIABILITIES AND STOCKHOLDERS' EQUITY |
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Current liabilities |
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Current maturities of long-term debt |
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$ |
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$ |
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Accounts payable and accrued expenses (including related parties of $ |
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Operating lease liabilities |
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Total current liabilities |
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Long-term debt, less current maturities, net of unamortized debt issuance costs of $ |
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Long-term operating lease liabilities |
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Other long-term liabilities |
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Deferred income taxes |
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Total liabilities |
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Redeemable noncontrolling interest |
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- |
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Stockholders' equity |
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Class A common stock, $ |
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Class B common stock, $ |
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Class U common stock, $ |
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Additional paid-in capital |
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Accumulated deficit |
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( |
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( |
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Accumulated other comprehensive income (loss) |
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( |
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( |
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Total stockholders' equity |
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Total liabilities and stockholders' equity |
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$ |
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$ |
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See Notes to Consolidated Financial Statements
4
ENTRAVISION COMMUNICATIONS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(In thousands, except share and per share data)
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Three-Month Period |
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Nine-Month Period |
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Ended September 30, |
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Ended September 30, |
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2021 |
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2020 |
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2021 |
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2020 |
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Net Revenue |
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$ |
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$ |
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$ |
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$ |
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Expenses: |
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Cost of revenue - digital |
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Direct operating expenses (including related parties of $ |
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Selling, general and administrative expenses |
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Corporate expenses (including non-cash stock-based compensation of $ |
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Depreciation and amortization (includes direct operating of $ |
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Impairment charge |
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- |
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Foreign currency (gain) loss |
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( |
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Other operating (gain) loss |
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( |
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( |
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( |
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Operating income (loss) |
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Interest expense |
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( |
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( |
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( |
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Interest income |
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Dividend income |
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Income (loss) before income taxes |
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( |
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Income tax benefit (expense) |
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( |
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( |
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( |
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Net income (loss) |
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( |
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Net (income) loss attributable to redeemable noncontrolling interest |
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( |
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- |
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( |
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- |
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Net income (loss) attributable to common stockholders |
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$ |
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$ |
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$ |
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$ |
( |
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Basic and diluted earnings per share: |
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Net income (loss) per share attributable to common stockholders, basic |
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$ |
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$ |
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$ |
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$ |
( |
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Net income (loss) per share attributable to common stockholders, diluted |
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$ |
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$ |
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$ |
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$ |
( |
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Cash dividends declared per common share |
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$ |
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$ |
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$ |
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$ |
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Weighted average common shares outstanding, basic |
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Weighted average common shares outstanding, diluted |
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See Notes to Consolidated Financial Statements
5
ENTRAVISION COMMUNICATIONS CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)
(In thousands)
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Three-Month Period |
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Nine-Month Period |
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Ended September 30, |
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Ended September 30, |
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2021 |
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2020 |
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2021 |
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2020 |
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Net income (loss) |
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$ |
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$ |
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$ |
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$ |
( |
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Other comprehensive income (loss), net of tax: |
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Change in foreign currency translation |
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( |
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Change in fair value of available for sale securities |
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( |
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( |
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( |
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Total other comprehensive income (loss) |
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( |
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Comprehensive income (loss) |
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( |
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Comprehensive (income) loss attributable to redeemable noncontrolling interests |
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( |
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- |
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( |
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- |
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Comprehensive income (loss) attributable to common stockholders |
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$ |
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$ |
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$ |
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$ |
( |
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See Notes to Consolidated Financial Statements
6
ENTRAVISION COMMUNICATIONS CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands, except share and per share data)
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Number of Common Shares |
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Common Stock |
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Accumulated |
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Treasury |
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Class |
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Class |
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Class |
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Additional |
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Accumulated |
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Other |
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Class A |
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Class B |
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Class U |
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Stock |
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A |
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B |
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U |
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Capital |
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Deficit |
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Income (Loss) |
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Total |
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Balance, December 31, 2020 |
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- |
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$ |
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$ |
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$ |
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$ |
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$ |
( |
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$ |
( |
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$ |
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Issuance of common stock upon exercise of stock options or awards of restricted stock units |
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- |
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- |
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- |
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- |
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- |
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- |
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( |
) |
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- |
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- |
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( |
) |
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Stock-based compensation expense |
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- |
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- |
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- |
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- |
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- |
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- |
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- |
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- |
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- |
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Dividends paid |
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- |
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- |
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- |
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- |
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- |
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- |
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- |
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( |
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- |
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- |
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( |
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Change in fair value of marketable securities |
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- |
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- |
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- |
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- |
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- |
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- |
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- |
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- |
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- |
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( |
) |
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( |
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Foreign currency translation gain (loss) |
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- |
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- |
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- |
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- |
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- |
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- |
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- |
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- |
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- |
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Net income (loss) attributable to common stockholders for the three-month period-ended March 31, 2021 |
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- |
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- |
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- |
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- |
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- |
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- |
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- |
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- |
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- |
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Balance, March 31, 2021 |
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- |
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( |
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( |
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Issuance of common stock upon exercise of stock options or awards of restricted stock units |
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- |
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- |
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- |
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- |
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- |
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- |
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( |
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- |
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- |
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( |
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Stock-based compensation expense |
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- |
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- |
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- |
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- |
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- |
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- |
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- |
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- |
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- |
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Class B common stock exchanged for Class A common stock |
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( |
) |
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- |
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- |
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- |
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- |
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- |
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- |
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- |
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- |
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- |
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Dividends paid |
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- |
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- |
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- |
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- |
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- |
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- |
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- |
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( |
) |
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- |
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- |
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( |
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Change in fair value of marketable securities |
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- |
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- |
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- |
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- |
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- |
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- |
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- |
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- |
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- |
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( |
) |
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( |
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Foreign currency translation gain (loss) |
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- |
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- |
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- |
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- |
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- |
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- |
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- |
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- |
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- |
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( |
) |
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( |
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Net income (loss) attributable to common stockholders for the three-month period-ended June 30, 2021 |
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- |
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- |
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- |
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- |
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- |
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- |
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- |
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- |
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- |
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Balance, June 30, 2021 |
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- |
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( |
) |
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( |
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Issuance of common stock upon exercise of stock options or awards of restricted stock units |
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- |
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- |
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- |
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- |
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- |
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- |
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- |
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- |
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Stock-based compensation expense |
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- |
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- |
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- |
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- |
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- |
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- |
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- |
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- |
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- |
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Class B common stock exchanged for Class A common stock |
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( |
) |
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- |
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- |
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- |
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- |
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- |
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- |
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- |
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- |
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- |
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Dividends paid |
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- |
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- |
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- |
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- |
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- |
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- |
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- |
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( |
) |
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- |
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- |
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( |
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Change in fair value of marketable securities |
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- |
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- |
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- |
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- |
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- |
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- |
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- |
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- |
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- |
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( |
) |
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( |
) |
Foreign currency translation gain (loss) |
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- |
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- |
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- |
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- |
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- |
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- |
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- |
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- |
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- |
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Acquisition of redeemable noncontrolling interest |
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- |
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- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
( |
) |
|
- |
|
|
- |
|
|
( |
) |
Net income (loss) for the three-month period-ended September 30, 2021 |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
|
|
- |
|
|
|
||
Balance, September 30, 2021 |
|
|
|
|
|
|
|
|
- |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
( |
) |
$ |
( |
) |
$ |
|
See Notes to Consolidated Financial Statements
7
|
|
Number of Common Shares |
|
Common Stock |
|
|
|
|
|
Accumulated |
|
|
|
|||||||||||||||||||||
|
|
|
|
|
|
|
|
Treasury |
|
Class |
|
Class |
|
Class |
|
Additional |
|
Accumulated |
|
Other |
|
|
|
|||||||||||
|
|
Class A |
|
Class B |
|
Class U |
|
Stock |
|
A |
|
B |
|
U |
|
Capital |
|
Deficit |
|
Income (Loss) |
|
Total |
|
|||||||||||
Balance, December 31, 2019 |
|
|
|
|
|
|
|
|
- |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
( |
) |
$ |
( |
) |
$ |
|
||||||||
Stock-based compensation expense |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
|
|
- |
|
|
- |
|
|
|
||
Repurchase of Class A common stock |
|
|
( |
) |
|
- |
|
|
- |
|
|
|
|
- |
|
|
- |
|
|
- |
|
|
( |
) |
|
- |
|
|
- |
|
|
( |
) |
|
Retirement of treasury stock |
|
|
- |
|
|
- |
|
|
- |
|
|
( |
) |
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
Dividends paid |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
( |
) |
|
- |
|
|
- |
|
|
( |
) |
Change in fair value of marketable securities |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
( |
) |
|
( |
) |
Foreign currency translation gain (loss) |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
( |
) |
|
( |
) |
Net income (loss) attributable to common stockholders for the three-month period-ended March 31, 2020 |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
( |
) |
|
- |
|
|
( |
) |
Balance, March 31, 2020 |
|
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
( |
) |
|
|
||||||||
Issuance of common stock upon exercise of stock options or awards of restricted stock units |
|
|
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
( |
) |
|
- |
|
|
- |
|
|
( |
) |
|
Stock-based compensation expense |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
|
|
- |
|
|
- |
|
|
|
||
Dividends paid |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
( |
) |
|
- |
|
|
- |
|
|
( |
) |
Change in fair value of marketable securities |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
|
|
|
||
Foreign currency translation gain (loss) |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
|
|
|
||
Net income (loss) attributable to common stockholders for the three-month period-ended June 30, 2020 |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
|
|
- |
|
|
|
||
Balance, June 30, 2020 |
|
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|||||||||
Stock-based compensation expense |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
|
|
- |
|
|
- |
|
|
|
||
Dividends paid |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
( |
) |
|
- |
|
|
- |
|
|
( |
) |
Change in fair value of marketable securities |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
( |
) |
|
( |
) |
Foreign currency translation gain (loss) |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
( |
) |
|
( |
) |
Net income (loss) for the three-month period-ended September 30, 2020 |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
|
|
- |
|
|
|
||
Balance, September 30, 2020 |
|
|
|
|
|
|
|
|
- |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
( |
) |
$ |
|
$ |
|
See Notes to Consolidated Financial Statements
8
ENTRAVISION COMMUNICATIONS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)
|
Nine-Month Period |
|
|||||
|
Ended September 30, |
|
|||||
|
2021 |
|
|
2020 |
|
||
Cash flows from operating activities: |
|
|
|
|
|
||
Net income (loss) |
$ |
|
|
$ |
( |
) |
|
Adjustments to reconcile net income (loss) to net cash provided by operating activities: |
|
|
|
|
|
||
Depreciation and amortization |
|
|
|
|
|
||
Impairment charge |
|
|
|
|
|
||
Deferred income taxes |
|
|
|
|
( |
) |
|
Non-cash interest |
|
|
|
|
|
||
Amortization of syndication contracts |
|
|
|
|
|
||
Payments on syndication contracts |
|
( |
) |
|
|
( |
) |
Non-cash stock-based compensation |
|
|
|
|
|
||
(Gain) loss on disposal of property and equipment |
|
( |
) |
|
|
( |
) |
Changes in assets and liabilities: |
|
|
|
|
|
||
(Increase) decrease in accounts receivable |
|
( |
) |
|
|
|
|
(Increase) decrease in prepaid expenses and other assets |
|
|
|
|
|
||
Increase (decrease) in accounts payable, accrued expenses and other liabilities |
|
|
|
|
( |
) |
|
Net cash provided by operating activities |
|
|
|
|
|
||
Cash flows from investing activities: |
|
|
|
|
|
||
Proceeds from sale of property and equipment and intangibles |
|
|
|
|
|
||
Purchases of property and equipment |
|
( |
) |
|
|
( |
) |
Purchases of intangible assets |
|
|
|
|
( |
) |
|
Purchase of a businesses, net of cash acquired |
|
( |
) |
|
|
|
|
Proceeds from marketable securities |
|
|
|
|
|
||
Purchases of investments |
|
( |
) |
|
|
- |
|
Net cash provided by investing activities |
|
|
|
|
|
||
Cash flows from financing activities: |
|
|
|
|
|
||
Proceeds from stock option exercises |
|
|
|
|
|
||
Tax payments related to shares withheld for share-based compensation plans |
|
( |
) |
|
|
( |
) |
Payments on long-term debt |
|
( |
) |
|
|
( |
) |
Dividends paid |
|
( |
) |
|
|
( |
) |
Repurchase of Class A common stock |
|
|
|
|
( |
) |
|
Payments of capitalized debt costs |
|
( |
) |
|
|
|
|
Net cash used in financing activities |
|
( |
) |
|
|
( |
) |
Effect of exchange rates on cash, cash equivalents and restricted cash |
|
( |
) |
|
|
( |
) |
Net increase (decrease) in cash, cash equivalents and restricted cash |
|
|
|
|
|
||
Cash, cash equivalents and restricted cash: |
|
|
|
|
|
||
Beginning |
|
|
|
|
|
||
Ending |
$ |
|
|
$ |
|
||
Supplemental disclosures of cash flow information: |
|
|
|
|
|
||
Cash payments for: |
|
|
|
|
|
||
Interest |
$ |
|
|
$ |
|
||
Income taxes |
$ |
|
|
$ |
|
||
Supplemental disclosures of non-cash investing and financing activities: |
|
|
|
|
|
||
Capital expenditures financed through accounts payable, accrued expenses and other liabilities |
$ |
|
|
$ |
|
||
Contingent consideration included in accounts payable, accrued expenses and other liabilities |
$ |
|
|
$ |
|
See Notes to Consolidated Financial Statements
9
ENTRAVISION COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2021
1. BASIS OF PRESENTATION
Presentation
2. THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
The Company is a diversified global media, marketing and technology company serving clients in the United States and around the world. The Company’s management has determined that the Company operates in
The Company’s digital segment, whose operations are located primarily in Latin America, Spain and Southeast Asia, provides innovative advertising solutions in high growth markets to advertisers and publishers, including some of the world's leading technology companies. Through its television and radio segments, the Company reaches and engages U.S. Hispanics across acculturation levels and media channels.
The Company provides a suite of digital advertising solutions that offer advertisers the opportunity to reach and engage with their target audiences by providing access to digital inventory at scale. These solutions include those offered by Cisneros Interactive in Latin America and MediaDonuts Pte. Ltd. (“MediaDonuts") in Southeast Asia, each of which maintains sales partnerships with major global media platforms.
As of September 30, 2021, the Company owns and/or operates
As of September 30, 2021, the Company's radio operations consist of
The Impact of the COVID-19 Pandemic on the Company’s Business
Notwithstanding a worldwide increase in COVID-19 cases throughout the summer, the COVID-19 pandemic did not have a significant impact on the Company’s business during the quarter ended September 30, 2021. Subject to the extent and duration of possible resurgences of the pandemic and the continuing economic crisis that has resulted from the pandemic, the Company anticipates that the pandemic will continue to have a diminishing or little effect on its business, from both an operational and financial perspective, in future periods.
During the quarter ended September 30, 2021, the Company did not experience material cancellations of advertising or a decrease in new advertising placements in its television and radio segments, continuing a trend the Company had begun to experience earlier this year. At this time, the Company does not know if certain behavioral changes by audiences in their television viewership
10
and radio listening habits during the pandemic have changed permanently. The Company has also continued to ease credit terms for certain of its advertising clients to help them manage their own cash flow and address other financial needs.
In order to preserve cash during this period, the Company instituted certain cost reduction measures that are still in effect. On March 26, 2020, the Company suspended repurchases under its share repurchase program. Effective May 16, 2020, the Company suspended company matching of employee contributions to their 401(k) retirement plans. The Company also reduced its dividend by
Additionally, the Company elected to defer the employer portion of the social security payroll tax (
Restricted Cash
Related Party
Substantially all of the Company’s television stations are Univision- or UniMás-affiliated television stations. The network affiliation agreement with Univision provides certain of the Company’s owned stations the exclusive right to broadcast Univision’s primary network and UniMás network programming in their respective markets. Under the network affiliation agreement, the Company retains the right to sell no less than per hour of the available advertising time on stations that broadcast Univision network programming, and the right to sell approximately per hour of the available advertising time on stations that broadcast UniMás network programming, subject to adjustment from time to time by Univision.
Under the network affiliation agreement, Univision acts as the Company’s exclusive third-party sales representative for the sale of certain national advertising on the Univision- and UniMás-affiliate television stations, and the Company pays certain sales representation fees to Univision relating to sales of all advertising for broadcast on its Univision- and UniMás-affiliate television stations. During the three-month periods ended September 30, 2021 and 2020, the amount the Company paid Univision in this capacity was $
The Company also generates revenue under
Under the Company’s current proxy agreement with Univision, the Company grants Univision the right to negotiate the terms of retransmission consent agreements for its Univision- and UniMás-affiliated television station signals. Among other things, the proxy agreement provides terms relating to compensation to be paid to the Company by Univision with respect to retransmission consent agreements entered into with multichannel video programming distributors, (“MVPDs”). As of September 30, 2021, the amount due to the Company from Univision was $
Univision currently owns approximately
11
Stock-Based Compensation
The Company measures all stock-based awards using a fair value method and recognizes the related stock-based compensation expense in the consolidated financial statements over the requisite service period. As stock-based compensation expense recognized in the Company’s consolidated financial statements is based on awards ultimately expected to vest, it has been reduced for estimated forfeitures.
Stock-based compensation expense related to grants of restricted stock units was $
Stock Options
Stock-based compensation expense related to stock options is based on the fair value on the date of grant using the Black-Scholes option pricing model and is amortized over the vesting period, generally between
For the three- and nine-month periods ended September 30, 2021 and 2020, there was
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
The following is a summary of non-vested restricted stock units granted (in thousands, except grant date fair value data):
|
|
Nine-Month Period |
|
|
|||
|
|
Ended September 30, 2021 |
|
|
|||
|
|
Number Granted |
|
Weighted |
|
|
|
Restricted stock units |
|
|
$ |
|
|
Income (Loss) Per Share
The following table illustrates the reconciliation of the basic and diluted income (loss) per share computations required by Accounting Standards Codification (ASC) 260-10, “Earnings per Share” (in thousands, except share and per share data):
Basic income (loss) per share is computed as net income (loss) divided by the weighted average number of shares outstanding for the period. Diluted income (loss) per share reflects the potential dilution, if any, that could occur from shares issuable through stock options and restricted stock awards.
12
|
|
Three-Month Period |
|
|
Nine-Month Period |
|
||||||||||
|
|
Ended September 30, |
|
|
Ended September 30, |
|
||||||||||
|
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
||||
Basic earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net income (loss) attributable to common stockholders |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Weighted average common shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Per share: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net income (loss) per share attributable to common stockholders |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Diluted earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net income (loss) attributable to common stockholders |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Weighted average common shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Dilutive securities: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Stock options and restricted stock units |
|
|
|
|
|
|
|
|
|
|
|
- |
|
|||
Diluted shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Per share: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net income (loss) per share attributable to common stockholders |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
For the three- and nine-month periods ended September 30, 2021, a total of
Impairment
The Company has identified each of its
Goodwill and indefinite life intangibles are not amortized but are tested annually for impairment, or more frequently, if events or changes in circumstances indicate that the assets might be impaired. The annual testing date is October 1. As noted in the Company’s 2020 10-K, the Company recorded impairment charges of goodwill in its digital reporting unit totaling $
13
The carrying amount of intangible assets not subject to amortization for each of the Company’s operating segments for the nine-month period ended September 30, 2021 is as follows (in thousands):
|
|
December 31, 2020 |
|
|
Impairment |
|
|
Transfer to Assets Held for Sale |
|
|
September 30, 2021 |
|
||||
Television |
|
$ |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
|
||
Radio |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
|
||
Digital |
|
- |
|
|
|
- |
|
|
|
- |
|
|
- |
|
||
Consolidated |
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
Treasury Stock
On July 13, 2017, the Board of Directors approved a share repurchase of up to $
Treasury stock is included as a deduction from equity in the Stockholders’ Equity section of the Consolidated Balance Sheets. Shares repurchased pursuant to the Company’s share repurchase program are retired during the same calendar year.
During the three- and nine-month periods ended September 30, 2021, the Company did
2017 Credit Facility
On
Borrowings under the Term Loan B Facility were used on the Closing Date (a) to repay in full all of the Company’s and its subsidiaries’ outstanding obligations under the Company’s previous credit facility and to terminate the credit agreement relating thereto (the “2013 Credit Agreement”), (b) to pay fees and expenses in connection with the 2017 Credit Facility, and (c) for general corporate purposes.
The 2017 Credit Facility is guaranteed on a senior secured basis by certain of the Company’s existing and future wholly-owned domestic subsidiaries, and is secured on a first priority basis by the Company’s and those subsidiaries’ assets.
The Company’s borrowings under the 2017 Credit Facility bear interest on the outstanding principal amount thereof from the date when made at a rate per annum equal to either: (i) the Eurodollar Rate (as defined in the 2017 Credit Agreement) plus
The amounts outstanding under the 2017 Credit Facility may be prepaid at the Company’s option without premium or penalty, provided that certain limitations are observed, and subject to customary breakage fees in connection with the prepayment of a LIBOR
14
rate loan. The principal amount of the Term Loan B Facility shall be paid in installments on the dates and in the respective amounts set forth in the 2017 Credit Agreement, with the final balance due on the Maturity Date.
Subject to certain exceptions, the 2017 Credit Facility contains covenants that limit the ability of the Company and its restricted subsidiaries to, among other things:
The 2017 Credit Facility also provides for certain customary events of default, including the following:
The Term Loan B Facility does not contain any financial covenants. In connection with the Company entering into the 2017 Credit Agreement, the Company and its restricted subsidiaries also entered into a Security Agreement, pursuant to which the Company
15
and all of the companies existing in future wholly-owned domestic subsidiaries (the "Guarantors") each granted a first priority security interest in the collateral securing the 2017 Credit Facility for the benefit of the lenders under the 2017 Credit Facility.
On April 30, 2019, the Company entered into an amendment to the 2017 Credit Agreement, which became effective on May 1, 2019.
The 2017 Credit Agreement contains a covenant that the Company deliver its financial statements and certain other information for each fiscal year within 90 days after the end of each fiscal year. As a result of the Company’s expanding business operations, primarily related to the acquisition of a majority interest in Cisneros Interactive in October 2020, the Company did not deliver its financial statements for the year ended December 31, 2020 and other information within 90 days after the end of the fiscal year ended December 31, 2020, and therefore the Company did not satisfy the requirement of this covenant in the 2017 Credit Agreement. However, the 2017 Credit Agreement provides an additional period of 30 days for the Company to satisfy such covenant. On April 12, 2021, the Company filed its 2020 10-K with the SEC. The Company believes it is in compliance with all covenants in the 2017 Credit Agreement and has satisfied the requirements of the 2017 Credit Agreement with respect to the delivery of the Company’s financial statements and other information for the fiscal year ended December 31, 2020.
On June 4, 2021, the Company entered into the Second Amendment (the "Amendment") to the 2017 Credit Agreement, by and among the Company, Bank of America, N.A., as Administrative Agent, and the other financial institutions party thereto as Lenders (collectively, the “Lenders”). The Amendment amends the 2017 Credit Agreement, primarily to permit additional investments in restricted subsidiaries that are not loan parties, and make certain changes to the definition of “Consolidated Net Income” for the purpose of calculating EBITDA as defined by the 2017 Credit Agreement. Pursuant to the Amendment, the Company agreed to pay to the Lenders consenting to the Amendment a fee equal to
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.
16
The following table presents the Company’s financial assets and liabilities measured at fair value on a recurring basis in the Consolidated Balance Sheets (in millions):
|
|
September 30, 2021 |
|
|||||||||||||
|
|
Total Fair Value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and Carrying |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Value on Balance |
|
|
Fair Value Measurement Category |
|
||||||||||
(in millions) |
|
Sheet |
|
|
Level 1 |
|
Level 2 |
|
|
Level 3 |
|
|||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Money market account |
|
$ |
|
|
$ |
- |
|
$ |
|
|
$ |
- |
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contingent consideration |
|
$ |
|
|
$ |
- |
|
$ |
- |
|
|
$ |
|
|||
|
|
December 31, 2020 |
|
|||||||||||||
|
|
Total Fair Value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and Carrying |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Value on Balance |
|
|
Fair Value Measurement Category |
|
||||||||||
|
|
Sheet |
|
|
Level 1 |
|
Level 2 |
|
|
Level 3 |
|
|||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market account |
|
$ |
|
|
$ |
- |
|
$ |
|
|
$ |
- |
|
|||
Certificates of deposit |
|
$ |
|
|
$ |
- |
|
$ |
|
|
$ |
- |
|
|||
Corporate bonds |
|
$ |
|
|
$ |
- |
|
$ |
|
|
$ |
- |
|
The Company held investments in a money market fund, certificates of deposit and corporate bonds. All certificates of deposit are within the current FDIC insurance limits and the majority of corporate bonds are investment grade.
The Company’s available for sale securities are comprised of certificates of deposit and bonds. These securities are valued using quoted prices for similar attributes in active markets (Level 2). Since these investments are classified as available for sale, they are recorded at their fair market value within Cash and cash equivalents and Marketable securities in the Consolidated Balance Sheets and their unrealized gains or losses are included in other comprehensive income.
As of September 30, 2021, all of the available for sale securities have matured.
The fair value of the contingent consideration is related to the acquisition of the remaining
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.
17
The following table provides a roll-forward of accumulated other comprehensive income (loss) for the three- and nine-month periods ended September 30, 2021 (in millions):
|
|
Foreign |
|
|
Marketable |
|
|
Total |
|
|||
Accumulated other comprehensive income (loss) as of December 31, 2020 |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
Other comprehensive income (loss) |
|
|
|
|
|
( |
) |
|
|
|
||
Income tax (expense) benefit |
|
|
- |
|
|
|
- |
|
|
|
- |
|
Other comprehensive income (loss), net of tax |
|
|
|
|
|
( |
) |
|
|
|
||
Accumulated other comprehensive income (loss) as of March 31, 2021 |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
Other comprehensive income (loss) |
|
|
( |
) |
|
|
- |
|
|
|
( |
) |
Income tax (expense) benefit |
|
|
- |
|
|
|
- |
|
|
|
- |
|
Other comprehensive income (loss), net of tax |
|
|
( |
) |
|
|
- |
|
|
|
( |
) |
Accumulated other comprehensive income (loss) as of June 30, 2021 |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
Other comprehensive income (loss) |
|
|
|
|
|
- |
|
|
|
|
||
Income tax (expense) benefit |
|
|
- |
|
|
|
- |
|
|
|
- |
|
Other comprehensive income (loss), net of tax |
|
|
|
|
|
- |
|
|
|
|
||
Accumulated other comprehensive income (loss) as of September 30, 2021 |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
Foreign Currency
The Company’s reporting currency is the U.S. dollar. All transactions initiated in foreign currencies are translated into U.S. dollars in accordance with ASC Topic 830, “Foreign Currency Matters” and the related rate fluctuation on transactions is included in the consolidated statements of operations.
For foreign operations with the local currency as the functional currency, assets and liabilities are translated from the respective local currencies into U.S. dollars at the exchange rate prevailing at the balance sheet date and equity is translated at historical rates. Revenues and expenses are translated at the average exchange rate for the period. Translation adjustments resulting from the process of translating the local currency financial statements into U.S. dollars are included in determining comprehensive (income) loss.
Based on recent data reported by the International Monetary Fund, Argentina has been identified as a country with a highly inflationary economy. According to U.S. GAAP, a registrant should apply highly inflationary accounting in the first reporting period after such determination. Therefore, the Company transitioned the accounting for its Argentine operations to highly inflationary status as of July 1, 2018 and, commencing that date, changed the functional currency from the Argentine peso to the U.S. dollar.
Cost of Revenue
Cost of revenue related to the Company’s digital segment consists primarily of the costs of online media acquired from third-party publishers.
Assets Held For Sale
Assets are classified as held for sale when the carrying value is expected to be recovered through a sale rather than through their continued use and all of the necessary classification criteria have been met. Assets held for sale are recorded at the lower of their carrying value or estimated fair value less selling costs and classified as current assets. Depreciation is not recorded on assets classified as held for sale.
On March 30, 2020, the Company entered into an agreement to sell a building and related improvements in the Houston, Texas area for approximately $
During the first quarter of 2020, the Company listed for sale a building and related improvements in the Laredo, Texas area for approximately $
During the first quarter of 2021, the Company entered into negotiations to sell the assets of radio station WNUE-FM in Orlando, Florida, for $
18
During the first quarter of 2021, the Company entered into negotiations to sell a building and related improvements in the Tampa, Florida area. As of September 30, 2021, the fair value of the assets was $
Recent Accounting Pronouncements
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. ASU 2020-04 provides optional guidance for a limited time to ease the potential burden in accounting for reference rate reform. The new guidance provides optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met. The amendments apply only to contracts and hedging relationships that reference LIBOR or another reference rate expected to be discontinued due to reference rate reform. These amendments are effective immediately and may be applied prospectively to contract modifications made and hedging relationships entered into or evaluated on or before December 31, 2022. The Company does not expect the new guidance to have a material impact on its consolidated financial statements.
There were no other new accounting pronouncements that were issued or became effective since the issuance of the 2020 10-K that had, or are expected to have, a material impact on the Company’s consolidated financial statements.
Newly Adopted Accounting Standards
3. REVENUES
Revenue Recognition
Revenues are recognized when control of the promised services is transferred to the Company’s customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those services.
Digital Advertising. Revenue from digital advertising primarily consists of two types:
Broadcast Advertising. Television and radio revenue related to the sale of advertising is recognized at the time of broadcast. Broadcast advertising rates are fixed based on each medium’s ability to attract audiences in demographic groups targeted by advertisers and rates can vary based on the time of day and ratings of the programming airing in that day part.
Digital and broadcast advertising revenue is recognized over time in a series as a single performance obligation as the advertisement, impression or performance advertising is delivered per the insertion order. The Company applies the practical expedient to recognize revenue for each distinct advertising service delivered at the amount the Company has the right to invoice, which corresponds directly to the value a customer has received relative to the Company’s performance. Contracts with customers are short-term in nature and billing occurs on a monthly basis with payment due in 30 days. Value added taxes collected concurrently with advertising revenue producing activities are excluded from revenue. Cash payments received prior to services rendered result in deferred revenue, which is then recognized as revenue when the advertising time or space is actually provided.
Retransmission Consent. The Company generates revenue from retransmission consent agreements that are entered into with MVPDs. The Company grants the MVPDs access to its television station signals so that they may rebroadcast the signals and charge their subscribers for this programming. Payments are received on a monthly basis based on the number of monthly subscribers.
19
Retransmission consent revenues are considered licenses of functional intellectual property and are recognized over time utilizing the sale-based or usage-based royalty exception. The Company’s performance obligation is to provide the licensee access to our intellectual property. MVPD subscribers receive and consume the content monthly as the television signal is delivered.
Spectrum Usage Rights. The Company generates revenue from agreements associated with its television stations’ spectrum usage rights from a variety of sources, including but not limited to agreements with third parties to utilize excess spectrum for the broadcast of their multicast networks; charging fees to accommodate the operations of third parties, including moving channel positions or accepting interference with broadcasting operations; and modifying and/or relinquishing spectrum usage rights while continuing to broadcast through channel sharing or other arrangements.
Revenue generated by spectrum usage rights agreements are recognized over the period of the lease or when the Company has relinquished all or a portion of its spectrum usage rights for a station or has relinquished its rights to operate a station on the existing channel free from interference.
Other Revenue. The Company generates other revenues that are related to its broadcast operations, which primarily consist of representation fees earned by the Company’s radio national representation firm, talent fees for the Company’s on-air personalities, ticket and concession sales for radio events, rent from tenants of the Company’s owned facilities, barter revenue and revenue generated under joint sales agreements.
In the case of representation fees, the Company does not control the distinct service, the commercial advertisement, prior to delivery and therefore recognizes revenue on a net basis. Similarly for joint service agreements, the Company does not own the station providing the airtime and therefore recognizes revenue on a net basis. In the case of talent fees, the on-air personality is an employee of the Company and therefore the Company controls the service provided and recognizes revenue gross with an expense for fees paid to the employee.
Practical Expedients and Exemptions
The Company does not disclose the value of unsatisfied performance obligations when (i) contracts have an original expected length of one year or less, which applies to effectively all advertising contracts; and (ii) variable consideration is a sales-based or usage-based royalty promised in exchange for a license of intellectual property, which applies to retransmission consent revenue.
The Company applies the practical expedient to expense contract acquisition costs, such as sales commissions generated either by internal direct sales employees or through third party advertising agency intermediaries, when incurred, because the amortization period is one year or less. These costs are recorded within direct operating expenses.
Disaggregated Revenue
The following table presents our revenues disaggregated by major source (in thousands):
|
|
Three-Month Period |
|
|
Nine-Month Period |
|
||||||||||
|
|
Ended September 30, |
|
|
Ended September 30, |
|
||||||||||
|
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
||||
Digital advertising |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Broadcast advertising |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Spectrum usage rights |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Retransmission consent |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Other |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total revenue |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
Contracts are entered into directly with customers or through an advertising agency that represents the customer. Sales of advertising to customers or agencies within a station’s designated market area (“DMA”) are referred to as local revenue, whereas sales from outside the station’s DMA are referred to as national revenue.
|
|
Three-Month Period |
|
|
Nine-Month Period |
|
||||||||||
|
|
Ended September 30, |
|
|
Ended September 30, |
|
||||||||||
|
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
||||
Local direct |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Local agency |
|
|
|
|
|
|
|
|
|
|
|
|
||||
National agency |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total revenue |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
20
The following table further disaggregates the Company’s revenue by geographical region (in thousands):
|
|
Three-Month Period |
|
|
Nine-Month Period |
|
||||||||||
|
|
Ended September 30, |
|
|
Ended September 30, |
|
||||||||||
|
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
||||
U.S. |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Latin America |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Rest of the World |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total revenue |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
Deferred Revenue
The Company records deferred revenue, which is included in accounts payable and accrued expenses in the accompanying Consolidated Balance Sheets, when cash payments are received or due in advance of the Company’s performance, including amounts which are refundable. The change in the deferred revenue balance for the nine-month period ended September 30, 2021 is primarily driven by cash payments received or due in advance of satisfying the Company’s performance obligations, offset by revenues recognized that were included in the deferred revenue balance as of December 31, 2020.
The Company’s payment terms vary by the type and location of customer and the products or services offered. The term between invoicing and when payment is due is not significant, typically 30 days. For certain customer types, the Company requires payment before the services are delivered to the customer.
(in thousands) |
December 31, 2020 |
|
Increase |
|
Decrease * |
|
|
September 30, 2021 |
|
||
Deferred revenue |
$ |
|
|
( |
|
|
$ |
|
* The amount reflects revenue that has been recorded in the nine-month period ended September 30, 2021.
4. LEASES
The Company’s leases are considered operating leases and primarily consist of real estate such as office space, broadcasting towers, land and land easements. Right of Use (“ROU”) asset and lease liability is recognized as of lease commencement date based on the present value of the future minimum lease payments over the lease term. As the implicit rate for operating leases is not readily determinable, the future minimum lease payments were discounted using an incremental borrowing rate. Due to the Company’s having a centralized treasury function, the Company applied a portfolio approach to discount its domestic lease obligations using its secured publicly traded U.S. dollar denominated debt instruments interpolating the duration of the debt to the remaining lease term. The incremental borrowing rate for international leases is the interest rate that the Company would have to pay to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment.
The Company’s operating leases are reflected on the Consolidated Balance Sheets as right-of-use assets with the related liability presented as lease liability, current and lease liability, net of current portion. Lease expense is recognized on a straight-line basis over the lease term.
Generally, lease terms include options to renew or extend the lease. Unless the renewal option is considered reasonably certain, the exercise of any such options has been excluded from the calculation of lease liabilities. In addition, as permitted within the guidance, ROU assets and lease liabilities are not recorded for leases within an initial term of one year or less.
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.
21
The following table summarizes the expected future payments related to lease liabilities as of September 30, 2021:
(in thousands) |
|
|
|
|
Remainder of 2021 |
|
$ |
|
|
2022 |
|
|
|
|
2023 |
|
|
|
|
2024 |
|
|
|
|
2025 |
|
|
|
|
2026 and thereafter |
|
|
|
|
Total minimum payments |
|
$ |
|
|
Less amounts representing interest |
|
|
( |
) |
Present value of minimum lease payments |
|
|
|
|
Less current operating lease liabilities |
|
|
( |
) |
Long-term operating lease liabilities |
|
$ |
|
The weighted average remaining lease term and the weighted average discount rate used to calculate the Company’s lease liabilities as of September 30, 2021 were
The following table summarizes lease payments and supplemental non-cash disclosures:
|
|
Nine-Month Period Ended September 30, |
|||||
(in thousands) |
|
2021 |
|
|
2020 |
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating cash flows from operating leases |
|
$ |
|
|
$ |
||
Non-cash additions to operating lease assets |
|
$ |
|
|
$ |
The following table summarizes the components of 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) |
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
||||
Operating lease cost |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Variable lease cost |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Short-term lease cost |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total lease cost |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
For the three-month period ended September 30, 2021, lease cost of $
For the three-month period ended September 30, 2020, lease cost of $
22
5. SEGMENT INFORMATION
The Company’s management has determined that the Company operates in
Digital
The Company provides a suite of digital advertising solutions that offer advertisers the opportunity to reach and engage with their target audiences by providing access to digital inventory at scale. These solutions include the Company's offerings in Latin America, Europe and Southeast Asia, where the Company maintains sales partnerships with major global media platforms.
Television
As of September 30, 2021, the Company owns and/or operates
Radio
As of September 30, 2021, the Company owns and operates
Separate financial data for each of the Company’s operating segments are provided below. Segment operating profit (loss) is defined as operating profit (loss) before corporate expenses, change in fair value contingent consideration, impairment charge, foreign currency (gain) loss and other operating (gain) loss. The Company generated
23
|
|
Three-Month Period |
|
|
|
|
|
Nine-Month Period |
|
|
|
|
||||||||||||
|
|
Ended September 30, |
|
|
% |
|
|
Ended September 30, |
|
|
% |
|
||||||||||||
|
|
2021 |
|
|
2020 |
|
|
Change |
|
|
2021 |
|
|
2020 |
|
|
Change |
|
||||||
Net revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Digital |
|
$ |
|
|
$ |
|
|
|
% |
|
$ |
|
|
$ |
|
|
|
% |
||||||
Television |
|
|
|
|
|
|
|
|
( |
)% |
|
|
|
|
|
|
|
|
% |
|||||
Radio |
|
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
|
% |
||||||
Consolidated |
|
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
|
% |
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Cost of revenue - digital |
|
|
|
|
|
|
|
* |
|
|
|
|
|
|
|
|
* |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Direct operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Digital |
|
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
|
% |
||||||
Television |
|
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
|
% |
||||||
Radio |
|
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
|
( |
)% |
|||||
Consolidated |
|
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
|
% |
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Selling, general and administrative expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Digital |
|
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
|
% |
||||||
Television |
|
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
|
( |
)% |
|||||
Radio |
|
|
|
|
|
|
|
|
( |
)% |
|
|
|
|
|
|
|
|
( |
)% |
||||
Consolidated |
|
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
|
% |
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Depreciation and amortization |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Digital |
|
|
|
|
|
|
|
* |
|
|
|
|
|
|
|
|
|
% |
||||||
Television |
|
|
|
|
|
|
|
|
( |
)% |
|
|
|
|
|
|
|
|
( |
)% |
||||
Radio |
|
|
|
|
|
|
|
|
( |
)% |
|
|
|
|
|
|
|
|
( |
)% |
||||
Consolidated |
|
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
|
% |
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Segment operating profit (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Digital |
|
|
|
|
|
|
|
* |
|
|
|
|
|
|
( |
) |
|
* |
|
|||||
Television |
|
|
|
|
|
|
|
|
( |
)% |
|
|
|
|
|
|
|
|
% |
|||||
Radio |
|
|
|
|
|
|
|
|
% |
|
|
|
|
|
( |
) |
|
* |
|
|||||
Consolidated |
|
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
|
% |
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Corporate expenses |
|
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
|
% |
||||||
Impairment charge |
|
|
|
|
|
- |
|
|
* |
|
|
|
|
|
|
|
|
|
( |
)% |
||||
Foreign currency (gain) loss |
|
|
|
|
|
( |
) |
|
* |
|
|
|
|
|
|
|
|
|
( |
)% |
||||
Other operating (gain) loss |
|
|
( |
) |
|
|
( |
) |
|
|
( |
)% |
|
|
( |
) |
|
|
( |
) |
|
|
( |
)% |
Operating income (loss) |
|
|
|
|
|
|
|
|
% |
|
|
|
|
|
( |
) |
|
* |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Interest expense |
|
$ |
( |
) |
|
$ |
( |
) |
|
|
( |
)% |
|
$ |
( |
) |
|
$ |
( |
) |
|
|
( |
)% |
Interest income |
|
|
|
|
|
|
|
|
( |
)% |
|
|
|
|
|
|
|
|
( |
)% |
||||
Dividend income |
|
|
|
|
|
|
|
* |
|
|
|
|
|
|
|
|
|
% |
||||||
Income (loss) before income taxes |
|
|
|
|
|
|
|
|
% |
|
|
|
|
|
( |
) |
|
* |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Capital expenditures |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Digital |
|
$ |
|
|
$ |
|
|
|
|
|
$ |
|
|
$ |
|
|
|
|
||||||
Television |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Radio |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Consolidated |
|
$ |
|
|
$ |
|
|
|
|
|
$ |
|
|
$ |
|
|
|
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
|
September 30, |
|
|
December 31, |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Total assets |
|
2021 |
|
|
2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Digital |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Television |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Radio |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Consolidated |
|
$ |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
* Percentage not meaningful.
6. COMMITMENTS AND CONTINGENCIES
24
7. ACQUISITIONS
Cisneros Interactive
On
In connection with the acquisition, the Company also entered into a Put and Call Option Agreement (the “Put and Call Agreement”).
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 Option and Call Option redemption features, and because the redemption was not solely within the control of the Company, the noncontrolling interest was considered redeemable, and was classified in temporary equity within the Company’s Consolidated Balance Sheets initially at its acquisition date fair value. The noncontrolling interest was adjusted each reporting period for income (or loss) attributable to the noncontrolling interest as well as any applicable distributions made. Since the noncontrolling interest was not then redeemable under the terms of the Put and Call Agreement and it was not probable that it would become redeemable, the Company was not required to adjust the amount presented in temporary equity to its redemption value in prior periods. The fair value of the redeemable noncontrolling interest which includes the Put and Call Agreement recognized on the acquisition date was $
The Company is in the process of completing the purchase price allocation for its acquisition of Cisneros Interactive. The measurement period remains open pending the finalization of pre-acquisition tax-related items.
Cash |
$ |
|
|
Accounts receivable |
|
|
|
Other assets |
|
|
|
Intangible assets subject to amortization |
|
|
|
Goodwill |
|
|
|
Current liabilities |
|
( |
) |
Deferred tax |
|
( |
) |
Redeemable noncontrolling interest |
|
( |
) |
The fair value of the assets acquired includes trade receivables of $
The goodwill, which is not expected to be deductible for tax purposes, is assigned to the Company’s digital segment and is attributable to Cisneros Interactive’s workforce and synergies from combining Cisneros Interactive’s operations with those of the Company.
25
On September 1, 2021, the Company acquired the remaining
Applicable accounting guidance requires changes in the Company's ownership interest while the Company retains its controlling financial interest in its subsidiary to be accounted for as an equity transaction. Therefore,
The table below presents the reconciliation of changes in redeemable noncontrolling interests (unaudited; in thousands):
|
|
Three-Month Period |
|
|
Nine-Month Period |
|
||||||||||
|
|
Ended September 30, |
|
|
Ended September 30, |
|
||||||||||
|
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
||||
Beginning balance |
|
$ |
|
|
$ |
- |
|
|
$ |
|
|
$ |
- |
|
||
Net income attributable to redeemable noncontrolling interest |
|
|
|
|
|
- |
|
|
|
|
|
|
- |
|
||
Acquisition of redeemable noncontrolling interest |
|
|
( |
) |
|
|
- |
|
|
|
( |
) |
|
|
- |
|
Ending balance |
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
During the three-month period ended September 30, 2021, Cisneros Interactive generated net revenue and net income of $
The following unaudited pro forma information has been prepared to give effect to the Company’s wholly-owned acquisition of Cisneros Interactive as if the acquisition had occurred on January 1, 2020. This pro forma information was adjusted to exclude acquisition fees and costs of $
|
|
Three-Month Period |
|
|
Nine-Month Period |
|
|
||||||||||
|
|
Ended September 30, |
|
|
Ended September 30, |
|
|
||||||||||
|
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
|
||||
Pro Forma: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total revenue |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
||||
Net income (loss) |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|||
Net (income) loss attributable to redeemable noncontrolling interest |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
Net income (loss) attributable to common stockholders |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Basic and diluted earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net income (loss) per share, attributable to common stockholders, basic |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
|||
Net income (loss) per share, attributable to common stockholders, diluted |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Weighted average common shares outstanding, basic |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Weighted average common shares outstanding, diluted |
|
|
|
|
|
|
|
|
|
|
|
|
|
26
MediaDonuts
On
The Company is in the process of completing the purchase price allocation for its acquisition MediaDonuts. The measurement period remains open pending the finalization of the pre-acquisition tax-related items. The following is a summary of the purchase price allocation (unaudited; in millions):
Cash |
$ |
|
|
Accounts receivable |
|
|
|
Other assets |
|
|
|
Intangible assets subject to amortization |
|
|
|
Goodwill |
|
|
|
Current liabilities |
|
( |
) |
Deferred tax |
|
( |
) |
Debt |
|
( |
) |
As noted above, the acquisition of MediaDonuts includes a contingent consideration arrangement that requires additional consideration to be paid by the Company to MediaDonuts based on a pre-determined multiple of MediaDonuts' 12-month EBITDA targets in calendar years 2021 through 2024. The fair value of the contingent consideration recognized on the acquisition date of $
The fair value of the assets acquired includes trade receivables of $
During the three- and nine-month periods ended September 30, 2021, MediaDonuts generated net revenue of $
The goodwill, which is not expected to be deductible for tax purposes, is assigned to the Company’s digital segment and is attributable to MediaDonuts' workforce and expected synergies from combining MediaDonuts' operations with those of the Company.
|
|
December 31, 2020 |
|
|
Purchase Price Adjustment Cisneros Interactive |
|
|
Acquisition of MediaDonuts |
|
|
September 30, 2021 |
|
||||
Television |
|
$ |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
|
||
Digital |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|||
Consolidated |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
27
The following unaudited pro forma information has been prepared to give effect to the Company’s acquisition of MediaDonuts as if the acquisition had occurred on January 1, 2020. This pro forma information was adjusted to exclude acquisition fees and costs of $
|
|
Three-Month Period |
|
|
Nine-Month Period |
|
|
||||||||||
|
|
Ended September 30, |
|
|
Ended September 30, |
|
|
||||||||||
|
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
|
||||
Pro Forma: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total revenue |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
||||
Net income (loss) attributable to common stockholders |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Basic and diluted earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net income (loss) per share, attributable to common stockholders, basic |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
|||
Net income (loss) per share, attributable to common stockholders, diluted |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Weighted average common shares outstanding, basic |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Weighted average common shares outstanding, diluted |
|
|
|
|
|
|
|
|
|
|
|
|
|
28
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
We are a diversified global media, marketing and technology company serving clients in the United States and around the world. Our digital segment, whose operations are located primarily in Latin America, Spain and Southeast Asia, provides innovative advertising solutions in high growth markets to advertisers and publishers, including some of the world's leading technology companies. Through our television and radio segments, we reach and engage U.S. Hispanics across acculturation levels and media channels. For financial reporting purposes, we report in three segments based upon the type of advertising medium: digital, television and radio. Our net revenue for the three-month period ended September 30, 2021 was $199.0 million. Of that amount, revenue attributed to our digital segment accounted for approximately 73%, revenue attributed to our television segment accounted for approximately 18% and revenue attributed to our radio segment accounted for approximately 9%. Our digital segment now accounts for the majority of our revenues and we expect this to continue in future periods.
We provide digital advertising solutions that allow advertisers to reach primarily Hispanic online audiences worldwide. We operate proprietary technology and data platforms that deliver digital advertising in various advertising formats and allow advertisers to reach audiences across a wide range of Internet-connected devices on our owned and operated digital media sites, the digital media sites of our publisher partners, and on other digital media sites we access through third-party platforms and exchanges. On July 1, 2021, a wholly-owned subsidiary acquired 100% of the issued and outstanding shares of stock of MediaDonuts Pte. Ltd., or MediaDonuts, a company engaged in the sale and marketing of digital advertising. This acquisition expands our digital offerings to markets primarily in Southeast Asia, and we expect MediaDonuts to contribute significantly to our revenue in future periods.
As of September 30, 2021, we own and/or operate 53 primary television stations located primarily in California, Colorado, Connecticut, Florida, Kansas, Massachusetts, Nevada, New Mexico, Texas and Washington, D.C. As of the same date, we own and operate 46 radio stations in 16 U.S. markets. Our radio stations consist of 37 FM and 9 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 recognize advertising revenue when display or other digital advertisements record impressions on the websites of our third party publishers or as the advertiser’s previously agreed-upon performance criteria are satisfied. We generate revenue primarily from sales of national and local advertising time on television stations, radio stations and digital media platforms, retransmission consent agreements that are entered into with multichannel video programming distributors (“MVPDs”), and agreements associated with our television stations’ spectrum usage rights. Advertising rates are, in large part, based on each medium’s ability to attract audiences in demographic groups targeted by advertisers. In our television and radio segments, we recognize advertising revenue when commercials are broadcast.
We do not obtain long-term commitments from our advertisers and, consequently, they may cancel, reduce or postpone orders without penalties. We pay commissions to agencies for local, regional and national advertising. For contracts we have entered into directly with agencies, we record net revenue from these agencies. Seasonal revenue fluctuations are common in our industry and are due primarily to variations in advertising expenditures by both local and national advertisers. Our first fiscal quarter generally produces the lowest net revenue for the year. In addition, advertising revenue is generally higher during presidential election years (2020, 2024, etc.) and, to a lesser degree, Congressional mid-term election years (2022, 2026, etc.), resulting from increased political advertising in those years compared to other years.
We refer to the revenue generated by agreements with MVPDs as retransmission consent revenue, which represents payments from MVPDs for access to our television station signals so that they may rebroadcast our signals and charge their subscribers for this programming. We recognize retransmission consent revenue earned as the television signal is delivered to an MVPD.
Our FCC licenses grant us spectrum usage rights within each of the television markets in which we operate. These spectrum usage rights give us the authority to broadcast our stations’ over-the-air television signals to our viewers. We regard these rights as a valuable asset. With the proliferation of mobile devices and advances in technology that have freed up spectrum capacity, the monetization of our spectrum usage rights has become a significant source of revenue in recent years. We generate revenue from agreements associated with these television stations’ spectrum usage rights from a variety of sources, including but not limited to agreements with third parties to utilize spectrum for the broadcast of their multicast networks; charging fees to accommodate the operations of third parties, including moving channel positions or accepting interference with our broadcasting operations; and modifying and/or relinquishing spectrum usage rights while continuing to broadcast through channel sharing or other arrangements. Revenue generated by such agreements is recognized over the period of the lease or when we have relinquished all or a portion of our spectrum usage rights for a station or have relinquished our rights to operate a station on the existing channel free from interference. In addition, subject to certain restrictions contained in our 2017 Credit Agreement, we will consider strategic acquisitions of television stations to further this strategy from time to time, as well as additional monetization opportunities expected to arise as the television broadcast industry implements the standards contained in ATSC 3.0.
Our primary expenses are employee compensation, including commissions paid to our sales staff and amounts paid to our national sales representative firms, as well as expenses for general and administrative functions, promotion and selling, engineering, marketing and local programming. Our local programming costs for television consist primarily of costs related to producing a local newscast in most of our markets. Cost of revenue related to our television segment consists primarily of the carrying value of spectrum
29
usage rights that were surrendered in the FCC auction for broadcast spectrum that concluded in 2017. In addition, cost of revenue related to our digital segment consists primarily of the costs of online media acquired from third-party publishers and third party server costs. Direct operating expenses include salaries and commissions of sales staff, amounts paid to national representation firms, production and programming expenses, fees for ratings services, and engineering costs. Corporate expenses consist primarily of salaries related to corporate officers and back office functions, third party legal and accounting services, and fees incurred as a result of being a publicly traded and reporting company.
Highlights
During the third quarter of 2021, our consolidated revenue increased to $199.0 million from $63.0 million in the prior year period, primarily due to an increase in advertising revenue attributed to our acquisition of a majority interest in Cisneros Interactive during the fourth quarter of 2020, which became wholly-owned during the third quarter of 2021, and our acquisition of MediaDonuts during the third quarter of 2021, both of which did not contribute to net revenue in prior periods. Additionally, the increase in revenue was attributed to increases in local and national advertising revenue, partially offset by a decrease in political advertising revenue and revenue from spectrum usage rights. Our audience shares remained strong in the nation’s most densely populated Hispanic markets.
Net revenue in our digital segment increased to $146.1 million for the three-month period ended September 30, 2021 from $13.7 million for the three-month period ended September 30, 2020. This increase of approximately $132.4 million in net revenue was primarily due to advertising revenue attributed to our acquisition of a majority interest in Cisneros Interactive during the fourth quarter of 2020, which became wholly-owned during the third quarter of 2021, and our acquisition of MediaDonuts during the third quarter of 2021, both of which did not contribute to net revenue in prior periods.
Net revenue in our television segment decreased to $36.5 million for the three-month period ended September 30, 2021 from $37.8 million for the three-month period ended September 30, 2020. This decrease of approximately $1.3 million, or 4%, in net revenue was primarily due to decreases in political revenue and revenue from spectrum usage rights, partially offset by increases in local and national advertising revenue.
Net revenue in our radio segment increased to $16.4 million for the three-month period ended September 30, 2021 from $11.5 million for the three-month period ended September 30, 2020. This increase of approximately $4.9 million, or 42%, in net revenue was primarily due to increases in local and national advertising revenue, partially offset by a decrease in political 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.
Notwithstanding a worldwide increase in COVID-19 cases throughout the summer, the COVID-19 pandemic did not have a significant impact on our business during the quarter ended September 30, 2021. Subject to the extent and duration of possible resurgences of the pandemic and the continuing economic crisis that has resulted from the pandemic, we anticipate that the pandemic will continue to have diminishing or little effect on our business, from both an operational and financial perspective, in future periods. Nonetheless, we remain cautious due to the unpredictable nature of the pandemic and its effects.
Operational Impact
Most of our employees in our digital segment work remotely and we have not seen a significant interruption in our digital business to date. We cannot give assurance at this time whether a resurgence or more prolonged impact of the pandemic in Spain, Latin America, Southeast Asia or any other location where our digital segment has employees or operates would not adversely affect our digital business.
To date, we have experienced no significant interruption of our broadcasts in our television and radio segments in any of the markets in which we own and/or operate stations. Most of our personnel have returned to work at our stations; however, we cannot give assurance at this time whether a resurgence or more prolonged impact of the pandemic in any of our markets would not adversely affect our ability to continue staffing our stations at appropriate levels to continue broadcasts without interruption.
Our corporate office is located in Santa Monica, California. Most of our personnel have returned to work in our corporate office, with some personnel continuing to work remotely. We have not experienced any significant interruption in any of our corporate or administrative departments, including without limitation our finance and accounting departments.
30
Financial Impact
Despite the general sense that the economy is recovering, such improvement is uneven geographically and by industry, and may be adversely impacted by any resurgence of the pandemic, the rate of vaccinations of the population and other factors beyond our control. Accordingly, the effect of the economic crisis that has resulted from the pandemic continues to be felt by us to some degree and may continue to be felt by us in future periods, particularly as our international operations expand to include parts of the world where vaccination rates are lower and infection rates are higher.
During the quarter ended September 30, 2021, we did not experience material cancellations of advertising or a decrease in new advertising placements in our television and radio segments, continuing a trend we had begun to experience earlier this year. At this time, we do not know if certain behavioral changes by audiences in their television viewership and radio listening habits during the pandemic have changed permanently.
In order to preserve cash during this period, we have instituted certain cost reduction measures that are still in effect. On March 26, 2020, we suspended repurchases under our share repurchase program. Effective May 16, 2020, we suspended company matching of employee contributions to their 401(k) retirement plans. We also reduced our dividend by 50% beginning in the second quarter of 2020, and we may continue to do so in future periods. Other cost reduction measures that we instituted during 2020 were restored to original levels by the end of 2020. We will continue to monitor all of these actions closely in light of current and changing conditions and may institute such additional actions as we may believe are appropriate at a future date.
Additionally, we have elected to defer the employer portion of the social security payroll tax (6.2%) as provided in the Coronavirus Aid, Relief and Economic Security Act of 2020, commonly known as the CARES Act. The deferral was effective from March 27, 2020 through December 31, 2020. The deferred amount will be paid in two installments and the amount will be considered timely paid if 50% of the deferred amount is paid by December 31, 2021 and the remainder is paid by December 31, 2022.
Because of unprecedented uncertainties regarding the extent and duration of the pandemic and the continuing economic crisis that has resulted from the pandemic, our results of operations for the quarter ended September 30, 2021 may not be indicative of our results of operations for any future period. We do not know how soon the global, U.S. and local economies will fully recover to pre-pandemic levels. Therefore, , we may continue to experience an adverse financial impact on our business and results of operations, albeit at a potentially slower rate, and possibly our financial condition, for an unknown period of time. Additionally, any resurgence of the pandemic; reimposition of lockdown, shelter-in-place, stay-at-home and similar orders; and prolongation of the continuing economic crisis that has resulted from the pandemic, could intensify this adverse impact and adversely affect our business, results of operations and financial condition in future periods during the course of the pandemic, or beyond. We continue to closely monitor the situation across all fronts and will need to continue to remain flexible to respond to developments as and if they occur. However, we cannot give any assurance if, or the extent to which, we will be successful in any such efforts.
Relationship with Univision
Substantially all of our television stations are Univision- or UniMás-affiliated television stations. Our network affiliation agreement with Univision provides certain of our owned stations the exclusive right to broadcast Univision’s primary network and UniMás network programming in their respective markets. Under the network affiliation agreement, we retain the right to sell no less than four minutes per hour of the available advertising time on stations that broadcast Univision network programming, and the right to sell approximately four and a half minutes per hour of the available advertising time on stations that broadcast UniMás network programming, subject to adjustment from time to time by Univision.
Under the network affiliation agreement, Univision acts as our exclusive third-party sales representative for the sale of certain national advertising on our Univision- and UniMás-affiliate television stations, and we pay certain sales representation fees to Univision relating to sales of all advertising for broadcast on our Univision- and UniMás-affiliate television stations. During the three-month periods ended September 30, 2021 and 2020, the amount we paid Univision in this capacity was $2.1 million and $2.3 million, respectively. During the nine-month periods ended September 30, 2021 and 2020, the amount we paid Univision in this capacity was $6.0 million and $5.9 million, respectively.
We also generate revenue under two marketing and sales agreements with Univision, which give us the right to manage the marketing and sales operations of Univision-owned Univision affiliates in six markets – Albuquerque, Boston, Denver, Orlando, Tampa and Washington, D.C.
31
Under the current proxy agreement we have entered into with Univision, we grant Univision the right to negotiate the terms of retransmission consent agreements for our Univision- and UniMás-affiliated television station signals. Among other things, the proxy agreement provides terms relating to compensation to be paid to us by Univision with respect to retransmission consent agreements entered into with MVPDs. During each of the three-month periods ended September 30, 2021 and 2020, retransmission consent revenue accounted for approximately $9.1, of which $6.4 million and $6.6 million, respectively, relate to the Univision proxy agreement. During the nine-month periods ended September 30, 2021 and 2020, retransmission consent revenue accounted for approximately $28.1 million and 28.0 million, respectively, of which $19.7 million and $20.3 million, respectively, relate to the Univision proxy agreement. The term of the proxy agreement extends with respect to any MVPD for the length of the term of any retransmission consent agreement in effect before the expiration of the proxy agreement.
Univision currently owns approximately 11% of our common stock on a fully-converted basis. Our Class U common stock, all of which is held by Univision, has limited voting rights and does not include the right to elect directors. Each share of Class U common stock is automatically convertible into one share of Class A common stock (subject to adjustment for stock splits, dividends or combinations) in connection with any transfer of such shares of Class U common stock to a third party that is not an affiliate of Univision. In addition, as the holder of all of our issued and outstanding Class U common stock, so long as Univision holds a certain number of shares of Class U common stock, we may not, without the consent of Univision, merge, consolidate or enter into a business combination, dissolve or liquidate our company or dispose of any interest in any FCC license with respect to television stations which are affiliates of Univision, among other things.
Critical Accounting Policies
For a description of our critical accounting policies, please refer to “Application of Critical Accounting Policies and Accounting Estimates” in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our 2020 10-K.
Recent Accounting Pronouncements
For further information on recently issued accounting pronouncements, see Note 2, “The Company and Significant Accounting Policies” in the accompanying Notes to Consolidated Financial Statements.
32
Three- and Nine-Month Periods Ended September 30, 2021 and 2020
The following table sets forth selected data from our operating results for the three- and nine-month periods ended September 30, 2021 and 2020 (in thousands):
|
|
Three-Month Period |
|
|
|
|
|
Nine-Month Period |
|
|
|
|
||||||||||||
|
|
Ended September 30, |
|
|
% |
|
|
Ended September 30, |
|
|
% |
|
||||||||||||
|
|
2021 |
|
|
2020 |
|
|
Change |
|
|
2021 |
|
|
2020 |
|
|
Change |
|
||||||
Statements of Operations Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Net Revenue |
|
$ |
199,008 |
|
|
$ |
62,978 |
|
|
|
216 |
% |
|
$ |
526,298 |
|
|
$ |
172,343 |
|
|
|
205 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Cost of revenue - digital |
|
|
124,332 |
|
|
|
7,808 |
|
|
* |
|
|
|
318,118 |
|
|
|
21,602 |
|
|
* |
|
||
Direct operating expenses |
|
|
28,583 |
|
|
|
24,178 |
|
|
|
18 |
% |
|
|
83,480 |
|
|
|
72,997 |
|
|
|
14 |
% |
Selling, general and administrative expenses |
|
|
14,530 |
|
|
|
9,883 |
|
|
|
47 |
% |
|
|
41,489 |
|
|
|
34,371 |
|
|
|
21 |
% |
Corporate expenses |
|
|
7,253 |
|
|
|
6,287 |
|
|
|
15 |
% |
|
|
21,756 |
|
|
|
18,511 |
|
|
|
18 |
% |
Depreciation and amortization |
|
|
5,901 |
|
|
|
3,934 |
|
|
|
50 |
% |
|
|
16,159 |
|
|
|
12,319 |
|
|
|
31 |
% |
Impairment charge |
|
|
166 |
|
|
|
- |
|
|
* |
|
|
|
1,604 |
|
|
|
39,835 |
|
|
|
(96 |
)% |
|
Foreign currency (gain) loss |
|
|
177 |
|
|
|
(680 |
) |
|
* |
|
|
|
454 |
|
|
|
673 |
|
|
|
(33 |
)% |
|
Other operating (gain) loss |
|
|
(2,431 |
) |
|
|
(2,683 |
) |
|
|
(9 |
)% |
|
|
(4,867 |
) |
|
|
(5,549 |
) |
|
|
(12 |
)% |
|
|
|
178,511 |
|
|
|
48,727 |
|
|
|
266 |
% |
|
|
478,193 |
|
|
|
194,759 |
|
|
|
146 |
% |
Operating income (loss) |
|
|
20,497 |
|
|
|
14,251 |
|
|
|
44 |
% |
|
|
48,105 |
|
|
|
(22,416 |
) |
|
* |
|
|
Interest expense |
|
|
(1,714 |
) |
|
|
(1,969 |
) |
|
|
(13 |
)% |
|
|
(5,287 |
) |
|
|
(6,673 |
) |
|
|
(21 |
)% |
Interest income |
|
|
12 |
|
|
|
467 |
|
|
|
(97 |
)% |
|
|
235 |
|
|
|
1,630 |
|
|
|
(86 |
)% |
Dividend income |
|
|
207 |
|
|
|
3 |
|
|
* |
|
|
|
211 |
|
|
|
26 |
|
|
|
712 |
% |
|
Income before income (loss) taxes |
|
|
19,002 |
|
|
|
12,752 |
|
|
|
49 |
% |
|
|
43,264 |
|
|
|
(27,433 |
) |
|
* |
|
|
Income tax benefit (expense) |
|
|
(5,118 |
) |
|
|
(3,736 |
) |
|
|
37 |
% |
|
|
(11,902 |
) |
|
|
3,195 |
|
|
* |
|
|
Net income (loss) |
|
|
13,884 |
|
|
|
9,016 |
|
|
|
54 |
% |
|
|
31,362 |
|
|
|
(24,238 |
) |
|
* |
|
|
Net (income) loss attributable to redeemable noncontrolling interest |
|
|
(1,753 |
) |
|
|
- |
|
|
* |
|
|
|
(5,938 |
) |
|
|
- |
|
|
* |
|
||
Net income (loss) attributable to common stockholders |
|
$ |
12,131 |
|
|
$ |
9,016 |
|
|
|
35 |
% |
|
$ |
25,424 |
|
|
$ |
(24,238 |
) |
|
* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Other Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Capital expenditures |
|
|
1,321 |
|
|
|
1,841 |
|
|
|
|
|
|
3,949 |
|
|
|
7,450 |
|
|
|
|
||
Consolidated adjusted EBITDA (1) |
|
|
|
|
|
|
|
|
|
|
|
55,177 |
|
|
|
27,773 |
|
|
|
|
||||
Net cash provided by operating activities |
|
|
|
|
|
|
|
|
|
|
|
53,780 |
|
|
|
25,717 |
|
|
|
|
||||
Net cash provided by investing activities |
|
|
|
|
|
|
|
|
|
|
|
19,315 |
|
|
|
35,670 |
|
|
|
|
||||
Net cash used in financing activities |
|
|
|
|
|
|
|
|
|
|
|
(9,363 |
) |
|
|
(11,218 |
) |
|
|
|
33
Because consolidated adjusted EBITDA is a measure governing several critical aspects of our 2017 Credit Facility, we believe that it is important to disclose consolidated adjusted EBITDA to our investors. We may increase the aggregate principal amount outstanding by an additional amount equal to $100.0 million plus the amount that would result in our total net leverage ratio, or the ratio of consolidated total senior debt (net of up to $75.0 million of unrestricted cash) to trailing-twelve-month consolidated adjusted EBITDA, not exceeding 4.0. In addition, beginning December 31, 2018, at the end of every calendar year, in the event our total net leverage ratio is within certain ranges, we must make a debt prepayment equal to a certain percentage of our Excess Cash Flow, which is defined as consolidated adjusted EBITDA, less consolidated interest expense, less debt principal payments, less taxes paid, less other amounts set forth in the definition of Excess Cash Flow in the 2017 Credit Agreement. The total leverage ratio was as follows (in each case as of September 30): 2021, 1.6 to 1; 2020, 3.6 to 1.
While many in the financial community and we consider consolidated adjusted EBITDA to be important, it should be considered in addition to, but not as a substitute for or superior to, other measures of liquidity and financial performance prepared in accordance with accounting principles generally accepted in the United States of America, such as cash flows from operating activities, operating income (loss) and net income (loss). As consolidated adjusted EBITDA excludes non-cash gain (loss) on sale of assets, non-cash depreciation and amortization, non-cash impairment charge, non-cash stock-based compensation expense, net interest expense, other income (loss), non-recurring cash expenses, gain (loss) on debt extinguishment, income tax (expense) benefit, equity in net income (loss) of nonconsolidated affiliate, non-cash losses, syndication programming amortization less syndication programming payments, revenue from FCC spectrum incentive auction less related expenses, expenses associated with investments, EBITDA attributable to redeemable noncontrolling interest, acquisitions and dispositions and certain pro-forma cost savings, consolidated adjusted EBITDA has certain limitations because it excludes and includes several important financial line items. Therefore, we consider both non-GAAP and GAAP measures when evaluating our business. Consolidated adjusted EBITDA is also used to make executive compensation decisions.
Consolidated adjusted EBITDA is a non-GAAP measure. The most directly comparable GAAP financial measure to consolidated adjusted EBITDA is cash flows from operating activities. A reconciliation of this non-GAAP measure to cash flows from operating activities follows (in thousands):
|
|
Nine-Month Period |
|
|||||
|
|
Ended September 30, |
|
|||||
|
|
2021 |
|
|
2020 |
|
||
Consolidated adjusted EBITDA |
|
$ |
55,177 |
|
|
$ |
27,773 |
|
EBITDA attributable to redeemable noncontrolling interest |
|
|
9,127 |
|
|
|
- |
|
Interest expense |
|
|
(5,287 |
) |
|
|
(6,673 |
) |
Interest income |
|
|
235 |
|
|
|
1,630 |
|
Dividend income |
|
|
211 |
|
|
|
26 |
|
Income tax expense |
|
|
(11,902 |
) |
|
|
3,195 |
|
Amortization of syndication contracts |
|
|
(357 |
) |
|
|
(383 |
) |
Payments on syndication contracts |
|
|
354 |
|
|
|
325 |
|
Non-cash stock-based compensation included in direct operating expenses |
|
|
(971 |
) |
|
|
(383 |
) |
Non-cash stock-based compensation included in corporate expenses |
|
|
(2,329 |
) |
|
|
(2,025 |
) |
Depreciation and amortization |
|
|
(16,159 |
) |
|
|
(12,319 |
) |
Impairment charge |
|
|
(1,604 |
) |
|
|
(39,835 |
) |
Non-recurring cash severance charge |
|
|
- |
|
|
|
(1,118 |
) |
Other operating gain (loss) |
|
|
4,867 |
|
|
|
5,549 |
|
Net (income) loss attributable to redeemable noncontrolling interest |
|
|
(5,938 |
) |
|
|
- |
|
Net income (loss) attributable to common stockholders |
|
|
25,424 |
|
|
|
(24,238 |
) |
|
|
|
|
|
|
|
||
Depreciation and amortization |
|
|
16,159 |
|
|
|
12,319 |
|
Impairment charge |
|
|
1,604 |
|
|
|
39,835 |
|
Deferred income taxes |
|
|
8,348 |
|
|
|
(8,744 |
) |
Non-cash interest |
|
|
451 |
|
|
|
491 |
|
Amortization of syndication contracts |
|
|
357 |
|
|
|
383 |
|
Payments on syndication contracts |
|
|
(354 |
) |
|
|
(325 |
) |
Non-cash stock-based compensation |
|
|
3,300 |
|
|
|
2,408 |
|
(Gain) loss on disposal of property and equipment |
|
|
(2,622 |
) |
|
|
(767 |
) |
Net income (loss) attributable to redeemable noncontrolling interest |
|
|
5,938 |
|
|
|
- |
|
Changes in assets and liabilities: |
|
|
|
|
|
|
||
(Increase) decrease in accounts receivable |
|
|
(15,894 |
) |
|
|
14,285 |
|
(Increase) decrease in prepaid expenses and other assets |
|
|
2,267 |
|
|
|
6,713 |
|
Increase (decrease) in accounts payable, accrued expenses and other liabilities |
|
|
8,802 |
|
|
|
(16,643 |
) |
Cash flows from operating activities |
|
$ |
53,780 |
|
|
$ |
25,717 |
|
34
Consolidated Operations
Net Revenue. Net revenue increased to $199.0 million for the three-month period ended September 30, 2021 from $63.0 million for the three-month period ended September 30, 2020, an increase of approximately $136.0 million. Of the overall increase, approximately $132.4 million was attributable to our digital segment and was primarily due to advertising revenue resulting from our acquisition of a majority interest in Cisneros Interactive during the fourth quarter of 2020, which became wholly-owned during the third quarter of 2021, and advertising revenue resulting from our acquisition of MediaDonuts during the third quarter of 2021, both of which did not contribute to net revenue in prior periods. In addition, of the overall increase, approximately $4.9 million was attributable to our radio segment primarily due to increases in local and national advertising revenue, partially offset by a decrease in political revenue. The overall increase was partially offset by a decrease of approximately $1.3 million attributable to our television segment, primarily due to decreases in political revenue and revenue from spectrum usage rights, partially offset by increases in local and national advertising revenue.
Net revenue increased to $526.3 million for the nine-month period ended September 30, 2021 from $172.3 million for the nine-month period ended September 30, 2020, an increase of approximately $354.0 million. Of the overall increase, approximately $339.4 million was attributable to our digital segment and was primarily due to advertising revenue resulting from our acquisition of a majority interest in Cisneros Interactive during the fourth quarter of 2020, which became wholly-owned during the third quarter of 2021, and advertising revenue resulting from our acquisition of MediaDonuts during the third quarter of 2021, both of which did not contribute to net revenue in prior periods. In addition, of the overall increase, approximately $2.7 million was attributable to our television segment, primarily due to increases in local and national advertising revenue, and revenue from spectrum usage rights, partially offset by a decrease in political revenue. Additionally, of the overall increase, approximately $11.9 million was attributable to our radio segment primarily due to increases in local and national advertising revenue, partially offset by a decrease in political revenue.
We believe that for the full year 2021, net revenue will increase primarily as a result of operating Cisneros Interactive for a full year in 2021 compared to less than three months in 2020, and operating MediaDonuts for six months in 2021 compared none in 2020, partially offset by a decrease in political advertising revenue compared to 2020.
Cost of revenue-Digital. Cost of revenue in our digital segment increased to $124.3 million for the three-month period ended September 30, 2021 from $7.8 million for the three-month period ended September 30, 2020, an increase of $116.5 million, primarily due to increased costs of revenue following our acquisition of a majority interest in Cisneros Interactive during the fourth quarter of 2020, which became wholly-owned during the third quarter of 2021, and our acquisition of MediaDonuts during the third quarter of 2021, both of which did not incur cost of revenue for us in the comparable period ended September 30, 2020. As a percentage of digital net revenue, cost of revenue increased to 85% for the three-month period ended September 30, 2021 from 57% for the three-month period ended September 30, 2020, primarily due to our acquisition of a majority interest in Cisneros Interactive, which became wholly-owned during the third quarter of 2021, and our acquisition of MediaDonuts, both of which operate with lower margins compared to our other digital operations, and which trend we anticipate will continue in future periods.
Cost of revenue in our digital segment increased to $318.1 million for the nine-month period ended September 30, 2021 from $21.6 million for the nine-month period ended September 30, 2020, an increase of $296.5 million, primarily due to increased costs of revenue following our acquisition of a majority interest in Cisneros Interactive during the fourth quarter of 2020, which became wholly-owned during the third quarter of 2021, and our acquisition of MediaDonuts during the third quarter of 2021, both of which did not incur cost of revenue for us in the comparable period ended September 30, 2020. As a percentage of digital net revenue, cost of revenue increased to 84% for the nine-month period ended September 30, 2021 from 56% for the nine-month period ended September 30, 2020, primarily due to our acquisition of a majority interest in Cisneros Interactive, which became wholly-owned during the third quarter of 2021, and our acquisition of MediaDonuts, both of which operate with lower margins compared to our other digital operations, and which trend we anticipate will continue in future periods.
Direct Operating Expenses. Direct operating expenses increased to $28.6 million for the three-month period ended September 30, 2021 from $24.2 million for the three-month period ended September 30, 2020, an increase of $4.4 million. Of the overall increase, approximately $3.2 million that was attributable to our digital segment primarily due to our acquisition of a majority interest in Cisneros Interactive during the fourth quarter of 2020, which became wholly-owned during the third quarter of 2021, and our acquisition of MediaDonuts during the third quarter of 2021, both of which did not incur direct operating expenses for us in the comparable period ended September 30, 2020, partially offset by decreases in salary expense associated with furloughs and layoffs that occurred in 2020 because of the COVID-19 pandemic. In addition, of the overall increase, approximately $1.0 million was attributable to our television segment and was primarily due to an increase in expenses associated with the increase in advertising revenue, partially offset by decreases in salary expense associated with furloughs and layoffs that occurred in 2020 because of the COVID-19 pandemic. Additionally, of the overall increase, approximately $0.2 million was attributable to our radio segment and was primarily due to an increase in expenses associated with the increase in advertising revenue, partially offset by decreases in salary expense associated with furloughs and layoffs that occurred in 2020 because of the COVID-19 pandemic. As a percentage of net revenue, direct operating expenses decreased to 14% for the three-month period ended September 30, 2021 from 38% for the three-month period ended September 30, 2020, because the rate of increase in revenue exceeded the rate of increase in expenses.
35
Direct operating expenses increased to $83.5 million for the nine-month period ended September 30, 2021 from $73.0 million for the nine-month period ended September 30, 2020, an increase of $10.5 million. Of the overall increase, approximately $8.3 million that was attributable to our digital segment primarily due to our acquisition of a majority interest in Cisneros Interactive during the fourth quarter of 2020, which became wholly-owned during the third quarter of 2021, and our acquisition of MediaDonuts during the third quarter of 2021, both of which did not incur direct operating expenses for us in the comparable period ended September 30, 2020, partially offset by decreases in salary expense associated with furloughs and layoffs that occurred in 2020 because of the COVID-19 pandemic. In addition, of the overall increase, approximately $2.2 million was attributable to our television segment and was primarily due to an increase in expenses associated with the increase in advertising revenue, partially offset by decreases in salary expense associated with furloughs and layoffs that occurred in 2020 because of the COVID-19 pandemic. As a percentage of net revenue, direct operating expenses decreased to 16% for the three-month period ended September 30, 2021 from 42% for the nine-month period ended September 30, 2020, because the rate of increase in revenue exceeded the rate of increase in expenses.
We believe that direct operating expenses will increase during 2021, primarily as a result of operating Cisneros Interactive for a full year in 2021 compared to less than three months in 2020, and operating MediaDonuts for six months in 2021 compared none in 2020.
Selling, General and Administrative Expenses. Selling, general and administrative expenses increased to $14.5 million for the three-month period ended September 30, 2021 from $9.9 million for the three-month period ended September 30, 2020, an increase of $4.6 million. The increase was primarily attributable to our digital segment and was primarily due to our acquisition of a majority interest in Cisneros Interactive during the fourth quarter of 2020, which became wholly-owned during the third quarter of 2021, and our acquisition of MediaDonuts during the third quarter of 2021, both of which did not incur direct operating expenses for us in the comparable period ended September 30, 2020, partially offset by decreases in salary expense associated with furloughs and layoffs that occurred in 2020 because of the COVID-19 pandemic. As a percentage of net revenue, selling, general and administrative expenses decreased to 7% for the three-month period ended September 30, 2021 from 16% for the three-month period ended September 30, 2020, because the rate of increase in revenue exceeded the rate of increase in expenses.
Selling, general and administrative expenses increased to $41.5 million for the nine-month period ended September 30, 2021 from $34.4 million for the nine-month period ended September 30, 2020, an increase of $7.1 million. Of the overall increase, approximately $9.4 million was attributable to our digital segment and was primarily due to our acquisition of a majority interest in Cisneros Interactive during the fourth quarter of 2020, which became wholly-owned during the third quarter of 2021, and our acquisition of MediaDonuts during the third quarter of 2021, both of which did not incur direct operating expenses for us in the comparable period ended September 30, 2020, partially offset by decreases in salary expense associated with furloughs and layoffs that occurred in 2020 because of the COVID-19 pandemic. The overall increase was partially offset by a decrease of approximately $1.2 million attributable to our television segment and was primarily due to decreases in bad debt and salary expense associated with furloughs and layoffs that occurred in 2020 because of the COVID-19 pandemic. Additionally, The overall increase was partially offset by a decrease of approximately $1.1 million attributable to our radio segment and was primarily due to decreases in salary expense associated with furloughs and layoffs that occurred in 2020 because of the COVID-19 pandemic. As a percentage of net revenue, selling, general and administrative expenses decreased to 8% for the nine-month period ended September 30, 2021 from 20% for the nine-month period ended September 30, 2020, because the rate of increase in revenue exceeded the rate of increase in expenses.
We believe that selling, general and administrative expenses will increase during 2021, primarily as a result of operating Cisneros Interactive for a full year in 2021 compared to less than three months in 2020, and operating MediaDonuts for six months in 2021 compared none in 2020.
Corporate Expenses. Corporate expenses increased to $7.3 million for the three-month period ended September 30, 2021 from $6.3 million for the three-month period ended September 30, 2020, an increase of $1.0 million. The increase was primarily due to an increase in salaries and non-cash stock-based compensation expense. As a percentage of net revenue, corporate expenses decreased to 4% for the three-month period ended September 30, 2021 from 10% for the three-month period ended September 30, 2020, because the rate of increase in revenue exceeded the rate of increase in expenses.
Corporate expenses increased to $21.8 million for the nine-month period ended September 30, 2021 from $18.5 million for the nine-month period ended September 30, 2020, an increase of $3.3 million. The increase was primarily due to an increase in salaries and audit fees. As a percentage of net revenue, corporate expenses decreased to 4% for the nine-month period ended September 30, 2021 from 11% for the nine-month period ended September 30, 2020, because the rate of increase in revenue exceeded the rate of increase in expenses.
We believe that corporate expenses will increase during 2021 compared to 2020 primarily as a result of an increase in salaries and audit fees.
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Depreciation and Amortization. Depreciation and amortization increased to $5.9 million for the three-month period ended September 30, 2021 compared to $3.9 million for the three-month period ended September 30, 2020, an increase of $2.0 million. The increase was primarily attributable to amortization of the intangible assets from our acquisition of a majority interest in Cisneros Interactive during the fourth quarter of 2020, which became wholly-owned during the third quarter of 2021, and from our acquisition of MediaDonuts during the third quarter of 2021.
Depreciation and amortization increased to $16.2 million for the nine-month period ended September 30, 2021 compared to $12.3 million for the nine-month period ended September 30, 2020, an increase of $3.9 million. The increase was primarily attributable to amortization of the intangible assets from our acquisition of a majority interest in Cisneros Interactive during the fourth quarter of 2020, which became wholly-owned during the third quarter of 2021, and our acquisition of MediaDonuts during the third quarter of 2021, partially offset by a decrease due to long-lived assets in our digital segment that were impaired in the first quarter of 2020.
Foreign currency (gain) loss. Historically, our revenues have primarily been denominated in U.S. dollars, and the majority of our current revenues continue to be, and are expected to remain, denominated in U.S. dollars. However, our operating expenses are generally denominated in the currencies of the countries in which our operations are located, and we have operations in countries other than the United States, primarily operations related to our digital business. As a result, we have operating expense, attributable to foreign currency, that is primarily related to the operations related to our digital business. We had a foreign currency loss of $0.2 million for the three-month period ended September 30, 2021 compared to a foreign currency gain of $0.7 million for the three-month period ended September 30, 2020. Foreign currency gains and losses are primarily due to currency fluctuations that affect our digital segment operations located outside the United States.
We had a foreign currency loss of $0.5 million for the nine-month period ended September 30, 2021 compared to a foreign currency loss of $0.7 million for the nine-month period ended September 30, 2020. Foreign currency gains and losses are primarily due to currency fluctuations that affect our digital segment operations located outside the United States.
Other operating gain. Other operating gain decreased to $2.4 million for the three-month period ended September 30, 2021 from $2.7 million for the three-month period ended September 30, 2020, primarily due to a decrease in gains in connection with the required relocation of certain television stations to a different channel as part of the broadcast television repack following the FCC auction for broadcast spectrum that concluded in 2017, partially offset by gain on assets held for sale in our radio segment.
Other operating gain decreased to $4.9 million for the nine-month period ended September 30, 2021 from $5.5 million for the nine-month period ended September 30, 2020, primarily due to a decrease in gains in connection with the required relocation of certain television stations to a different channel as part of the broadcast television repack following the FCC auction for broadcast spectrum that concluded in 2017, partially offset by gain on assets held for sale in our radio segment.
Impairment. During the three-month period ended September 30, 2021 we recorded an impairment charge of $0.2 million related to assets held for sale. We did not recognize an impairment charge in the three-month period ended September 30, 2020.
During the nine-month period ended September 30, 2021 we recorded an impairment charge of $1.6 million related to assets held for sale. During the nine-month period ended September 30, 2020 we recognized impairment charges totaling $39.8 million as a result of interim impairment assessments related to goodwill, indefinite lived intangible assets and long-lived assets.
Operating Income (Loss). As a result of the above factors, operating income was $20.5 million for the three-month period ended September 30, 2021, compared to operating income of $14.3 million for the three-month period ended September 30, 2020.
As a result of the above factors, operating income was $48.1 million for the nine-month period ended September 30, 2021, compared to operating loss of $22.4 million for the nine-month period ended September 30, 2020.
Interest Expense, net. Interest expense, net increased to $1.7 million for the three-month period ended September 30, 2021 from $1.5 million for the three-month period ended September 30, 2020, an increase of $0.2 million, primarily due to a decrease in interest income, partially offset by a decrease in interest expense due to lower principal balance and a lower interest rate on our debt.
Interest expense, net remained constant at $5.0 million for each of the nine-month periods ended September 30, 2021 and 2020.
Dividend Income. Dividend Income was $0.2 million for the three- and nine-month periods ended September 30, 2021 due to a dividend received on a cost method investment.
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Income Tax Benefit (Expense). Income tax expense for the nine-month period ended September 30, 2021 was $11.9 million, or 28% of our pre-tax income. Income tax benefit for the nine-month period ended September 30, 2020 was $3.2 million, or 12% of our pre-tax loss. The effective tax rate for the nine-month period ended September 30, 2021 was different from our statutory rate due to foreign and state taxes, a valuation allowance on deferred tax assets in certain foreign jurisdictions and nondeductible expenses. We compute our interim tax expense by projecting our effective tax rate for the year and applying the projected annual effective tax rate to the year to date pre-tax income from continuing operations for the reporting quarter. Additional “discrete" items (such as excess tax benefits from share based compensation) may adjust the year-to-date tax expense in the quarter in which such items occur.
Our management periodically evaluates the realizability of the deferred tax assets and, if it is determined that it is more likely than not that the deferred tax assets are realizable, adjusts the valuation allowance accordingly. Valuation allowances are established and maintained for deferred tax assets on a “more likely than not” threshold. The process of evaluating the need to maintain a valuation allowance for deferred tax assets and the amount maintained in any such allowance is highly subjective and is based on many factors, several of which are subject to significant judgment calls.
Based on our analysis, we determined that it was more likely than not that our deferred tax assets would be realized for all jurisdictions with the exception of our digital operations located in Spain, Argentina and Mexico. As a result of recurring losses from our digital operations in Spain, Argentina and Mexico, management has determined that it is more likely than not that deferred tax assets of approximately $2.1 million at September 30, 2021 will not be realized and therefore we have established a valuation allowance on those assets.
We intend to reinvest permanently our unremitted earnings in our foreign subsidiaries, and accordingly have not provided deferred tax liabilities on those earnings. We have not yet determined an estimate of the total amount of unremitted earnings.
Segment Operations
Digital
Net Revenue. Net revenue in our digital segment increased to $146.1 million for the three-month period ended September 30, 2021 from $13.7 million for the three-month period ended September 30, 2020. This increase of approximately $132.4 million in net revenue was a result of advertising revenue resulting from our acquisition of a majority interest in Cisneros Interactive during the fourth quarter of 2020, which became wholly-owned during the third quarter of 2021, and our acquisition of MediaDonuts during the third quarter of 2021, both of which did not contribute to net revenue in prior periods.
Net revenue in our digital segment increased to $377.8 million for the nine-month period ended September 30, 2021 from $38.4 million for the nine-month period ended September 30, 2020. This increase of approximately $339.4 million in net revenue was a result of advertising revenue resulting from our acquisition of a majority interest in Cisneros Interactive during the fourth quarter of 2020, which became wholly-owned during the third quarter of 2021, and our acquisition of MediaDonuts during the third quarter of 2021, both of which did not contribute to net revenue in prior periods.
Cost of revenue. Cost of revenue in our digital segment increased to $124.3 million for the three-month period ended September 30, 2021 from $7.8 million for the three-month period ended September 30, 2020, an increase of $116.5 million, primarily due to increased costs of revenue following our acquisition of a majority interest in Cisneros Interactive during the fourth quarter of 2020, which became wholly-owned during the third quarter of 2021, and our acquisition of MediaDonuts during the third quarter of 2021, both of which did not incur cost of revenue for us in the comparable period ended September 30, 2020. As a percentage of digital net revenue, cost of revenue increased to 85% for the three-month period ended September 30, 2021 from 57% for the three-month period ended September 30, 2020, primarily due to our acquisition of a majority interest in Cisneros Interactive, which became wholly-owned during the third quarter of 2021, and our acquisition of MediaDonuts, both of which operate with lower margins compared to our other digital operations, and which we anticipate will continue in future periods.
Cost of revenue in our digital segment increased to $318.1 million for the nine-month period ended September 30, 2021 from $21.6 million for the nine-month period ended September 30, 2020, an increase of $296.5 million, primarily due to increased costs of revenue following our acquisition of a majority interest in Cisneros Interactive during the fourth quarter of 2020, which became wholly-owned during the third quarter of 2021, and our acquisition of MediaDonuts during the third quarter of 2021, both of which did not incur cost of revenue for us in the comparable period ended September 30, 2020. As a percentage of digital net revenue, cost of revenue increased to 84% for the nine-month period ended September 30, 2021 from 56% for the nine-month period ended September 30, 2020, primarily due to our acquisition of a majority interest in Cisneros Interactive, which became wholly-owned during the third quarter of 2021, and our acquisition of MediaDonuts, both of which operate with lower margins compared to our other digital operations, and which we anticipate will continue in future periods.
Direct operating expenses. Direct operating expenses in our digital segment increased to $6.2 million for the three-month period ended September 30, 2021 from $3.0 million for the three-month period ended September 30, 2020, an increase of $3.2 million. The
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increase was primarily due to our acquisition of a majority interest in Cisneros Interactive during the fourth quarter of 2020, which became wholly-owned during the third quarter of 2021, and our acquisition of MediaDonuts during the third quarter of 2021, both of which did not incur direct operating expenses for us in the comparable period ended September 30, 2020, partially offset by decreases in salary expense associated with furloughs and layoffs that occurred in 2020 because of the COVID-19 pandemic.
Direct operating expenses in our digital segment increased to $17.4 million for the nine-month period ended September 30, 2021 from $9.1 million for the nine-month period ended September 30, 2020, an increase of $8.3 million. The increase was primarily due to our acquisition of a majority interest in Cisneros Interactive during the fourth quarter of 2020, which became wholly-owned during the third quarter of 2021, and our acquisition of MediaDonuts during the third quarter of 2021, both of which did not incur direct operating expenses for us in the comparable period ended September 30, 2020, partially offset by decreases in salary expense associated with furloughs and layoffs that occurred in 2020 because of the COVID-19 pandemic.
Selling, general and administrative expenses. Selling, general and administrative expenses in our digital segment increased to $7.0 million for the three-month period ended September 30, 2021 from $2.4 million for the three-month period ended September 30, 2020, an increase of $4.6 million. The increase was primarily due to our acquisition of a majority interest in Cisneros Interactive during the fourth quarter of 2020, which became wholly-owned during the third quarter of 2021, and our acquisition of MediaDonuts during the third quarter of 2021, both of which did not incur selling, general and administrative expenses for us in the comparable period ended September 30, 2020, partially offset by decreases in salary expense associated with furloughs and layoffs that occurred in 2020 because of the COVID-19 pandemic.
Selling, general and administrative expenses in our digital segment increased to $18.7 million for the nine-month period ended September 30, 2021 from $9.3 million for the nine-month period ended September 30, 2020, an increase of $9.4 million. The increase was primarily due to our acquisition of a majority interest in Cisneros Interactive during the fourth quarter of 2020, which became wholly-owned during the third quarter of 2021, and our acquisition of MediaDonuts during the third quarter of 2021, both of which did not incur selling, general and administrative expenses for us in the comparable period ended September 30, 2020, partially offset by decreases in salary expense associated with furloughs and layoffs that occurred in 2020 because of the COVID-19 pandemic.
Television
Net Revenue. Net revenue in our television segment decreased to $36.5 million for the three-month period ended September 30, 2021 from $37.8 million for the three-month period ended September 30, 2020. This decrease of approximately $1.3 million, or 4%, in net revenue was primarily due to decreases in political revenue and revenue from spectrum usage rights, partially offset by increases in local and national advertising revenue. We generated a total of $9.1 million in retransmission consent revenue for each of the three-month periods ended September 30, 2021 and 2020.
Net revenue in our television segment increased to $106.6 million for the nine-month period ended September 30, 2021 from $103.9 million for the nine-month period ended September 30, 2020. This increase of approximately $2.7 million, or 3%, in net revenue was primarily due to increases in local and national advertising revenue, and revenue from spectrum usage rights, partially offset by a decrease in political revenue. We generated a total of $28.1 million and $28.0 million in retransmission consent revenue for the nine-month periods ended September 30, 2021 and 2020, respectively.
In general, we face ratings declines, competitive factors with another Spanish-language broadcaster, and changing demographics and preferences of audiences. Additionally, notwithstanding the increases in local and national advertising revenue, we have previously noted a trend for advertising to move increasingly from traditional media, such as television, to new media, such as digital media, and we expect this trend to continue.
Direct Operating Expenses. Direct operating expenses in our television segment increased to $15.6 million for the three-month period ended September 30, 2021 from $14.6 million for the three-month period ended September 30, 2020, an increase of approximately $1.0 million. The increase was primarily due to an increase in expenses associated with the increase in local and national advertising revenue advertising revenue, partially offset by decreases in salary expense associated with furloughs and layoffs that occurred in 2020 because of the COVID-19 pandemic.
Direct operating expenses in our television segment increased to $45.7 million for the nine-month period ended September 30, 2021 from $43.5 million for the nine-month period ended September 30, 2020, an increase of approximately $2.2 million. The increase was primarily due to an increase in expenses associated with the increase in local and national advertising revenue, partially offset by decreases in salary expense associated with furloughs and layoffs that occurred in 2020 because of the COVID-19 pandemic.
Selling, General and Administrative Expenses. Selling, general and administrative expenses in our television segment increased to $4.6 million for the three-month period ended September 30, 2021 from $4.4 million for the three-month period ended September 30, 2020, an increase of approximately $0.2 million. The increase was primarily due to an increase in event expense.
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Selling, general and administrative expenses in our television segment decreased to $13.8 million for the nine-month period ended September 30, 2021 from $15.0 million for the nine-month period ended September 30, 2020, a decrease of approximately $1.2 million. The decrease was primarily due to decreases in bad debt and salary expense associated with furloughs and layoffs that occurred in 2020 because of the COVID-19 pandemic.
Radio
Net Revenue. Net revenue in our radio segment increased to $16.4 million for the three-month period ended September 30, 2021 from $11.5 million for the three-month period ended September 30, 2020. This increase of approximately $4.9 million, or 42%, in net revenue was primarily due to increases in local and national advertising revenue, partially offset by a decrease in political revenue.
Net revenue in our radio segment increased to $41.9 million for the nine-month period ended September 30, 2021 from $30.0 million for the nine-month period ended September 30, 2020. This increase of approximately $11.9 million, or 39%, in net revenue was primarily due to increases in local and national advertising revenue, partially offset by a decrease in political revenue.
In general, our television and radio segments face ratings declines, competitive factors with other Spanish-language broadcaster, and changing demographics and preferences of audiences. Additionally, notwithstanding the increases in local and national advertising revenue, we have previously noted a trend for advertising to move increasingly from traditional media, such as television and radio, to new media, such as digital media, and we expect this trend to continue. This trend has had a more significant impact on our radio revenue as compared to television revenue, and we expect that this trend will also continue.
Direct Operating Expenses. Direct operating expenses in our radio segment increased to $6.8 million for the three-month period ended September 30, 2021 from $6.6 million for the three-month period ended September 30, 2020, an increase of $0.2 million. The increase was primarily due to an increase in expenses associated with the increase in advertising revenue, partially offset by decreases in salary expense associated with furloughs and layoffs that occurred in 2020 because of the COVID-19 pandemic.
Direct operating expenses in our radio segment remained constant at $20.4 million for each of the nine-month periods ended September 30, 2021 and 2020.
Selling, General and Administrative Expenses. Selling, general and administrative expenses in our radio segment decreased to $3.0 million for the three-month period ended September 30, 2021 from $3.1 million for the three-month periods ended September 30, 2020, a decrease of $0.1 million.
Selling, general and administrative expenses in our radio segment decreased to $9.0 million for the nine-month period ended September 30, 2021 from $10.1 million for the nine-month period ended September 30, 2020, a decrease of $1.1 million. The decrease was primarily due to decreases in salary expense associated with furloughs and layoffs that occurred in 2020 because of the COVID-19 pandemic.
Liquidity and Capital Resources
While we have a history of operating losses in some periods and operating income in other periods, we also have a history of generating significant positive cash flows from our operations. We had net losses attributable to common stockholders of $3.9 million and $19.7 million for the years ended December 31, 2020 and 2019, respectively, and net income attributable to common stockholders of $12.2 million for the year ended December 31, 2018. We had positive cash flow from operations of $63.4 million, $31.5 million and $33.8 million for the years ended December 31, 2020, 2019 and 2018, respectively. We had positive cash flow from operations of $53.8 million for the nine-month period ended September 30, 2021. For at least the next twelve months, we expect to fund our working capital requirements, capital expenditures and payments of principal and interest on outstanding indebtedness, with cash on hand and cash flows from operations.
We currently believe that our cash position is capable of meeting our operating and capital expenses and debt service requirements for at least the next twelve months. We believe that our position is strengthened by cash and cash equivalents on hand, in the amount of $182.9 million. Our liquidity is not materially impacted by amounts held in accounts outside the United States.
2017 Credit Facility
On November 30, 2017 (the “Closing Date”), we entered into our 2017 Credit Facility pursuant to the 2017 Credit Agreement. The 2017 Credit Facility consists of a $300.0 million senior secured Term Loan B Facility (the “Term Loan B Facility”), which was drawn in full on the Closing Date. In addition, the 2017 Credit Facility provides that we may increase the aggregate principal amount of the 2017 Credit Facility by up to an additional $100.0 million plus the amount that would result in our first lien net leverage ratio (as such term is used in the 2017 Credit Agreement) not exceeding 4.0 to 1.0, subject to us satisfying certain conditions.
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Borrowings under the Term Loan B Facility were used on the Closing Date (a) to repay in full all of our and our subsidiaries’ then outstanding obligations under the previous 2013 credit agreement, or 2013 Credit Agreement, and to terminate the 2013 Credit Agreement, (b) to pay fees and expenses in connection with the 2017 Credit Facility, and (c) for general corporate purposes.
The 2017 Credit Facility is guaranteed on a senior secured basis by certain of our existing and future wholly-owned domestic subsidiaries, and is secured on a first priority basis by our and those subsidiaries’ assets.
Our borrowings under the 2017 Credit Facility bear interest on the outstanding principal amount thereof from the date when made at a rate per annum equal to either: (i) the Eurodollar Rate (as defined in the 2017 Credit Agreement) plus 2.75%; or (ii) the Base Rate (as defined in the 2017 Credit Agreement) plus 1.75%. As of December 31, 2020, the interest rate on our Term Loan B was 2.90%. The Term Loan B Facility expires on November 30, 2024 (the “Maturity Date”).
Subject to certain exceptions, the 2017 Credit Facility contains covenants that limit the ability of us and our restricted subsidiaries to, among other things:
The 2017 Credit Facility also provides for certain customary events of default, including the following:
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The Term Loan B Facility does not contain any financial covenants. In connection with our entering into the 2017 Credit Agreement, we and our restricted subsidiaries also entered into a Security Agreement, pursuant to which we and all of the companies existing in future wholly-owned domestic subsidiaries (the "Guarantors") each granted a first priority security interest in the collateral securing the 2017 Credit Facility for the benefit of the lenders under the 2017 Credit Facility.
On April 30, 2019, we entered into an amendment to the 2017 Credit Agreement, which became effective on May 1, 2019.
The 2017 Credit Agreement contains a covenant that we deliver our financial statements and certain other information for each fiscal year within 90 days after the end of each fiscal year. As a result of our expanding business operations, primarily related to the acquisition of a majority interest in Cisneros Interactive in October 2020, we did not deliver our financial statements for the year ended December 31, 2020 and other information within 90 days after the end of the fiscal year ended December 31, 2020, and therefore we did not satisfy the requirement of this covenant in the 2017 Credit Agreement. However, the 2017 Credit Agreement provides an additional period of 30 days for us to satisfy such covenant. On April 12, 2021, we filed our 2020 10-K with the SEC. We believe we are in compliance with all covenants in the 2017 Credit Agreement and have satisfied the requirements of the 2017 Credit Agreement with respect to the delivery of our financial statements and other information for the fiscal year ended December 31, 2020.
On June 4, 2021, we entered into the Second Amendment (the "Amendment") to the 2017 Credit Agreement, by and among the Company, Bank of America, N.A., as Administrative Agent, and the other financial institutions party thereto as Lenders (collectively, the “Lenders”). The Amendment amends the 2017 Credit Agreement, primarily to permit additional investments in restricted subsidiaries that are not loan parties, and make certain changes to the definition of “Consolidated Net Income” for the purpose of calculating EBITDA as defined by the 2017 Credit Agreement. Pursuant to the Amendment, we agreed to pay to the Lenders consenting to the Amendment a fee equal to 0.375% of the aggregate principal amount of the outstanding loans held by such Lenders under the 2017 Credit Agreement as of June 4, 2021. This fee totaled approximately $0.6 million and will be amortized as interest expense over the remaining term of the Term Loan B.
The carrying amount of the Term Loan B Facility as of September 30, 2021 was $211.0 million, net of $2.0 million of unamortized debt issuance costs and original issue discount. The estimated fair value of the Term Loan B Facility as of September 30, 2021 was $210.3 million. The estimated fair value is based on quoted prices in markets where trading occurs infrequently.
Share Repurchase Program
On July 13, 2017, our Board of Directors approved a share repurchase program of up to $15.0 million of our outstanding Class A common stock. On April 11, 2018, our Board of Directors approved the repurchase of up to an additional $15.0 million of our outstanding Class A common stock, for a total repurchase authorization of up to $30.0 million. On August 27, 2019, the Board of Directors approved the repurchase of up to an additional $15.0 million of the Company’s Class A common stock, for a total repurchase authorization of up to $45.0 million. Under the share repurchase program, we are authorized to purchase shares from time to time through open market purchases or negotiated purchases, subject to market conditions and other factors. The share repurchase program may be suspended or discontinued at any time without prior notice. On March 26, 2020, we suspended share repurchases under the plan in order to preserve cash during the continuing economic crisis resulting from the COVID-19 pandemic.
In the three- and nine-month periods ended September 30, 2021, we did not repurchase any shares of our Class A common stock. As of September 30, 2021, we have repurchased a total of approximately 8.6 million shares of Class A common stock at an average price per share of $3.76, for an aggregate purchase price of approximately $32.2 million. All repurchased shares were retired as of September 30, 2021.
Consolidated Adjusted EBITDA
Consolidated adjusted EBITDA (as defined below) increased to $55.2 million for the nine-month period ended September 30, 2021 compared to $27.8 million for the nine-month period ended September 30, 2020. As a percentage of net revenue, consolidated adjusted EBITDA was 10% and 16% for the nine-month periods ended September 30, 2021 and 2020, respectively.
Consolidated adjusted EBITDA, as defined in our 2017 Credit Agreement, means net income (loss) plus gain (loss) on sale of assets, depreciation and amortization, non-cash impairment charge, non-cash stock-based compensation included in operating and corporate expenses, net interest expense, other income (loss), non-recurring cash expenses, gain (loss) on debt extinguishment, income tax (expense) benefit, equity in net income (loss) of nonconsolidated affiliate, non-cash losses, syndication programming amortization less syndication programming payments, revenue from FCC spectrum incentive auction less related expenses, expenses associated with investments, EBITDA attributable to redeemable noncontrolling interest, acquisitions and dispositions and certain pro-forma cost savings. We use the term consolidated adjusted EBITDA because that measure is defined in our 2017 Credit Agreement and does not include gain (loss) on sale of assets, depreciation and amortization, non-cash impairment charge, non-cash stock-based compensation, net interest expense, other income (loss), non-recurring cash expenses, gain (loss) on debt extinguishment, income tax (expense) benefit, equity in net income (loss) of nonconsolidated affiliate, non-cash losses, syndication programming amortization less
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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 adjusted EBITDA is a measure governing several critical aspects of our 2017 Credit Facility, we believe that it is important to disclose consolidated adjusted EBITDA to our investors. We may increase the aggregate principal amount outstanding by an additional amount equal to $100.0 million plus the amount that would result in our total net leverage ratio, or the ratio of consolidated total senior debt (net of up to $75.0 million of unrestricted cash) to trailing-twelve-month consolidated adjusted EBITDA, not exceeding 4.0. In addition, beginning December 31, 2018, at the end of every calendar year, in the event our total net leverage ratio is within certain ranges, we must make a debt prepayment equal to a certain percentage of our Excess Cash Flow, which is defined as consolidated adjusted EBITDA, less consolidated interest expense, less debt principal payments, less taxes paid, less other amounts set forth in the definition of Excess Cash Flow in the 2017 Credit Agreement. The total leverage ratio was as follows (in each case as of September 30): 2021, 1.6 to 1; 2020, 3.6 to 1.
While many in the financial community and we consider consolidated adjusted EBITDA to be important, it should be considered in addition to, but not as a substitute for or superior to, other measures of liquidity and financial performance prepared in accordance with accounting principles generally accepted in the United States of America, such as cash flows from operating activities, operating income (loss) and net income (loss). As consolidated adjusted EBITDA excludes non-cash gain (loss) on sale of assets, non-cash depreciation and amortization, non-cash impairment charge, non-cash stock-based compensation expense, net interest expense, other income (loss), non-recurring cash expenses, gain (loss) on debt extinguishment, income tax (expense) benefit, equity in net income (loss) of nonconsolidated affiliate, non-cash losses, syndication programming amortization less syndication programming payments, revenue from FCC spectrum incentive auction less related expenses, expenses associated with investments, EBITDA attributable to redeemable noncontrolling interest, acquisitions and dispositions and certain pro-forma cost savings, consolidated adjusted EBITDA has certain limitations because it excludes and includes several important financial line items. Therefore, we consider both non-GAAP and GAAP measures when evaluating our business. Consolidated adjusted EBITDA is also used to make executive compensation decisions.
Consolidated adjusted EBITDA is a non-GAAP measure. For a reconciliation of consolidated adjusted EBITDA to cash flows from operating activities, its most directly comparable GAAP financial measure, please see page 34.
Cash Flow
Net cash flow provided by operating activities was $53.8 million for the nine-month period ended September 30, 2021 compared to net cash flow provided by operating activities of $25.7 million for the nine-month period ended September 30, 2020. We had net income of $31.4 million for the nine-month period ended September 30, 2021, which included non-cash items such as deferred income taxes of $8.3 million, depreciation and amortization expense of $16.2 million, non-cash stock-based compensation of $3.3 million, and impairment loss of $1.6 million. We had a net loss of $24.2 million for the nine-month period ended September 30, 2020, which included non-cash items such as impairment loss of $39.8 million, depreciation and amortization expense of $12.3 million and non-cash stock-based compensation of $2.4 million. We expect to have positive cash flow from operating activities for the 2021 year.
Net cash flow provided by investing activities was $19.3 million for the nine-month period ended September 30, 2021, compared to net cash flow provided by investing activities of $35.7 million for the nine-month period ended September 30, 2020. During the nine-month period ended September 30, 2021, we had proceeds of $27.8 million from the maturity of marketable securities and proceeds of $9.4 million from the sale of property and equipment and intangibles, and we spent $12.8 million on the acquisition of MediaDonuts net of cash acquired, $4.3 million in net capital expenditures, and $0.8 million on purchase of investments. During the nine-month period ended September 30, 2020, we had proceeds of $38.5 million from the maturity of marketable securities and proceeds of $5.1 million from the sale of property and equipment and intangibles, and we spent $7.7 million in net capital expenditures, and $0.2 million to purchase intangible assets. We anticipate that our capital expenditures will be approximately $6.5 million during the full year 2021. Of this amount, we expect that approximately $0.3 million will be expended in connection with the required relocation of certain of our television stations to a different channel as part of the broadcast television repack following the FCC auction for broadcast spectrum that concluded in 2017, which amount we expect to be reimbursed to us by the FCC. The amount of our anticipated capital expenditures may change based on future changes in business plans and our financial condition and general economic conditions. We expect to fund capital expenditures with cash on hand and net cash flow from operations.
Net cash flow used in financing activities was $9.4 million for the nine-month period ended September 30, 2021, compared to net cash flow used in financing activities of $11.2 million for the nine-month period ended September 30, 2020. During the nine-month period ended September 30, 2021, we made dividend payments of $6.4 million, principal debt repayments of $2.3 million, payments for financing costs of $0.6 million, payments for taxes related to shares withheld for share-based compensation plans of $0.5 million, and received $0.4 million related to the issuance of common stock upon the exercise of stock options. During the nine-month period ended September 30, 2020, we made dividend payments of $8.4 million, principal debt repayments of $2.3 million, and spent $0.5 million for the repurchase of Class A common stock.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
General
Market risk represents the potential loss that may impact our financial position, results of operations or cash flows due to adverse changes in the financial markets. We are exposed to market risk from changes in the base rates on our Term Loan B.
Interest Rates
As of September 30, 2021, we had $213.0 million of variable rate bank debt outstanding under our 2017 Credit Facility. The debt bears interest at the three-month Eurodollar rate plus a margin of 2.75%.
Because our debt is subject to interest at a variable rate, our earnings will be affected in future periods by changes in interest rates. If the Eurodollar were to increase by a hypothetical 100 basis points, or one percentage point, from its September 30, 2021 level, our annual interest expense would increase and cash flow from operations would decrease by approximately $2.1 million based on the outstanding balance of our term loan as of September 30, 2021.
Foreign Currency
We have foreign currency risks related to our revenue and operating expenses denominated in currencies other than the U.S. dollar. Historically, our revenues have primarily been denominated in U.S. dollars, and the majority of our current revenues continue to be, and are expected to remain, denominated in U.S. dollars. However, we have operations in countries other than the United States, primarily related to our digital business, and as a result we expect an increasing portion of our future revenues to be denominated in currencies other than the U.S. dollar, primarily the Mexican peso, Argentine peso, various 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, 2021 would not be material to our overall financial condition or consolidated results of operations. Certain of our operating expenses are denominated in the currencies of the countries in which our operations are located, primarily the United States and, to a lesser extent, Spain, Mexico, Argentina, other Latin American countries and other Asian countries. Increases and decreases in our foreign-denominated revenue from movements in foreign exchange rates are partially offset by the corresponding decreases or increases in our foreign-denominated operating expenses.
Based on recent inflation trends, the economy in Argentina has been classified as highly inflationary. As a result, we applied the guidance in ASC 830 by remeasuring non-monetary assets and liabilities at historical exchange rates and monetary-assets and liabilities using current exchange rates (see Note 2 to Notes to Consolidated Financial Statements).
As our operations grow, our risks associated with fluctuation in currency rates will become greater, and we will continue to reassess our approach to managing this risk. In addition, currency fluctuations or a weakening U.S. dollar can increase the amount of operating expense of our international operations, which are primarily related to our digital business. To date, we have not entered into any foreign currency hedging contracts, since exchange rate fluctuations historically have not had a material impact on our operating results and cash flows.
ITEM 4. CONTROLS AND PROCEDURES
We conducted an evaluation, under the supervision and with the participation of management, including our chief executive officer and chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this quarterly report. Based on this evaluation, our chief executive officer and chief financial officer concluded that, as of the evaluation date, our disclosure controls and procedures were not effective due to material weaknesses in our internal control over financial reporting identified in our 2020 10-K for the year ended December 31, 2020, as described below.
Notwithstanding the conclusion that our disclosure controls and procedures were not effective as of the end of the period covered by this report, we believe that our consolidated financial statements and other information contained in this quarterly report present fairly, in all material respects, our business, financial condition and results of operations for the interim periods presented.
Material Weakness
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company's annual or interim financial statements will not be prevented or detected on a timely basis.
As previously disclosed in our 2020 10-K, as a result of our expanding business operations and geographic scope, primarily related to our acquisition of a majority interest in Cisneros Interactive in October 2020, we have experienced a significant increase in
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the volume of accounting transactions, the number of jurisdictions in which we operate and the number of control activities necessary to properly present consolidated results. Cisneros Interactive operates in multiple countries, uses multiple currencies and, prior to the acquisition, was a private company with limited accounting and financial reporting personnel and other resources with which to address its internal controls and procedures. Our acquisition was completed late in the year and there was a lack of sufficient accounting resources to appropriately address this increase in necessary control activities, which resulted in the following material weaknesses:
Although these control weaknesses did not result in any material misstatement of our consolidated financial statements for the periods presented, they could lead to a material misstatement of account balances or disclosures. Accordingly, management has concluded that these control weaknesses constitute material weaknesses.
Management’s Plan for Remediation
With respect to the material weaknesses identified above, management has discussed them with the Audit Committee, formulated a remediation plan and implemented key elements of the plan. Among other things, we have:
We believe that a remediation plan incorporating the measures described above, as well as any additional measures we may identify and implement, will remediate the previously-identified material weaknesses and strengthen our internal control over financial reporting. As we continue to implement and test the remediation plan, we may also identify additional measures to address the material weaknesses or modify certain elements of the remediation plan. We also may implement additional changes to our internal control over financial reporting as may be appropriate in the course of remediating the material weaknesses. We will continue to review our financial reporting controls and procedures and, with the input and oversight of the Audit Committee, will continue to take steps to remedy the material weaknesses to reinforce the overall design and capability of our control environment.
Inherent Limitations on Effectiveness of Controls
A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Because of its inherent limitations, internal control over financial reporting may not prevent or detect all control issues or misstatements. Accordingly, our controls and procedures are designed to provide reasonable, not absolute, assurance that the objectives of our control system are met. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Changes in Internal Control
Other than changes noted above in relation to the material weaknesses identified in the fourth quarter of 2020 related to our acquisition of a majority interest in Cisneros Interactive in October 2020 described above, there have been no changes in our internal control over financial reporting that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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PART II.
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We are subject to various outstanding claims and other legal proceedings that may arise in the ordinary course of business. In the opinion of management, any liability that may arise out of or with respect to these matters will not materially adversely affect our financial position, results of operations or cash flows.
ITEM 1A. RISK FACTORS
None.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Issuer Purchases of Equity Securities
On July 13, 2017, our Board of Directors approved a share repurchase program of up to $15.0 million of our outstanding Class A common stock. On April 11, 2018, our Board of Directors approved the repurchase of up to an additional $15.0 million of our outstanding Class A common stock, for a total repurchase authorization of up to $30.0 million. On August 27, 2019, the Board of Directors approved the repurchase of up to an additional $15.0 million of the Company’s Class A common stock, for a total repurchase authorization of up to $45.0 million. Under the share repurchase program, we are authorized to purchase shares from time to time through open market purchases or negotiated purchases, subject to market conditions and other factors. The share repurchase program may be suspended or discontinued at any time without prior notice. On March 26, 2020, we suspended share repurchases under the plan in order to preserve cash during the continuing economic crisis resulting from the COVID-19 pandemic.
In the three- and nine-month periods ended September 30, 2021, we did not repurchase any shares of our Class A common stock. As of September 30, 2021, we have repurchased a total of approximately 8.6 million shares of Class A common stock at an average price per share of $3.76, for an aggregate purchase price of approximately $32.2 million. All repurchased shares were retired as of September 30, 2021.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
None.
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ITEM 6. EXHIBITS
31.1* |
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31.2* |
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32* |
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101.INS* |
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Inline XBRL Instance Document. |
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101.SCH* |
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Inline XBRL Taxonomy Extension Schema Document. |
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101.CAL* |
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Inline XBRL Taxonomy Extension Calculation Linkbase Document. |
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101.LAB* |
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Inline XBRL Taxonomy Extension Label Linkbase Document. |
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101.PRE* |
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Inline XBRL Taxonomy Extension Presentation Linkbase Document. |
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101.DEF* |
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Inline XBRL Taxonomy Extension Definition Linkbase. |
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104 |
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Cover Page Interactive Data File (formatted as Inline XBRL with applicable taxonomy extension information contained in Exhibits 101). |
* Filed herewith.
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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.
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ENTRAVISION COMMUNICATIONS CORPORATION |
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By: |
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/s/ Christopher T. Young |
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Christopher T. Young Chief Financial Officer and Treasurer |
Date: November 5, 2021
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