(
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 October 31, 2022, there were
ENTRAVISION COMMUNICATIONS CORPORATION
FORM 10-Q FOR THE THREE- AND NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2022
TABLE OF CONTENTS
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Page Number |
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ITEM 1. |
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4 |
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CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) AS OF SEPTEMBER 30, 2022 AND DECEMBER 31, 2021 |
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6 |
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7 |
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9 |
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) |
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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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33 |
ITEM 3. |
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49 |
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ITEM 4. |
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49 |
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ITEM 1. |
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50 |
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ITEM 1A. |
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50 |
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ITEM 2. |
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50 |
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ITEM 3. |
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ITEM 4. |
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50 |
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ITEM 5. |
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50 |
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ITEM 6. |
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51 |
Forward-Looking Statements
This document contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. All statements other than statements of historical fact are “forward-looking statements” for purposes of federal and state securities laws, including, but not limited to, any projections of earnings, revenue or other financial items; any statements of the plans, strategies and objectives of management for future operations; any statements concerning proposed new services or developments; any statements regarding future economic conditions or performance; any statements of belief; and any statements of assumptions underlying any of the foregoing.
Forward-looking statements may include the words “may,” “could,” “will,” “estimate,” “intend,” “continue,” “believe,” “expect”, “anticipate”, “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 37 of our Annual Report on Form 10-K for the year ended December 31, 2021 (our “2021 10-K”).
3
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ENTRAVISION COMMUNICATIONS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(In thousands, except share and per share data)
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September 30, |
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December 31, |
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2022 |
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2021 |
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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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- |
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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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Deferred income taxes |
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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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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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Accumulated other comprehensive income (loss) |
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( |
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( |
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Total stockholders' equity |
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Noncontrolling interest |
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- |
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Total equity |
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Total liabilities and equity |
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$ |
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$ |
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See Notes to Condensed Consolidated Financial Statements
4
ENTRAVISION COMMUNICATIONS CORPORATION
CONDENSED 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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2022 |
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2021 |
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2022 |
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2021 |
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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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Change in fair value of contingent consideration |
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- |
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- |
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Impairment charge |
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- |
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- |
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Foreign currency (gain) loss |
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Other operating (gain) loss |
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( |
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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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( |
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Interest income |
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Dividend income |
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Realized gain (loss) on marketable securities |
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( |
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- |
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( |
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- |
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Income (loss) before income taxes |
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Income tax benefit (expense) |
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( |
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( |
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( |
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( |
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Net income (loss) |
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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 noncontrolling interest |
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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 Condensed Consolidated Financial Statements
5
ENTRAVISION COMMUNICATIONS CORPORATION
CONDENSED 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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2022 |
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2021 |
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2022 |
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2021 |
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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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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 noncontrolling interest |
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- |
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- |
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Net income (loss) attributable to common stockholders |
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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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( |
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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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Total other comprehensive income (loss) |
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( |
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Comprehensive income (loss) |
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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 noncontrolling interests |
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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 Condensed Consolidated Financial Statements
6
ENTRAVISION COMMUNICATIONS CORPORATION
CONDENSED 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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Noncontrolling |
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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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Interest |
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Total |
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Balance, December 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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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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Tax payments related to shares withheld for share-based compensation plans |
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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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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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- |
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Repurchase of 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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( |
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Retirement of treasury 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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- |
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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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( |
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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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( |
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Net income (loss) attributable to common stockholders for the three-month period-ended March 31, 2022 |
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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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Balance, March 31, 2022 |
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- |
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( |
) |
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( |
) |
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- |
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Tax payments related to shares withheld for share-based compensation plans |
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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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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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- |
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Repurchase of 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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( |
) |
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Retirement of treasury 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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- |
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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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- |
|
|
- |
|
|
- |
|
|
- |
|
|
( |
) |
|
- |
|
|
( |
) |
Net income (loss) attributable to common stockholders for the three-month period-ended June 30, 2022 |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
|
|
- |
|
|
- |
|
|
|
||
Balance, June 30, 2022 |
|
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
( |
) |
|
- |
|
|
|
||||||||
Stock-based compensation expense |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
|
|
- |
|
|
- |
|
|
- |
|
|
|
||
Dividends paid |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
( |
) |
|
- |
|
|
- |
|
|
- |
|
|
( |
) |
Change in fair value of marketable securities |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
|
|
- |
|
|
|
||
Foreign currency translation gain (loss) |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
( |
) |
|
- |
|
|
( |
) |
OCI release due to realized gain (loss) on marketable securities |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
|
|
- |
|
|
|
||
Acquisition of noncontrolling interest |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
|
|
|
||
Net income (loss) attributable to common stockholders for the three-month period-ended September 30, 2022 |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
|
|
- |
|
|
( |
) |
|
|
||
Balance, September 30, 2022 |
|
|
|
|
|
|
|
|
- |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
( |
) |
$ |
( |
) |
$ |
|
$ |
|
See Notes to Condensed Consolidated Financial Statements
7
|
|
Number of Common Shares |
|
Common Stock |
|
|
|
|
|
Accumulated |
|
|
|
|
|
||||||||||||||||||||||
|
|
|
|
|
|
|
|
Treasury |
|
Class |
|
Class |
|
Class |
|
Additional |
|
Accumulated |
|
Other |
|
Noncontrolling |
|
|
|
||||||||||||
|
|
Class A |
|
Class B |
|
Class U |
|
Stock |
|
A |
|
B |
|
U |
|
Capital |
|
Deficit |
|
Income (Loss) |
|
Interest |
|
Total |
|
||||||||||||
Balance, December 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 March 31, 2021 |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
|
|
- |
|
|
- |
|
|
|
||
Balance, March 31, 2021 |
|
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
( |
) |
|
- |
|
|
|
||||||||
Issuance of common stock upon exercise of stock options or awards of restricted stock units |
|
|
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
( |
) |
|
- |
|
|
- |
|
|
- |
|
|
( |
) |
|
Stock-based compensation expense |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
|
|
- |
|
|
- |
|
|
- |
|
|
|
||
Class B common stock exchanged for Class A common 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 June 30, 2021 |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
|
|
- |
|
|
- |
|
|
|
||
Balance, June 30, 2021 |
|
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
( |
) |
|
- |
|
|
|
||||||||
Issuance of common stock upon exercise of stock options or awards of restricted stock units |
|
|
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
|
|
- |
|
|
- |
|
|
- |
|
|
|
|||
Stock-based compensation expense |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
|
|
- |
|
|
- |
|
|
- |
|
|
|
||
Class B common stock exchanged for Class A common stock |
|
|
|
|
( |
) |
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
Dividends paid |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
( |
) |
|
- |
|
|
- |
|
|
- |
|
|
( |
) |
Change in fair value of marketable securities |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
( |
) |
|
- |
|
|
( |
) |
Foreign currency translation gain (loss) |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
|
|
- |
|
|
|
||
Acquisition of redeemable noncontrolling interest |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
( |
) |
|
- |
|
|
- |
|
|
- |
|
|
( |
) |
Net income (loss) attributable to common stockholders for the three-month period-ended September 30, 2021 |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
|
|
- |
|
|
- |
|
|
|
||
Balance, September 30, 2021 |
|
|
|
|
|
|
|
|
- |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
( |
) |
$ |
( |
) |
$ |
- |
|
$ |
|
See Notes to Condensed Consolidated Financial Statements
8
ENTRAVISION COMMUNICATIONS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)
|
Nine-Month Period |
|
|||||
|
Ended September 30, |
|
|||||
|
2022 |
|
|
2021 |
|
||
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 marketable securities |
|
|
|
|
- |
|
|
(Gain) loss on disposal of property and equipment |
|
( |
) |
|
|
( |
) |
Change in fair value of contingent consideration |
|
|
|
|
- |
|
|
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 |
|
( |
) |
|
|
( |
) |
Purchase of a businesses, net of cash acquired |
|
- |
|
|
|
( |
) |
Investment in variable interest entities, net of cash consolidated |
|
( |
) |
|
|
- |
|
Purchases of marketable securities |
|
( |
) |
|
|
- |
|
Proceeds from marketable securities |
|
|
|
|
|
||
Purchases of investments |
|
- |
|
|
|
( |
) |
Net cash provided by (used in) 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 |
|
( |
) |
|
|
- |
|
Payment of contingent consideration |
|
( |
) |
|
|
- |
|
Principal payments under finance lease obligation |
|
( |
) |
|
|
- |
|
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 |
$ |
|
|
$ |
|
See Notes to Condensed Consolidated Financial Statements
9
ENTRAVISION COMMUNICATIONS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2022
1. BASIS OF PRESENTATION
Presentation
2. THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
The Company is a leading global advertising solutions, media and technology company. The Company's operations encompass integrated, end-to-end advertising solutions across multiple media, comprised of digital, television and audio properties. The Company's digital segment, whose operations are located in Latin America, Europe, the United States, Asia and Africa, reaches a global market, with a focus on advertisers in emerging economies that wish to advertise on digital platforms owned and operated primarily by global media companies. The Company's television and audio operations reach and engage U.S. Hispanics. The Company's management has determined that the Company operates in
The Company's digital segment provides digital end-to-end advertising solutions that allow advertisers to reach online users worldwide. These solutions are comprised of
Through the Company's digital commercial partnerships business – the largest of its digital business units – the Company acts as an intermediary between primarily global media companies and advertising customers or their ad agencies. The global media companies represented by the Company include Meta Platforms, or Meta (formerly known as Facebook Inc.), Twitter, Inc., or Twitter, ByteDance Ltd., also known as TikTok, and Spotify AB, or Spotify, as well as other media companies, in more than
Smadex is the Company's proprietary automated purchasing platform, on which advertisers can purchase ad inventory. This practice – the purchase and sale of advertising inventory electronically – is referred to in the Company's industry as programmatic advertising. Smadex is also a “demand-side" platform, which allows advertisers to purchase space from online marketplaces on which media companies list their advertising inventory. Most advertisements acquired through Smadex are placed on mobile devices, but they may also be placed on computers and other Internet-connected devices. The Company also provides managed services to some of its advertising customers in connection with their use of the Smadex platform.
The Company also offers a branding and mobile performance solutions business, which provides managed services to advertisers looking to connect with consumers, primarily on mobile devices. The Company's digital audio business provides digital audio advertising solutions for advertisers in the Americas.
10
The Company also has a diversified media portfolio that targets U.S. Hispanic audiences. The Company owns and/or operates
The Impact of the COVID-19 Pandemic on the Company’s Business
The COVID-19 pandemic had a minimal impact on the Company's business during the quarter ended September 30, 2022. Subject to the extent and duration of possible resurgences of the pandemic from time to time and the continuing uncertain economic environment that has resulted, in part, from the pandemic, the Company anticipates that the pandemic will continue to have little effect on its business, from both an operational and financial perspective, in future periods. Nonetheless, the Company remains cautious due to the unpredictable nature of the pandemic and its effects. The Company also cannot give any assurance whether a resurgence or more prolonged impact of the pandemic in any location where its operations have employees or operates would not adversely affect its operations.
The Company elected to defer the employer portion of the social security payroll tax (
Restricted Cash
As of September 30, 2022 and December 31, 2021, the Company’s balance sheet includes $
The Company's cash and cash equivalents and restricted cash, as presented in the Consolidated Statements of Cash Flows, was as follows (in thousands):
|
As of |
|
|||||
|
September 30, |
|
|||||
|
2022 |
|
|
2021 |
|
||
Cash and cash equivalents |
$ |
|
|
$ |
|
||
Restricted cash |
|
|
|
|
|
||
Total as presented in the Consolidated Statements of Cash Flows |
$ |
|
|
$ |
|
Related Party
Substantially all of the Company’s television stations are Univision- or UniMás-affiliated television stations. The network affiliation agreement with TelevisaUnivision provides certain of the Company’s owned stations the exclusive right to broadcast TelevisaUnivision’s primary Univision network and UniMás network programming in their respective markets. Under the network affiliation agreement, the Company retains the right to sell no less than 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 TelevisaUnivision.
Under the network affiliation agreement, TelevisaUnivision acts as the Company’s exclusive third-party sales representative for the sale of certain national advertising on the Univision- and UniMás-affiliate television stations, and the Company pays certain sales representation fees to TelevisaUnivision relating to sales of all advertising for broadcast on its Univision- and UniMás-affiliate television stations. During the three-month periods ended September 30, 2022 and 2021, the amount the Company paid TelevisaUnivision in this capacity was $
11
The Company also generates revenue under a marketing and sales agreement with TelevisaUnivision, which give it the right to manage the marketing and sales operations of TelevisaUnivision-owned Univision affiliates in
Under the Company’s current proxy agreement with TelevisaUnivision, the Company grants TelevisaUnivision the right to negotiate the terms of retransmission consent agreements for its Univision- and UniMás-affiliated television station signals. Among other things, the proxy agreement provides terms relating to compensation to be paid to the Company by TelevisaUnivision with respect to retransmission consent agreements entered into with multichannel video programming distributors, (“MVPDs”). As of September 30, 2022, the amount due to the Company from TelevisaUnivision was $
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 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, 2022 and 2021, 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):
|
|
Three-Month Period |
|
|
Nine-Month Period |
|
|
||||||||||
|
|
Ended September 30, |
|
|
Ended September 30, |
|
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
|
||||
Restricted stock units granted |
|
|
- |
|
|
|
- |
|
|
|
|
|
|
||||
Weighted average fair value |
|
$ |
- |
|
|
$ |
- |
|
|
$ |
|
|
$ |
|
|
As of September 30, 2022, there was approximately $
12
Income (Loss) Per Share
The following table illustrates the reconciliation of the basic and diluted income (loss) per share (in thousands, except share and per share data):
|
|
Three-Month Period |
|
|
Nine-Month Period |
|
||||||||||
|
|
Ended September 30, |
|
|
Ended September 30, |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
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, 2022, a total of
For the three- and nine-month periods ended September 30, 2021, a total of
Treasury Stock
On March 1, 2022, the Company's Board of Directors approved a share repurchase of up to $
In the three-month period ended September 30, 2022, the Company did
Treasury stock is included as a deduction from equity in the Stockholders’ Equity section of the Condensed Consolidated Balance Sheets. Shares repurchased pursuant to the Company’s share repurchase program are retired during the same calendar year.
2017 Credit Facility
On
13
first lien net leverage ratio (as such term is used in the 2017 Credit Agreement) not exceeding
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 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:
14
In addition, beginning December 31, 2018, at the end of every calendar year, in the event the Company's total net leverage ratio is within certain ranges, the Company must make a debt prepayment equal to a certain percentage of its 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): 2022,
The Term Loan B Facility does not contain any financial covenants. In connection with the Company entering into the 2017 Credit Agreement, the Company and its restricted subsidiaries also entered into a Security Agreement, pursuant to which the Company and all of the companies existing in future wholly-owned domestic subsidiaries 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 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
The carrying amount of the Term Loan B Facility as of September 30, 2022 was $
As of September 30, 2022, the Company believes that it is in compliance with all covenants in the 2017 Credit Agreement.
Concentrations of Credit Risk and Trade Receivables
The Company’s financial instruments that are exposed to concentrations of credit risk consist primarily of cash and cash equivalents and trade accounts receivable. The Company from time to time may have bank deposits in excess of FDIC insurance limits. As of September 30, 2022, the majority of all deposits are maintained in two financial institutions. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk on cash and cash equivalents.
The Company’s credit risk is spread across a large number of customers in the U.S., Latin America, Asia, and various other countries, therefore spreading the trade receivable credit risk. The Company routinely assesses the financial strength of its customers and, as a consequence, believes that it is managing its trade receivable credit risk effectively. Trade receivables are carried at original invoice amount less an estimate made for doubtful receivables based on a review of all outstanding amounts on a monthly basis. An allowance for doubtful accounts is provided for known and anticipated credit losses, as determined by management in the course of regularly evaluating individual customer receivables. This evaluation takes into consideration of a customer’s financial condition and
15
credit history, as well as current economic conditions. Trade receivables are written off when deemed uncollectible. Recoveries of trade receivables previously written off are recorded when received. No interest is charged on customer accounts.
Aggregate receivables from the largest
Revenue from the largest advertiser represented
Estimated losses for bad debts are provided for in the consolidated financial statements through a charge to expense that aggregated $
Dependence on Global Media Companies
The Company is dependent on the continued commercial agreements with, as well as the financial and business strength of, the global media companies for which the Company acts as a commercial partner in the digital segment, as well as the companies from which it obtains programming in the television and audio segments. The Company could be at risk should any of these entities fail to perform their respective obligations to the Company. This in turn could materially adversely affect the Company’s business, results of operations and financial condition.
Revenue related to a single media company for which the Company acts as a commercial partner represented
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.
Accounting Standards Codification ("ASC") 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 and nonrecurring basis in the condensed consolidated balance sheets (in millions):
|
|
September 30, 2022 |
|
||||||||||||||||
|
|
Total Fair Value and Carrying Value on Balance Sheet |
|
|
Fair Value Measurement Category |
|
|
|
|
||||||||||
Recurring fair value measurements |
|
|
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total Gains (Losses) |
|
||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market account |
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
|
|
||
Corporate bonds and notes |
|
$ |
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
||
Asset-backed securities |
|
$ |
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contingent consideration |
|
$ |
|
|
$ |
— |
|
|
|
— |
|
|
$ |
|
|
|
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2021 |
|
||||||||||||||||
|
|
Total Fair Value and Carrying Value on Balance Sheet |
|
|
Fair Value Measurement Category |
|
|
|
|
||||||||||
Recurring fair value measurements |
|
|
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total Gains (Losses) |
|
||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market account |
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
|
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contingent consideration |
|
$ |
|
|
$ |
— |
|
|
|
— |
|
|
$ |
|
|
|
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonrecurring fair value measurements: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FCC licenses |
|
$ |
|
|
|
— |
|
|
|
— |
|
|
$ |
|
$ |
( |
) |
The Company held investments in a money market fund, corporate bonds and notes, and asset-backed securities. The majority of the carrying of the corporate bonds and asset-backed securities held by the Company are investment grade.
The Company’s money market account is comprised of cash and cash equivalents.
The Company’s available for sale debt securities are comprised of corporate bonds and notes, and asset-backed securities. 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 Condensed Consolidated Balance Sheets and their unrealized gains or losses are included in other comprehensive income. Realized gains and losses from the sale of available for sale securities are included in the Statements of Operations and were determined on a specific identification basis.
As of September 30, 2022, the following table summarizes the amortized cost and the unrealized (gains) losses of the available for sale securities (in thousands):
|
|
|
|
|
|
|
||||||||||
|
|
Corporate Bonds and Notes |
|
|
Asset-Backed Securities |
|
||||||||||
|
|
Amortized Cost |
|
|
Unrealized gains (losses) |
|
|
Amortized Cost |
|
|
Unrealized gains (losses) |
|
||||
Due within a year |
|
$ |
|
|
$ |
( |
) |
|
$ |
- |
|
|
$ |
- |
|
|
Due after one year |
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
||
Total |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
17
The Company’s available for sale debt securities are considered for credit losses under the guidance of Accounting Standards Update (“ASU”) 2016-13, Financial Instruments—Credit Losses (Topic 326). As of September 30, 2022 and December 31, 2021, the Company determined that a credit loss allowance is not required.
Included in interest income for the three-month periods ended September 30, 2022 and 2021 was interest income related to the Company’s available for sale securities of $
The fair value of the contingent consideration is related to the acquisitions of:
The fair value of the contingent consideration was estimated by applying the real options approach using level 3 inputs as further discussed in Note 7.
|
Nine-Month Period |
|
|||||
|
Ended September 30, |
|
|||||
|
2022 |
|
|
2021 |
|
||
Beginning balance |
$ |
|
|
$ |
- |
|
|
Additions from acquisitions |
|
|
|
|
|
||
Payments to sellers |
|
( |
) |
|
|
- |
|
(Gain) loss recognized in earnings |
|
|
|
|
- |
|
|
Ending balance |
$ |
|
|
$ |
|
Accumulated Other Comprehensive Income (Loss)
Accumulated other comprehensive income (loss) includes foreign currency translation adjustments and changes in the fair value of available for sale securities.
The following table provides a roll-forward of accumulated other comprehensive income (loss) (in thousands):
|
|
Foreign |
|
|
Marketable |
|
|
Total |
|
|||
Accumulated other comprehensive income (loss) as of December 31, 2021 |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
Other comprehensive income (loss) |
|
|
- |
|
|
|
( |
) |
|
|
( |
) |
Income tax (expense) benefit |
|
|
- |
|
|
|
|
|
|
|
||
Other comprehensive income (loss), net of tax |
|
|
- |
|
|
|
( |
) |
|
|
( |
) |
Accumulated other comprehensive income (loss) as of March 31, 2022 |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
Other comprehensive income (loss) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Income tax (expense) benefit |
|
|
- |
|
|
|
|
|
|
|
||
Other comprehensive income (loss), net of tax |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Accumulated other comprehensive income (loss) as of June 30, 2022 |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Other comprehensive income (loss) |
|
|
( |
) |
|
|
|
|
|
|
||
Income tax (expense) benefit |
|
|
- |
|
|
|
( |
) |
|
|
( |
) |
Amounts reclassified from AOCI |
|
|
- |
|
|
|
|
|
|
|
||
Income tax (expense) benefit |
|
|
- |
|
|
|
( |
) |
|
|
( |
) |
Other comprehensive income (loss), net of tax |
|
|
( |
) |
|
|
|
|
|
|
||
Accumulated other comprehensive income (loss) as of September 30, 2022 |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
18
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 and long term assets are translated at historical rates. Revenues and expenses are translated at the average exchange rate for the period. Translation adjustments resulting from the process of translating the local currency financial statements into U.S. dollars are included in determining comprehensive (income) loss.
Based on 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 media companies.
Assets Held For Sale
Assets are classified as held for sale when the carrying value is expected to be recovered through a sale rather than through their continued use and all of the necessary classification criteria have been met. Assets held for sale are recorded at the lower of their carrying value or estimated fair value less selling costs and classified as current assets. Depreciation is not recorded on assets classified as held for sale.
Variable Interest Entities
In accordance with the provisions of the Financial Accounting Standards Board (FASB) or ASC 810, “Consolidation,” the Company evaluates entities for which control is achieved through means other than voting rights to determine if the Company is the primary beneficiary of a variable interest entity ("VIE"). An entity is a VIE if it has any of the following characteristics: (1) the entity has insufficient equity to permit it to finance its activities without additional subordinated financial support (2) equity holders, as a group, lack the characteristics of a controlling financial interest or (3) the entity is structured with non-substantive voting rights. The primary beneficiary of a VIE is generally the entity that has (a) the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and (b) the obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE. The Company consolidates its investment in a VIE when it determines that the Company is the primary beneficiary of such entity.
In determining whether it is the primary beneficiary of a VIE, the Company considers qualitative and quantitative factors, including, but not limited to: which activities most significantly impact the VIE’s economic performance and which party controls such activities; and the significance of the Company’s investment and other means of participation in the VIE’s expected profits/losses. Significant judgments related to these determinations include estimates about the current and future fair values and performance of assets held by these VIEs and general market conditions.
The Company may change its original assessment of a VIE upon subsequent events such as the modification of contractual arrangements that affect the characteristics or adequacy of the entity’s equity investments at risk and the disposition of all or a portion of an interest held by the primary beneficiary. The Company performs this analysis on an ongoing basis.
Based on the foregoing, the Company has determined that Adsmurai, S.L. (“Adsmurai”) and Jack of Digital Holdings, Inc. ("Jack of Digital") are both VIEs, the Company is the primary beneficiary, and therefore accounted for the consolidation under the provisions of ASC Topic 805, “Business Combinations”. See Note 8 for more details.
Recent Accounting Pronouncements
In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805) – Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. ASU 2021-08 requires the recognition and measurement of contract assets and contract liabilities acquired in a business combination in accordance with ASC 606, Revenue from Contracts with Customers. Considerations to determine the amount of contract assets and contract liabilities to record at the acquisition date include the terms of the acquired contract, such as timing of payment, identification of each performance obligation in the contract and allocation of the contract transaction price to each identified performance obligation on a relative standalone selling price basis as of contract inception. ASU 2021-08 is effective for the Company beginning in the first quarter of 2023. ASU 2021-08 should be applied prospectively for
19
acquisitions occurring on or after the effective date of the amendments. Early adoption of the proposed amendments would be permitted, including adoption in an interim period. The Company is currently assessing the impact this standard will have on the Company’s consolidated financial statements.
Newly Adopted Accounting Standards
There were no new accounting standards that were adopted since the issuance of the 2021 10-K.
3. REVENUES
Revenue Recognition
Revenues are recognized when control of the promised services is transferred to the Company’s customers, in an amount equal to the consideration the Company expects to be entitled to in exchange for those services.
Digital Advertising. Revenue from digital advertising is earned primarily from sales of advertising that are placed by the Company's advertising customers or their ad agencies on the digital platforms of third-party media companies for which the Company acts as commercial partner or placed directly with online digital marketplaces through the Company's Smadex ad purchasing platform. Revenue in the digital segment is recognized when display or other digital advertisements record impressions on the websites and mobile and Internet-connected television apps of media companies on whose digital platforms the advertisements are placed or as the advertiser’s previously agreed-upon performance criteria are satisfied.
Broadcast Advertising. Revenue related to the sale of advertising in the television and audio segments is recognized at the time of broadcast. Broadcast advertising rates are fixed based on each medium’s ability to attract audiences in demographic groups targeted by advertisers and rates can vary based on the time of day and ratings of the programming airing in that day part.
Broadcast and digital advertising revenue is recognized over time in a series as a single performance obligation as the ad, impression or performance advertising is delivered per the insertion order. The Company applies the practical expedient to recognize revenue for each distinct advertising service delivered at the amount the Company has the right to invoice, which corresponds directly to the value a customer has received relative to the Company’s performance. Contracts with customers are short term in nature and billing occurs on a monthly basis with payment due in 30 days. Value added taxes collected concurrently with advertising revenue producing activities are excluded from revenue. Cash payments received prior to services being rendered result in deferred revenue, which is then recognized as revenue when the advertising time or space is actually provided.
Retransmission Consent. The Company generates revenue from retransmission consent agreements that are entered into with MVPDs. The Company grants the MVPDs access to its television station signals so that they may rebroadcast the signals and charge their subscribers for this programming. Payments are received on a monthly basis based on the number of monthly subscribers.
Retransmission consent revenues are considered licenses of functional intellectual property and are recognized over time utilizing the sale-based or usage-based royalty exception. The Company’s performance obligation is to provide the licensee access to the Company's intellectual property. MVPD subscribers receive and consume the content monthly as the television signal is delivered.
Spectrum Usage Rights. The Company generates revenue from agreements associated with its television stations’ spectrum usage rights from a variety of sources, including but not limited to agreements with third parties to utilize excess spectrum for the broadcast of their multicast networks; charging fees to accommodate the operations of third parties, including moving channel positions or accepting interference with broadcasting operations; and modifying and/or relinquishing spectrum usage rights while continuing to broadcast through channel sharing or other arrangements.
Revenue generated by spectrum usage rights agreements are recognized 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 have 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, that being 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 essentially all of the Company's advertising contracts, and (ii) variable consideration is a sales-based or usage-based royalty promised in exchange for a license of intellectual property, which applies to retransmission consent revenue.
20
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, |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
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 DMA are referred to as national revenue.
|
|
Three-Month Period |
|
|
Nine-Month Period |
|
||||||||||
|
|
Ended September 30, |
|
|
Ended September 30, |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Local direct |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Local agency |
|
|
|
|
|
|
|
|
|
|
|
|
||||
National agency |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total revenue |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
The following table further disaggregates the Company’s revenue by geographical region, based on the location of the sales office (in thousands):
|
|
Three-Month Period |
|
|
Nine-Month Period |
|
||||||||||
|
|
Ended September 30, |
|
|
Ended September 30, |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
U.S. |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Latin America |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Asia |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Rest of the World |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total revenue |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
Deferred Revenue
The Company records deferred revenues when cash payments are received or due in advance of its performance, including amounts which are refundable. The change in the deferred revenue balance for the nine-month period ended September 30, 2022 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, 2021.
The Company’s payment terms vary by the type and location of customer and the products or services offered. The term between invoicing and when payment is due is typically 30 days. For certain individual customers and customer types, the Company generally requires payment before the services are delivered to the customer.
(in thousands) |
December 31, 2021 |
|
Increase |
|
Decrease * |
|
|
September 30, 2022 |
|
||
Deferred revenue |
$ |
|
|
( |
|
|
$ |
|
* The amount reflects revenue that was deferred as of December 31, 2021 and has been recorded as revenue in the nine-month period ended September 30, 2022.
21
4. LEASES
The Company’s leases are considered operating leases and primarily consist of real estate such as office space, broadcasting towers, land and land easements. A Right of Use (“ROU”) asset and lease liability is recognized as of the lease commencement date based on the present value of the future minimum lease payments over the lease term. As the implicit rate for operating leases is not readily determinable, the future minimum lease payments were discounted using an incremental borrowing rate. Due to the Company’s centralized treasury function, the Company applied a portfolio approach to discount its domestic lease obligations using its secured publicly traded U.S. dollar denominated debt instruments interpolating the duration of the debt to the remaining lease term. The incremental borrowing rate for international leases is the interest rate that the Company would have to pay to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment.
The operating leases are reflected within the condensed consolidated balance sheet as Operating leases right of use asset with the related liability presented as Operating lease liabilities and Long-term operating lease liabilities. Lease expense is recognized on a straight-line basis over the lease term.
Generally, lease terms include options to renew or extend the lease. Unless the renewal option is considered reasonably certain, the exercise of any such options have 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.
The Company’s corporate headquarters are located in Santa Monica, California. The Company leases approximately
The Company also leases approximately
The types of properties required to support each of the Company’s television and radio stations typically include offices, broadcasting studios and antenna towers where broadcasting transmitters and antenna equipment are located. The majority of the Company’s office, studio and tower facilities are leased pursuant to non-cancelable long-term leases. The Company also owns the buildings and/or land used for office, studio and tower facilities at certain of its television and/or radio properties. The Company owns substantially all of the equipment used in its television and radio broadcasting business.
22
The following table summarizes the expected future payments related to lease liabilities as of September 30, 2022:
(in thousands) |
|
|
|
|
Remainder of 2022 |
|
$ |
|
|
2023 |
|
|
|
|
2024 |
|
|
|
|
2025 |
|
|
|
|
2026 |
|
|
|
|
2027 and thereafter |
|
|
|
|
Total minimum payments |
|
$ |
|
|
Less amounts representing interest |
|
|
( |
) |
Less amounts representing tenant improvement allowance |
|
|
( |
) |
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, 2022 were
The following table summarizes lease payments and supplemental non-cash disclosures:
|
|
Nine-Month Period Ended September 30, |
|||||
(in thousands) |
|
2022 |
|
|
2021 |
||
Cash paid for amounts included in lease liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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) |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Operating lease cost |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Variable lease cost |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Short-term lease cost |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total lease cost |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
For the three-month period ended September 30, 2022, lease cost of $
For the three-month period ended September 30, 2021, lease cost of $
5. SEGMENT INFORMATION
The Company’s management has determined that the Company operates in
23
Digital
The Company's digital segment, whose operations are located in Latin America, Europe, the United States, Asia and Africa, reaches a global market, with a focus on advertisers in emerging economies that wish to advertise on digital platforms owned and operated primarily by global media companies.
The Company provides digital end-to-end advertising solutions that allow advertisers to reach online users worldwide. These solutions are comprised of
Through the Company's digital commercial partnerships business – the largest of its digital business units – the Company acts as an intermediary between primarily global media companies and advertising customers or their ad agencies. The global media companies represented by the Company include Meta (formerly known as Facebook Inc.), Spotify, TikTok, and Twitter, as well as other media companies, in more than
Smadex is the Company's proprietary automated purchasing platform, on which advertisers can purchase ad inventory. This practice – the purchase and sale of advertising inventory electronically – is referred to in the Company's industry as programmatic advertising. Smadex is also a “demand-side" platform, which allows advertisers to purchase space from online marketplaces on which media companies list their advertising inventory. Most advertisements acquired through Smadex are placed on mobile devices, but they may also be placed on computers and other Internet-connected devices. The Company also provides managed services to some of its advertising customers in connection with their use of its Smadex platform.
The Company also offers a branding and mobile performance solutions business, which provides managed services to advertisers looking to connect with consumers, primarily on mobile devices. The Company's digital audio business provides digital audio advertising solutions for advertisers in the Americas.
Television
The Company's television operations reach and engage U.S. Hispanics in the United States. The Company owns and/or operates
Audio
The Company's audio operations reach and engage U.S. Hispanics in the United States. 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 of contingent consideration, impairment charge, foreign currency (gain) loss and other operating (gain) loss. The Company generated
24
revenue outside the United States during the nine-month periods ended September 30, 2022 and 2021, respectively. The Company evaluates the performance of its operating segments based on the following (in thousands):
|
|
Three-Month Period |
|
|
|
|
|
Nine-Month Period |
|
|
|
|
||||||||||||
|
|
Ended September 30, |
|
|
% |
|
|
Ended September 30, |
|
|
% |
|
||||||||||||
|
|
2022 |
|
|
2021 |
|
|
Change |
|
|
2022 |
|
|
2021 |
|
|
Change |
|
||||||
Net revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Digital |
|
$ |
|
|
$ |
|
|
|
% |
|
$ |
|
|
$ |
|
|
|
% |
||||||
Television |
|
|
|
|
|
|
|
|
( |
)% |
|
|
|
|
|
|
|
|
( |
)% |
||||
Audio |
|
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
|
% |
||||||
Consolidated |
|
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
|
% |
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Cost of revenue - digital |
|
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
|
% |
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Direct operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Digital |
|
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
|
% |
||||||
Television |
|
|
|
|
|
|
|
|
( |
)% |
|
|
|
|
|
|
|
|
( |
)% |
||||
Audio |
|
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
|
% |
||||||
Consolidated |
|
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
|
% |
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Selling, general and administrative expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Digital |
|
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
|
% |
||||||
Television |
|
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
|
% |
||||||
Audio |
|
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
|
% |
||||||
Consolidated |
|
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
|
% |
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Depreciation and amortization |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Digital |
|
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
|
% |
||||||
Television |
|
|
|
|
|
|
|
|
( |
)% |
|
|
|
|
|
|
|
|
( |
)% |
||||
Audio |
|
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
|
% |
||||||
Consolidated |
|
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
|
% |
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Segment operating profit (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Digital |
|
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
|
% |
||||||
Television |
|
|
|
|
|
|
|
|
( |
)% |
|
|
|
|
|
|
|
|
( |
)% |
||||
Audio |
|
|
|
|
|
|
|
|
( |
)% |
|
|
|
|
|
|
|
|
% |
|||||
Consolidated |
|
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
|
% |
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Corporate expenses |
|
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
|
% |
||||||
Change in fair value of contingent consideration |
|
|
|
|
|
- |
|
|
* |
|
|
|
|
|
|
- |
|
|
* |
|
||||
Impairment charge |
|
|
- |
|
|
|
|
|
|
( |
)% |
|
|
- |
|
|
|
|
|
|
( |
)% |
||
Foreign currency (gain) loss |
|
|
|
|
|
|
|
* |
|
|
|
|
|
|
|
|
|
% |
||||||
Other operating (gain) loss |
|
|
( |
) |
|
|
( |
) |
|
|
( |
)% |
|
|
( |
) |
|
|
( |
) |
|
|
( |
)% |
Operating income (loss) |
|
|
|
|
|
|
|
|
( |
)% |
|
|
|
|
|
|
|
|
( |
)% |
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Interest expense |
|
$ |
( |
) |
|
$ |
( |
) |
|
|
% |
|
$ |
( |
) |
|
$ |
( |
) |
|
|
% |
||
Interest income |
|
|
|
|
|
|
|
* |
|
|
|
|
|
|
|
|
|
% |
||||||
Dividend income |
|
|
|
|
|
|
|
|
( |
)% |
|
|
|
|
|
|
|
|
( |
)% |
||||
Realized gain (loss) on marketable securities |
|
|
( |
) |
|
|
- |
|
|
* |
|
|
|
( |
) |
|
|
- |
|
|
* |
|
||
Income (loss) before income taxes |
|
|
|
|
|
|
|
|
( |
)% |
|
|
|
|
|
|
|
|
( |
)% |
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Capital expenditures |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Digital |
|
$ |
|
|
$ |
|
|
|
|
|
$ |
|
|
$ |
|
|
|
|
||||||
Television |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Audio |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Consolidated |
|
$ |
|
|
$ |
|
|
|
|
|
$ |
|
|
$ |
|
|
|
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
|
September 30, |
|
|
December 31, |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Total assets |
|
2022 |
|
|
2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Digital |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Television |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Audio |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Consolidated |
|
$ |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
* Percentage not meaningful.
6. COMMITMENTS AND CONTINGENCIES
25
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 Condensed 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 following is a summary of the final purchase price allocation (in millions):
Cash |
$ |
|
|
Accounts receivable |
|
|
|
Other assets |
|
|
|
Intangible assets subject to amortization |
|
|
|
Goodwill |
|
|
|
Current liabilities |
|
( |
) |
Deferred tax |
|
( |
) |
Redeemable noncontrolling interest |
|
( |
) |
Intangible assets subject to amortization acquired includes:
Intangible Asset |
Estimated Fair Value (in millions) |
|
Weighted average life (in years) |
|
|
Publisher relationships |
$ |
|
|
||
Advertiser relationships |
|
|
|
||
Trade name |
|
|
|
||
Non-Compete agreements |
|
|
|
The fair value of the trade receivables was $
26
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.
On September 1, 2021, the Company acquired the remaining
As part of the Company’s acquisition of the remaining
Effective December 31, 2021, the Company agreed to pay certain of the Sellers who are individual persons an accelerated earn-out in the aggregate amount of $
As of September 30, 2022 the contingent liability was adjusted to its current fair value of $
The table below presents the reconciliation of changes in redeemable noncontrolling interests (in thousands):
|
|
Three-Month Period |
|
|
Nine-Month Period |
|
||||||||||
|
|
Ended September 30, |
|
|
Ended September 30, |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Beginning balance |
|
$ |
- |
|
|
$ |
|
|
$ |
- |
|
|
$ |
|
||
Net income attributable to redeemable noncontrolling interest |
|
|
- |
|
|
|
|
|
|
- |
|
|
|
|
||
Acquisition of redeemable noncontrolling interest |
|
|
- |
|
|
|
( |
) |
|
|
- |
|
|
|
( |
) |
Ending balance |
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
During the three-month period ended September 30, 2022, Cisneros Interactive generated net revenue and net income of $
During the three-month period ended September 30, 2021, Cisneros Interactive generated net revenue and net income of $
MediaDonuts
On
27
calculated as a pre-determined multiple of EBITDA for each of those years. The total purchase price for the acquisition, including the fair value of the contingent consideration, was $
The following is a summary of the final purchase price allocation (in millions):
Cash |
$ |
|
|
Accounts receivable |
|
|
|
Other assets |
|
|
|
Intangible assets subject to amortization |
|
|
|
Goodwill |
|
|
|
Current liabilities |
|
( |
) |
Deferred tax |
|
( |
) |
Debt |
|
( |
) |
Intangible assets subject to amortization acquired includes:
Intangible Asset |
Estimated Fair Value (in millions) |
|
Weighted average life (in years) |
|
|
Publisher relationships |
$ |
|
|
||
Advertiser relationships |
|
|
|
||
Trade name |
|
|
|
||
Non-Compete agreements |
|
|
|
As noted above, the acquisition of MediaDonuts includes a contingent consideration arrangement that requires additional consideration to be paid by the Company to the sellers of the stock of 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 trade receivables was $
During the three-month period ended September 30, 2022, MediaDonuts generated net revenue and net loss 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.
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, 2021. This pro forma information was adjusted to exclude acquisition fees and costs of $
28
forma information does not purport to represent what the actual results of operations of the Company would have been had this acquisition occurred on such date, nor does it purport to predict the results of operations for any future periods.
In thousands, except share and per share data |
|
Nine-Month Period |
|
|
|
|
|
Ended September 30, |
|
|
|
|
|
2021 |
|
|
|
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 |
|
|
|
|
365 Digital
On
The Company is in the process of completing the purchase price allocation for its acquisition of 365 Digital. The measurement period remains open pending the finalization of the pre-acquisition tax-related items.
Cash |
$ |
|
|
Accounts receivable |
|
|
|
Intangible assets subject to amortization |
|
|
|
Goodwill |
|
|
|
Current liabilities |
|
( |
) |
Deferred tax |
|
( |
) |
Intangible assets subject to amortization acquired includes:
Intangible Asset |
Estimated Fair Value (in millions) |
|
Weighted average life (in years) |
|
|
Publisher relationships |
$ |
|
|
||
Advertiser relationships |
|
|
|
||
Trade name |
|
|
|
||
Non-Compete agreements |
|
|
|
As noted above, the acquisition of 365 Digital includes a contingent consideration arrangement that requires additional consideration to be paid by the Company to the sellers of the stock of 365 Digital based on a pre-determined multiple of 365 Digital's 12-month EBITDA targets in calendar years 2022 through 2024. The fair value of the contingent consideration recognized on the acquisition date of $
29
in the fair value of the contingent liability during the three- and nine-month periods ended September 30, 2022, of $
The fair value of the trade receivables was $
During the three-month period ended September 30, 2022, 365 Digital generated net revenue and net income 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 365 Digital's workforce and expected synergies from combining 365 Digital's operations with those of the Company.
The following unaudited pro forma information has been prepared to give effect to the Company’s acquisition of 365 Digital as if the acquisition had occurred on January 1, 2021. This pro forma information does not purport to represent what the actual results of operations of the Company would have been had this acquisition occurred on such date, nor does it purport to predict the results of operations for any future periods.
In thousands, except share and per share data |
|
Three-Month Period |
|
|
Nine-Month Period |
|
|
||
|
|
Ended September 30, |
|
|
Ended September 30, |
|
|
||
|
|
2021 |
|
|
2021 |
|
|
||
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 |
|
|
|
|
|
|
|
8. VARIABLE INTEREST ENTITIES
Adsmurai
On August 5, 2022, the Company made a loan in the principal amount of €
The Company has determined that (i) Adsmurai is a VIE because the equity investors at risk, as a group, lack the characteristics of a controlling financial interest; and (ii) the Company is the primary beneficiary because its conversion right gives it the power to direct the activities of the entity that most significantly impact the entity’s economic performance. See Note 2 for more details.
The Company has determined that Adsmurai is a business and has accounted for its consolidation under the provisions of ASC Topic 805, “Business Combinations”, and included Adsmurai's results of operations since the date of the loan in the Company's Consolidated Statements of Operations. The Company is in the process of completing the purchase price allocation for Adsmurai.
30
Cash |
$ |
|
|
Accounts receivable |
|
|
|
Other assets |
|
|
|
Fixed assets |
|
|
|
Intangible assets subject to amortization |
|
|
|
Goodwill |
|
|
|
Current liabilities |
|
( |
) |
Deferred tax |
|
( |
) |
Debt |
|
( |
) |
Noncontrolling interest |
|
( |
) |
Convertible loan |
|
( |
) |
Intangible assets subject to amortization acquired includes:
Intangible Asset |
Estimated Fair Value (in millions) |
|
Weighted average life (in years) |
|
|
Advertiser relationships |
$ |
|
|
||
Existing technology |
|
|
|
||
Trade name |
|
|
|
The fair value of the trade receivables was $
The goodwill, which is not expected to be deductible for tax purposes, is assigned to the Company’s digital segment and is attributable to Adsmurai’s workforce and synergies from combining Adsmurai’s operations with those of the Company
During the three- and nine-month periods ended September 30, 2022, the Company consolidated Adsmurai's revenues of $
The following unaudited pro forma information has been prepared to give effect to the Company’s consolidation of Adsmurai as if the transaction had occurred on January 1, 2021. This pro forma information was adjusted to exclude acquisition fees and costs of $
In thousands, except share and per share data |
|
Three-Month Period |
|
|
Nine-Month Period |
|
|
||||||||||
|
|
Ended September 30, |
|
|
Ended September 30, |
|
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
|
||||
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Jack of Digital
On August 3, 2022, the Company made an investment of $
The Company has determined that it is the primary beneficiary and consolidates the VIE because (i) the equity investors at risk, as a group, lack the characteristics of a controlling financial interest; and (ii) the Company is the primary beneficiary because it has the
31
power to direct the activities of the entity that most significantly impact the entity’s economic performance. See Note 2 for more details.
The Company consolidated Jack of Digital's revenue of $
The table below presents the reconciliation of changes in noncontrolling interests (in thousands):
|
|
Three-Month Period |
|
|
Nine-Month Period |
|
||||||||||
|
|
Ended September 30, |
|
|
Ended September 30, |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Beginning balance |
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
Initial fair value of noncontrolling interests |
|
|
|
|
|
- |
|
|
|
|
|
|
- |
|
||
Net income (loss) attributable to noncontrolling interest |
|
|
( |
) |
|
|
- |
|
|
|
( |
) |
|
|
- |
|
Ending balance |
|
$ |
|
|
$ |
- |
|
|
$ |
|
|
$ |
- |
|
The changes in the carrying amount of goodwill for each of the Company’s operating segments for the nine-month period ended September 30, 2022 are as follows (in thousands):
|
|
December 31, |
|
|
Purchase Price |
|
|
Additions From |
|
|
September 30, |
|
||||
(in thousands) |
|
2021 |
|
|
Adjustments |
|
|
VIEs |
|
|
2022 |
|
||||
Television |
|
$ |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
|
||
Digital |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Consolidated |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
32
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
We are a leading global advertising solutions, media and technology company. Our operations encompass integrated, end-to-end advertising solutions across multiple media, comprised of digital, television and audio properties. Our digital segment, whose operations are primarily located in Latin America, Europe, the United States, Asia and Africa, reaches a global market, with a focus on advertisers in emerging economies that wish to advertise on digital platforms owned and operated primarily by global media companies. Our television and audio operations reach and engage U.S. Hispanics in the United States. For financial reporting purposes, we report in three segments based upon the type of advertising medium: digital, television and audio. Our net revenue for the three-month period ended September 30, 2022 was $241.0 million. Of that amount, revenue attributed to our digital segment accounted for approximately 78%, revenue attributed to our television segment accounted for approximately 15% and revenue attributed to our audio segment accounted for approximately 7%. Our digital segment now accounts for the majority of our revenues and we expect this to continue in future periods.
We provide digital end-to-end advertising solutions that allow advertisers to reach online users worldwide. These solutions are comprised of four separate business units:
Through our digital commercial partnerships business – the largest of our digital business units – we act as an intermediary between primarily global media companies and advertising customers or their ad agencies. The global media companies we represent include Meta Platforms, or Meta (formerly known as Facebook Inc.), Twitter, Inc., or Twitter, ByteDance Ltd., also known as TikTok, and Spotify AB, or Spotify, as well as other media companies, in more than 30 countries throughout the world. Our dedicated local sales teams sell advertising space on these and other media companies' digital platforms to our advertising customers or their ad agencies for the placement of ads directed to online users of a wide range of Internet-connected devices. We also provide some of our advertising customers billing, technological and other support, including strategic marketing and training, which we refer to as managed services.
Smadex is our proprietary automated purchasing platform, on which advertisers can purchase ad inventory. This practice – the purchase and sale of advertising inventory electronically – is referred to in our industry as programmatic advertising. Smadex is also a “demand-side" platform, which allows advertisers to purchase space from online marketplaces on which media companies list their advertising inventory. Most advertisements acquired through Smadex are placed on mobile devices, but they may also be placed on computers and Internet-connected televisions. We also provide managed services to some of our advertising customers in connection with their use of our Smadex platform.
We also offer a branding and mobile performance solutions business, which provides managed services to advertisers looking to connect with consumers, primarily on mobile devices. Our digital audio business provides digital audio advertising solutions for advertisers in the Americas.
We have a diversified media portfolio that targets Hispanic audiences. We own and/or operate 49 primary television stations located primarily in California, Colorado, Connecticut, Florida, Kansas, Massachusetts, Nevada, New Mexico, Texas and Washington, D.C. Our television operations comprise the largest affiliate group of both the top-ranked primary Univision television network of TelevisaUnivision Inc., or TelevisaUnivision, and TelevisaUnivision’s UniMás network. We own and operate 45 radio stations in 14 U.S. markets. Our radio stations consist of 37 FM and 8 AM stations located in Arizona, California, Colorado, Florida, Nevada, New Mexico and Texas. We also sell advertisements and syndicate radio programming to more than 100 markets across the United States.
In our digital segment, we generate revenue primarily from sales of advertising that are placed by our advertising customers or their ad agencies on the digital platforms of third-party media companies for which we act as commercial partner or placed directly with online digital marketplaces through our Smadex platform. In our television and audio segments, we generate revenue primarily from sales of national and local advertising time on television stations and radio stations, retransmission consent agreements that are entered into with MVPDs, and agreements associated with our television stations’ spectrum usage rights. Advertising rates are, in large part, based on each medium’s ability to attract audiences in demographic groups targeted by advertisers.
In our digital segment, we recognize advertising revenue when display or other digital advertisements record impressions on the websites and mobile and Internet-connected television apps of media companies on whose digital platforms the advertisements are placed or as the advertiser’s previously agreed-upon performance criteria are satisfied. In our television and audio segments, we recognize advertising revenue when commercials are broadcast. We do not obtain long-term commitments from our advertisers across any of our operations and, consequently, they may cancel, reduce or postpone orders without penalties. In our television and audio
33
segments, we pay commissions to agencies for local and national advertising. For contracts we have entered into directly with agencies, we record net revenue from these agencies.
We refer to the revenue generated by agreements with MVPDs as retransmission consent revenue, which represents payments from MVPDs for access to our television station signals so that they may rebroadcast our signals and charge their subscribers for this programming. We recognize retransmission consent revenue earned as the television signal is delivered to an MVPD.
Our FCC licenses grant us spectrum usage rights within each of the television markets in which we operate. These spectrum usage rights give us the authority to broadcast our stations’ over-the-air television signals to our viewers. We regard these rights as a valuable asset. With the proliferation of mobile devices and advances in technology that have freed up spectrum capacity, the monetization of our spectrum usage rights has become a significant source of revenue in recent years. We generate revenue from agreements associated with these television stations’ spectrum usage rights from a variety of sources, including but not limited to agreements with third parties to utilize spectrum for the broadcast of their multicast networks; charging fees to accommodate the operations of third parties, including moving channel positions or accepting interference with our broadcasting operations; and modifying and/or relinquishing spectrum usage rights while continuing to broadcast through channel sharing or other arrangements. Revenue generated by such agreements is recognized over the period of the 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.
In our digital segment, our primary expense is cost of revenue which consists primarily of the costs of online media acquired from the media companies for which we act as commercial partner or purchased directly from online digital marketplaces through our Smadex platform, as well as third party server costs. Our primary expenses in our television and audio segments, and a secondary expense in our digital segment, is employee compensation, including commissions paid to our sales staff and amounts paid to our national sales representative firms, as well as expenses for general and administrative functions, promotion and selling, engineering, marketing, and local programming.
Highlights
During the third quarter of 2022, our consolidated revenue increased to $241.0 million from $199.0 million in the prior year period, primarily due to an increase in advertising revenue in our digital segment, an increase in political advertising revenue in our television and radio segments, and an increase in spectrum usage rights revenue in our television segment, partially offset by a decrease in local and national advertising revenue in our television segment, a decrease in national advertising revenue in our radio segment, and a decrease in retransmission consent revenue in our television segment.
Net revenue in our digital segment increased to $188.9 million for the three-month period ended September 30, 2022 from $146.1 million for the three-month period ended September 30, 2021. This increase of approximately $42.8 million, or 29%, in net revenue was primarily due to advertising revenue growth from our digital commercial partnerships business. Additionally, the increase in net revenue was attributable to our investment in Adsmurai during the third quarter of 2022 and our acquisition of 365 Digital during the fourth quarter of 2021, neither of which contributed to net revenue in the comparable period ended September 30, 2021.
Net revenue in our television segment decreased to $35.7 million for the three-month period ended September 30, 2022 from $36.5 million for the three-month period ended September 30, 2021. This decrease of approximately $0.8 million, or 2%, in net revenue was primarily due to decreases in local and national advertising revenue, and a decrease in retransmission consent revenue. These decreases were mainly attributed to the expiration of our Univision and UniMás network affiliation agreements in Orlando, Tampa and Washington, D.C. on December 31, 2021. The decrease was partially offset by increases in political advertising revenue and spectrum usage rights revenue.
Net revenue in our audio segment increased to $16.5 million for the three-month period ended September 30, 2022 from $16.4 million for the three-month period ended September 30, 2021. This increase of approximately $0.1 million in net revenue was primarily due to increases in political advertising revenue and local advertising revenue, partially offset by a decrease in national advertising revenue.
The Impact of the COVID-19 Pandemic on our Business
This section of this report should be read in conjunction with the rest of this item, “Forward-Looking Statements” and Notes to Consolidated Financial Statements appearing herein, for a more complete understanding of the impact of the COVID-19 pandemic on our business.
The COVID-19 pandemic had minimal impact on our business during the quarter ended September 30, 2022. Subject to the extent and duration of possible resurgences of the pandemic from time to time and the continuing uncertain economic environment that has resulted, in part, from the pandemic, we anticipate that the pandemic will continue to have little effect on our business, from
34
both an operational and financial perspective, in future periods. Nonetheless, we remain cautious due to the unpredictable nature of the pandemic and its effects. We also cannot give any assurance whether a resurgence or more prolonged impact of the pandemic in any location where our operations have employees or operate would not adversely affect our operations.
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 is considered to be timely paid if 50% is paid by December 31, 2021 and the remainder is paid by December 31, 2022. During the year ended December 31, 2021, we paid 50% of the deferred amount. We intend to pay the remainder of the deferred amount on or before December 31, 2022.
Because of unprecedented uncertainties regarding the extent and duration of the pandemic and the continuing economic disruption that has resulted from the pandemic, our results of operations for the quarter ended September 30, 2022 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, and they may do so at different rates. Any resurgence of the pandemic; reimposition of lockdown, shelter-in-place, stay-at-home and similar orders; prolongation of the continuing economic disruption that has resulted from the pandemic; or permanent changes in consumer behavior, could 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 in order 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 TelevisaUnivision
Substantially all of our television stations are Univision- or UniMás-affiliated television stations. Our network affiliation agreement with TelevisaUnivision provides certain of our owned stations the exclusive right to broadcast TelevisaUnivision’s primary Univision network and UniMás network programming in their respective markets. Under the network affiliation agreement, we retain the right to sell no less than four minutes per hour of the available advertising time on stations that broadcast Univision network programming, and the right to sell approximately four and a half minutes per hour of the available advertising time on stations that broadcast UniMás network programming, subject to adjustment from time to time by TelevisaUnivision.
Under the network affiliation agreement, TelevisaUnivision acts as our exclusive third-party sales representative for the sale of certain national advertising on our Univision- and UniMás-affiliate television stations, and we pay certain sales representation fees to TelevisaUnivision relating to sales of all advertising for broadcast on our Univision- and UniMás-affiliate television stations. During the three-month periods ended September 30, 2022 and 2021, the amount we paid TelevisaUnivision in this capacity was $2.0 million and $2.1 million, respectively. During the nine-month periods ended September 30, 2022 and 2021, the amount we paid TelevisaUnivision in this capacity was $5.4 million and $6.0 million, respectively. These amounts were included in Direct Operating Expenses in our Condensed Consolidated Statements of Operations.
We also generate revenue under a marketing and sales agreement with TelevisaUnivision, which give us the right to manage the marketing and sales operations of TelevisaUnivision-owned Univision affiliates in three markets – Albuquerque, Boston and Denver.
Under our proxy agreement with TelevisaUnivision, we grant TelevisaUnivision the right to negotiate the terms of retransmission consent agreements for our Univision- and UniMás-affiliated television station signals. Among other things, the proxy agreement provides terms relating to compensation to be paid to us by TelevisaUnivision with respect to retransmission consent agreements entered into with MVPDs. During the three-month periods ended September 30, 2022 and 2021, retransmission consent revenue accounted for $8.9 million and $9.1 million, respectively, of which $6.2 million and $6.4 million, respectively, relate to the TelevisaUnivision proxy agreement. During the nine-month periods ended September 30, 2022 and 2021, retransmission consent revenue accounted for $27.2 million and $28.1 million, respectively, of which $18.7 million and $19.7 million, respectively, relate to the TelevisaUnivision proxy agreement. The term of the proxy agreement extends with respect to any MVPD for the length of the term of any retransmission consent agreement in effect before the expiration of the proxy agreement. 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.
TelevisaUnivision currently owns approximately 11% of our common stock on a fully-converted basis. Our Class U common stock, all of which is held by TelevisaUnivision, has limited voting rights and does not include the right to elect directors. Each share of Class U common stock is automatically convertible into one share of Class A common stock (subject to adjustment for stock splits, dividends or combinations) in connection with any transfer of such shares of Class U common stock to a third party that is not an affiliate of TelevisaUnivision. In addition, as the holder of all of our issued and outstanding Class U common stock, so long as TelevisaUnivision holds a certain number of shares of Class U common stock, we may not, without the consent of TelevisaUnivision,
35
merge, consolidate or enter into a business combination, dissolve or liquidate our company or dispose of any interest in any FCC license with respect to television stations which are affiliates of TelevisaUnivision, among other things.
Critical Accounting Policies
For a description of our critical accounting policies, please refer to “Application of Critical Accounting Policies and Accounting Estimates” in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our 2021 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 Condensed Consolidated Financial Statements.
Three- and Nine-Month Periods Ended September 30, 2022 and 2021
The following table sets forth selected data from our operating results for the three- and nine-month periods ended September 30, 2022 and 2021 (in thousands):
|
|
Three-Month Period |
|
|
|
|
|
Nine-Month Period |
|
|
|
|
||||||||||||
|
|
Ended September 30, |
|
|
% |
|
|
Ended September 30, |
|
|
% |
|
||||||||||||
|
|
2022 |
|
|
2021 |
|
|
Change |
|
|
2022 |
|
|
2021 |
|
|
Change |
|
||||||
Statements of Operations Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Net Revenue |
|
$ |
241,014 |
|
|
$ |
199,008 |
|
|
|
21 |
% |
|
$ |
659,881 |
|
|
$ |
526,298 |
|
|
|
25 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Cost of revenue - digital |
|
|
157,095 |
|
|
|
124,332 |
|
|
|
26 |
% |
|
|
431,951 |
|
|
|
318,118 |
|
|
|
36 |
% |
Direct operating expenses |
|
|
30,086 |
|
|
|
28,583 |
|
|
|
5 |
% |
|
|
87,505 |
|
|
|
83,480 |
|
|
|
5 |
% |
Selling, general and administrative expenses |
|
|
19,208 |
|
|
|
14,530 |
|
|
|
32 |
% |
|
|
53,022 |
|
|
|
41,489 |
|
|
|
28 |
% |
Corporate expenses |
|
|
9,525 |
|
|
|
7,253 |
|
|
|
31 |
% |
|
|
26,769 |
|
|
|
21,756 |
|
|
|
23 |
% |
Depreciation and amortization |
|
|
6,554 |
|
|
|
5,901 |
|
|
|
11 |
% |
|
|
19,212 |
|
|
|
16,159 |
|
|
|
19 |
% |
Change in fair value of contingent consideration |
|
|
734 |
|
|
|
- |
|
|
* |
|
|
|
6,810 |
|
|
|
- |
|
|
* |
|
||
Impairment charge |
|
|
- |
|
|
|
166 |
|
|
|
(100 |
)% |
|
|
- |
|
|
|
1,604 |
|
|
|
(100 |
)% |
Foreign currency (gain) loss |
|
|
1,966 |
|
|
|
177 |
|
|
* |
|
|
|
2,112 |
|
|
|
454 |
|
|
|
365 |
% |
|
Other operating (gain) loss |
|
|
(58 |
) |
|
|
(2,431 |
) |
|
|
(98 |
)% |
|
|
(1,011 |
) |
|
|
(4,867 |
) |
|
|
(79 |
)% |
|
|
|
225,110 |
|
|
|
178,511 |
|
|
|
26 |
% |
|
|
626,370 |
|
|
|
478,193 |
|
|
|
31 |
% |
Operating income (loss) |
|
|
15,904 |
|
|
|
20,497 |
|
|
|
(22 |
)% |
|
|
33,511 |
|
|
|
48,105 |
|
|
|
(30 |
)% |
Interest expense |
|
|
(3,055 |
) |
|
|
(1,714 |
) |
|
|
78 |
% |
|
|
(7,225 |
) |
|
|
(5,287 |
) |
|
|
37 |
% |
Interest income |
|
|
788 |
|
|
|
12 |
|
|
* |
|
|
|
1,916 |
|
|
|
235 |
|
|
|
715 |
% |
|
Dividend income |
|
|
6 |
|
|
|
207 |
|
|
|
(97 |
)% |
|
|
20 |
|
|
|
211 |
|
|
|
(91 |
)% |
Realized gain (loss) on marketable securities |
|
|
(473 |
) |
|
|
- |
|
|
* |
|
|
|
(473 |
) |
|
|
- |
|
|
* |
|
||
Income before income (loss) taxes |
|
|
13,170 |
|
|
|
19,002 |
|
|
|
(31 |
)% |
|
|
27,749 |
|
|
|
43,264 |
|
|
|
(36 |
)% |
Income tax benefit (expense) |
|
|
(4,080 |
) |
|
|
(5,118 |
) |
|
|
(20 |
)% |
|
|
(8,305 |
) |
|
|
(11,902 |
) |
|
|
(30 |
)% |
Net income (loss) |
|
|
9,090 |
|
|
|
13,884 |
|
|
|
(35 |
)% |
|
|
19,444 |
|
|
|
31,362 |
|
|
|
(38 |
)% |
Net (income) loss attributable to redeemable noncontrolling interest |
|
|
- |
|
|
|
(1,753 |
) |
|
|
(100 |
)% |
|
|
- |
|
|
|
(5,938 |
) |
|
|
(100 |
)% |
Net (income) loss attributable to noncontrolling interest |
|
|
303 |
|
|
|
- |
|
|
* |
|
|
|
303 |
|
|
|
- |
|
|
* |
|
||
Net income (loss) attributable to common stockholders |
|
$ |
9,393 |
|
|
$ |
12,131 |
|
|
|
(23 |
)% |
|
$ |
19,747 |
|
|
$ |
25,424 |
|
|
|
(22 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Other Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Capital expenditures |
|
|
4,221 |
|
|
|
1,321 |
|
|
|
|
|
|
7,629 |
|
|
|
3,949 |
|
|
|
|
||
Consolidated adjusted EBITDA (1) |
|
|
|
|
|
|
|
|
|
|
|
66,566 |
|
|
|
55,177 |
|
|
|
|
||||
Net cash provided by operating activities |
|
|
|
|
|
|
|
|
|
|
|
78,142 |
|
|
|
53,780 |
|
|
|
|
||||
Net cash provided by (used in) investing activities |
|
|
|
|
|
|
|
|
|
|
|
(55,987 |
) |
|
|
19,315 |
|
|
|
|
||||
Net cash used in financing activities |
|
|
|
|
|
|
|
|
|
|
|
(85,657 |
) |
|
|
(9,363 |
) |
|
|
|
36
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): 2022, 1.4 to 1; 2021, 1.6 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.
37
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, |
|
|||||
|
|
2022 |
|
|
2021 |
|
||
Consolidated adjusted EBITDA |
|
$ |
66,566 |
|
|
$ |
55,177 |
|
EBITDA attributable to redeemable noncontrolling interest |
|
|
- |
|
|
|
9,127 |
|
EBITDA attributable to noncontrolling interest |
|
|
(5 |
) |
|
|
- |
|
Interest expense |
|
|
(7,225 |
) |
|
|
(5,287 |
) |
Interest income |
|
|
1,916 |
|
|
|
235 |
|
Dividend income |
|
|
20 |
|
|
|
211 |
|
Realized gain (loss) on marketable securities |
|
|
(473 |
) |
|
|
- |
|
Income tax expense |
|
|
(8,305 |
) |
|
|
(11,902 |
) |
Amortization of syndication contracts |
|
|
(348 |
) |
|
|
(357 |
) |
Payments on syndication contracts |
|
|
304 |
|
|
|
354 |
|
Non-cash stock-based compensation included in direct operating expenses |
|
|
(2,878 |
) |
|
|
(971 |
) |
Non-cash stock-based compensation included in corporate expenses |
|
|
(5,117 |
) |
|
|
(2,329 |
) |
Depreciation and amortization |
|
|
(19,212 |
) |
|
|
(16,159 |
) |
Change in fair value of contingent consideration |
|
|
(6,810 |
) |
|
|
- |
|
Impairment charge |
|
|
- |
|
|
|
(1,604 |
) |
Other operating gain (loss) |
|
|
1,011 |
|
|
|
4,867 |
|
Net (income) loss attributable to redeemable noncontrolling interest |
|
|
- |
|
|
|
(5,938 |
) |
Net (income) loss attributable to noncontrolling interest |
|
|
303 |
|
|
|
- |
|
Net income (loss) attributable to common stockholders |
|
|
19,747 |
|
|
|
25,424 |
|
|
|
|
|
|
|
|
||
Depreciation and amortization |
|
|
19,212 |
|
|
|
16,159 |
|
Impairment charge |
|
|
- |
|
|
|
1,604 |
|
Deferred income taxes |
|
|
(3,151 |
) |
|
|
8,348 |
|
Non-cash interest |
|
|
1,076 |
|
|
|
451 |
|
Amortization of syndication contracts |
|
|
348 |
|
|
|
357 |
|
Payments on syndication contracts |
|
|
(304 |
) |
|
|
(354 |
) |
Non-cash stock-based compensation |
|
|
7,995 |
|
|
|
3,300 |
|
Realized (gain) loss on marketable securities |
|
|
473 |
|
|
|
- |
|
(Gain) loss on disposal of property and equipment |
|
|
(599 |
) |
|
|
(2,622 |
) |
Change in fair value of contingent consideration |
|
|
6,810 |
|
|
|
- |
|
Net income (loss) attributable to redeemable noncontrolling interest |
|
|
- |
|
|
|
5,938 |
|
Net income (loss) attributable to noncontrolling interest |
|
|
(303 |
) |
|
|
- |
|
Changes in assets and liabilities: |
|
|
|
|
|
|
||
(Increase) decrease in accounts receivable |
|
|
22,296 |
|
|
|
(15,894 |
) |
(Increase) decrease in prepaid expenses and other assets |
|
|
(183 |
) |
|
|
2,267 |
|
Increase (decrease) in accounts payable, accrued expenses and other liabilities |
|
|
4,725 |
|
|
|
8,802 |
|
Cash flows from operating activities |
|
$ |
78,142 |
|
|
$ |
53,780 |
|
Consolidated Operations
Net Revenue. Net revenue increased to $241.0 million for the three-month period ended September 30, 2022 from $199.0 million for the three-month period ended September 30, 2021, an increase of approximately $42.0 million, or 21%. Of the overall increase, approximately $42.8 million was attributable to our digital segment and was primarily due to advertising revenue growth from our digital commercial partnerships business, and due to our investment in Adsmurai during the third quarter of 2022 and our acquisition of 365 Digital during the fourth quarter of 2021, neither of which contributed to net revenue in the comparable period ended September 30, 2021. In addition, of the overall increase, approximately $0.1 million was attributable to our audio segment, primarily due to increases in political advertising revenue and local advertising revenue, partially offset by a decrease in national advertising revenue. The overall increase was partially offset by a decrease of approximately $0.8 million attributable to our television segment, primarily due to decreases in local and national advertising revenue, and a decrease in retransmission consent revenue. These decreases were mainly attributed to the expiration of our Univision and UniMás network affiliation agreements in Orlando, Tampa
38
and Washington, D.C. on December 31, 2021. The decrease in our television segment revenue was partially offset by increases in political advertising revenue and spectrum usage rights revenue.
Net revenue increased to $659.9 million for the nine-month period ended September 30, 2022 from $526.3 million for the nine-month period ended September 30, 2021, an increase of approximately $133.6 million, or 25%. Of the overall increase, approximately $139.1 million was attributable to our digital segment and was primarily due to advertising revenue growth from our digital commercial partnerships business. In addition, the increase in net revenue in our digital segment was due to our investment in Adsmurai and our acquisition of 365 Digital during the third quarter of 2022 and fourth quarter of 2021, respectively, neither of which contributed to net revenue in the comparable period ended September 30, 2021, and due to our acquisition of MediaDonuts during the third quarter of 2021, which only partially contributed to net revenue in the comparable period ended September 30, 2021. Additionally, of the overall increase, approximately $2.1 million was attributable to our audio segment, primarily due to increases in political advertising revenue and local advertising revenue, partially offset by a decrease in national advertising revenue. The overall increase was partially offset by a decrease of approximately $7.7 million attributable to our television segment, primarily due to decreases in local and national advertising revenue, and a decrease in retransmission consent revenue. These decreases were mainly attributed to the expiration of our Univision and UniMás network affiliation agreements in Orlando, Tampa and Washington, D.C. on December 31, 2021. The decrease in our television segment revenue was partially offset by increases in political advertising revenue and spectrum usage rights revenue.
We believe that for the full year 2022, net revenue will increase, primarily as a result of growth in our digital segment and operating MediaDonuts and 365 Digital for a full year in 2022 compared to 2021, as well as the addition of VIEs to our results of operations beginning in the third quarter of 2022. In addition, we believe that for the full year 2022, net revenue will increase in part as a result of an increase in political advertising revenue compared to 2021. Political advertising revenue increased at an earlier time of year this year compared to previous mid-term election years, and we currently anticipate political advertising revenue will increase for most of the remainder of this fiscal year.
Cost of revenue-Digital. Cost of revenue in our digital segment increased to $157.1 million for the three-month period ended September 30, 2022 from $124.3 million for the three-month period ended September 30, 2021, an increase of $32.8 million, or 26%, primarily due to increased cost of revenue related to advertising revenue growth from our digital commercial partnerships business, and due to our investment in Adsmurai during the third quarter of 2022 and our acquisition of 365 Digital during the fourth quarter of 2021, neither of which incurred cost of revenue for us in the comparable period ended September 30, 2021. As a percentage of digital net revenue, cost of revenue decreased to 83% for the three-month period ended September 30, 2022 from 85% for the three-month period ended September 30, 2021.
Cost of revenue in our digital segment increased to $432.0 million for the nine-month period ended September 30, 2022 from $318.1 million for the nine-month period ended September 30, 2021, an increase of $113.9 million, or 36%, primarily due to increased cost of revenue related to advertising revenue growth from our digital commercial partnerships business, and due to our investment in Adsmurai and our acquisition of 365 Digital during the third quarter of 2022 and fourth quarter of 2021, respectively, neither of which incurred cost of revenue for us in the comparable period ended September 30, 2021, and due to our acquisition of MediaDonuts during the third quarter of 2021, which only partially incurred cost of revenue for us in the comparable period ended September 30, 2021. As a percentage of digital net revenue, cost of revenue remained constant at 84% for each of the nine-month periods ended September 30, 2022 and 2021.
Direct Operating Expenses. Direct operating expenses increased to $30.1 million for the three-month period ended September 30, 2022 from $28.6 million for the three-month period ended September 30 2021, an increase of $1.5 million, or 5%. Of the overall increase, approximately $1.8 million was attributable to our digital segment, primarily due to an increase in expenses associated with the increase in digital advertising revenue and due to our investment in Adsmurai during the third quarter of 2022 and our acquisition of 365 Digital during the fourth quarter of 2021, which did not incur direct operating expenses for us in the comparable period ended September 30, 2021. In addition, of the overall increase, approximately $0.3 million was attributable to our audio segment, primarily due to an increase in expenses associated with the increase in local advertising revenue. The overall increase was partially offset by a decrease of approximately $0.6 million that was attributable to our television segment, primarily due to a decrease in expenses associated with the decrease in local and national advertising revenue. As a percentage of net revenue, direct operating expenses decreased to 12% for the three-month period ended September 30, 2022 from 14% for the three-month period ended September 30, 2021, because the rate of increase in revenue exceeded the rate of increase in expenses.
Direct operating expenses increased to $87.5 million for the nine-month period ended September 30, 2022 from $83.5 million for the nine-month period ended September 30 2021, an increase of $4.0 million, or 5%. Of the overall increase, approximately $5.6 million was attributable to our digital segment, primarily due to an increase in expenses associated with the increase in digital advertising revenue. In addition, the increase in direct operating expenses in our digital segment was due to our investment in Adsmurai and our acquisition of 365 Digital during the third quarter of 2022 and fourth quarter of 2021, respectively, neither of which incurred direct operating expenses for us in the comparable period ended September 30, 2021, and due to our acquisition of MediaDonuts during the third quarter of 2021, which only partially incurred direct operating expenses for us in the comparable period ended September 30, 2021. In addition, of the overall increase, approximately $0.4 million was attributable to our audio segment, primarily due to an increase in expenses associated with the increase in local advertising revenue. The overall increase was partially
39
offset by a decrease of approximately $2.0 million that was attributable to our television segment, primarily due to a decrease in expenses associated with the decrease in local and national advertising revenue. As a percentage of net revenue, direct operating expenses decreased to 13% for the nine-month period ended September 30, 2022 from 16% for the nine-month period ended September 30, 2021, because the rate of increase in revenue exceeded the rate of increase in expenses.
We believe that for the full year 2022, direct operating expenses will increase, primarily as a result of growth in our digital segment and as a result of acquisitions and VIEs (see Notes 7 and 8 to Notes to Condensed Consolidated Financial Statements).
Selling, General and Administrative Expenses. Selling, general and administrative expenses increased to $19.2 million for the three-month period ended September 30, 2022 from $14.5 million for the three-month period ended September 30, 2021, an increase of $4.7 million, or 32%. Of the overall increase, approximately $4.0 million was attributable to our digital segment and was primarily due to increase in salary expense, our investment in Adsmurai during the third quarter of 2022 and our acquisition of 365 Digital during the fourth quarter of 2021, neither of which incurred selling, general and administrative expenses for us in the comparable period ended September 30, 2021. In addition, of the overall increase, approximately $0.5 million was attributable to our television segment, primarily due to an increase in rent expense and an increase in bad debt expense. Additionally, of the overall increase, approximately $0.1 million was attributable to our audio segment. As a percentage of net revenue, selling, general and administrative expenses increased to 8% for the three-month period ended September 30, 2022 from 7% for the three-month period ended September 30, 2021.
Selling, general and administrative expenses increased to $53.0 million for the nine-month period ended September 30, 2022 from $41.5 million for the nine-month period ended September 30, 2021, an increase of $11.5 million, or 28%. Of the overall increase, approximately $9.9 million was attributable to our digital segment and was primarily due to increase in salary expense. In addition, the increase in direct operating expenses in our digital segment was due to our investment in Adsmurai and our acquisition of 365 Digital during the third quarter of 2022 and fourth quarter of 2021, respectively, neither of which incurred selling, general and administrative expenses for us in the comparable period ended September 30, 2021, and due to our acquisition of MediaDonuts during the third quarter of 2021, which only partially incurred selling, general and administrative expenses for us in the comparable period ended September 30, 2021. In addition, of the overall increase, approximately $1.5 million was attributable to our television segment, primarily due to an increase in rent expense and an increase in bad debt expense. Additionally, of the overall increase, approximately $0.2 million was attributable to our audio segment. As a percentage of net revenue, selling, general and administrative expenses remained constant at 8% for each of the nine-month periods ended September 30, 2022 and 2021.
We believe that for the full year 2022, selling, general and administrative expenses will increase, primarily as a result of growth in our digital segment and as a result of acquisitions and VIEs (see Notes 7 and 8 to Notes to Condensed Consolidated Financial Statements).
Corporate Expenses. Corporate expenses increased to $9.5 million for the three-month period ended September 30, 2022 from $7.3 million for the three-month period ended September 30, 2021, an increase of $2.2 million or 31%. The increase was primarily due to increases in non-cash stock-based compensation and an increase in salaries. As a percentage of net revenue, corporate expenses remained constant at 4% for each of the three-month periods ended September 30, 2022 and 2021.
Corporate expenses increased to $26.8 million for the nine-month period ended September 30, 2022 from $21.8 million for the nine-month period ended September 30, 2021, an increase of $5.0 million or 23%. The increase was primarily due to increases in non-cash stock-based compensation and an increase in salaries. As a percentage of net revenue, corporate expenses remained constant at 4% for each of the nine-month periods ended September 30, 2022 and 2021.
We believe that corporate expenses will increase for the full year 2022 compared to 2021, primarily due to non-cash stock-based compensation expense and an increase in salaries.
Depreciation and Amortization. Depreciation and amortization increased to $6.6 million for the three-month period ended September 30, 2022 compared to $5.9 million for the three-month period ended September 30, 2021, an increase of $0.7 million or 11%. The increase was primarily attributable to amortization of the intangible assets from our investment in Adsmurai during the third quarter of 2022 and our acquisition of 365 Digital during the fourth quarter of 2021, neither of which incurred depreciation and amortization expenses for us in the comparable period ended September 30, 2021.
Depreciation and amortization increased to $19.2 million for the nine-month period ended September 30, 2022 compared to $16.2 million for the nine-month period ended September 30, 2021, an increase of $3.0 million or 19%. The increase was primarily attributable to amortization of the intangible assets from our investment in Adsmurai during the third quarter of 2022 and our acquisitions of MediaDonuts and 365 Digital during the third and fourth quarter of 2021, respectively, which only incurred partial, or did not incur, depreciation and amortization expenses for us in the comparable period ended September 30, 2021.
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Foreign currency (gain) loss. Historically, our revenues have primarily been denominated in U.S. dollars, and the majority of our current revenues continue to be, and are expected to remain, denominated in U.S. dollars. However, we have operations in countries other than the United States, primarily related to our digital business, and as a result, a portion of our revenues is denominated in currencies other than the U.S. dollar, primarily the Mexican peso, Argentine peso, certain other Latin American currencies and various other currencies. 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 $2.0 million for the three-month period ended September 30, 2022 compared to a foreign currency loss of $0.2 million for the three-month period ended September 30, 2021. We had a foreign currency loss of $2.1 million for the nine-month period ended September 30, 2022 compared to a foreign currency loss of $0.5 million for the nine-month period ended September 30, 2021. Foreign currency gains and losses are primarily due to currency fluctuations that affected our digital segment operations located outside the United States. In our digital operations outside the United States, we typically pay our global media partners in U.S. dollars but bill certain of our customers in their local currency. Therefore, during times of a strengthening U.S. dollar relative to other currencies, we may incur a loss based on the difference in value between what we pay in U.S dollars and what we ultimately receive in a local currency, when expressed in U.S. dollars.
Other operating gain. Other operating gain decreased to $0.1 million for the three-month period ended September 30, 2022 from $2.4 million for the three-month period ended September 30, 2021, primarily due to gains on assets held for sale in the prior year period, and 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.
Other operating gain decreased to $1.0 million for the nine-month period ended September 30, 2022 from $4.9 million for the nine-month period ended September 30, 2021, primarily due to gains on assets held for sale in the prior year period, and 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.
Impairment. During the three-and nine-month periods ended September 30, 2021 we recorded impairment charges of $0.2 million and $1.6 million, respectively, related to assets held for sale.
Change in fair value of contingent consideration. As a result of changes in the fair value of contingent consideration related to our various acquisitions, we recognized an expense of $0.7 million and $6.8 million for the three- and nine-month periods ended September 30, 2022, respectively.
Operating income (loss). As a result of the above factors, operating income was $15.9 million for the three-month period ended September 30, 2022, compared to operating income of $20.5 million for the three-month period ended September 30, 2021.
As a result of the above factors, operating income was $33.5 million for the nine-month period ended September 30, 2022, compared to operating income of $48.1 million for the nine-month period ended September 30, 2021.
Interest Expense, net. Interest expense, net increased to $2.3 million for the three-month period ended September 30, 2022 from $1.7 million for the three-month period ended September 30, 2021. This increase was primarily due to a higher interest rate on our debt, partially offset by interest income on our available for sale securities. We anticipate that interest expense will continue to increase in future periods as long as interest rates increase, since our borrowings under the 2017 Credit Facility bear interest at a variable rate.
Interest expense, net increased to $5.3 million for the nine-month period ended September 30, 2022 from $5.0 million for the nine-month period ended September 30, 2021. This increase was primarily due to a higher interest rate on our debt, partially offset by interest income on our available for sale securities. We anticipate that interest expense will continue to increase in future periods as long as interest rates increase, since our borrowings under the 2017 Credit Facility bear interest at a variable rate.
Realized gain (loss) on marketable securities. For each of the three-and nine month periods ended September 30, 2022 we recorded a realized loss of $0.5 million, related to our available for sale securities.
Income Tax Benefit (Expense). Income tax expense for the nine-month period ended September 30, 2022 was $8.3 million, or 30% of our pre-tax income. Income tax expense for the nine-month period ended September 30, 2021 was $11.9 million, or 28% of our pre-tax income. The effective tax rate for the nine-month period ended September 30, 2022 was different from our statutory rate due to foreign and state taxes, a valuation allowance on deferred tax assets in our Spanish, Paraguay, Argentina and Mexico digital entities, changes in the fair value of the contingent consideration liability, and non-taxable non-territorial income
Our management periodically evaluates the realizability of the deferred tax assets and, if it is determined that it is more likely than not that the deferred tax assets are, or are not, realizable, adjusts the valuation allowance accordingly. Valuation allowances are established and maintained for deferred tax assets on a “more likely than not” threshold. The process of evaluating the need to maintain a valuation allowance for deferred tax assets and the amount maintained in any such allowance is highly subjective and is based on many factors, several of which are subject to significant judgment calls.
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Based on our analysis, we determined that it was more likely than not that our deferred tax assets would be realized for all jurisdictions with the exception of certain of our digital operations located in Spain, Paraguay, Argentina and Mexico. As a result of historical losses from our digital operations in Spain, Paraguay, 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, 2022 will not be realized and therefore we have established a valuation allowance in that amount 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 $188.9 million for the three-month period ended September 30, 2022 from $146.1 million for the three-month period ended September 30, 2021. This increase of approximately $42.8 million, or 29%, in net revenue was primarily due to advertising revenue growth from our digital commercial partnerships business. Additionally, the increase in net revenue was attributable to our investment in Adsmurai during the third quarter of 2022 and our acquisition of 365 Digital during the fourth quarter of 2021, neither of which contributed to net revenue in the comparable period ended September 30, 2021.
Net revenue in our digital segment increased to $517.0 million for the nine-month period ended September 30, 2022 from $377.8 million for the nine-month period ended September 30, 2021. This increase of approximately $139.1 million, or 37%, in net revenue was primarily due to advertising revenue growth from our digital commercial partnerships business. In addition, the increase in net revenue in our digital segment was attributable to our investment in Adsmurai and our acquisition of 365 Digital during the third quarter of 2022 and fourth quarter of 2021, respectively, neither of which contributed to net revenue in the comparable period ended September 30, 2021, and due to our acquisition of MediaDonuts during the third quarter of 2021, which only partially contributed to net revenue in the comparable period ended September 30, 2021.
Cost of revenue. Cost of revenue in our digital segment increased to $157.1 million for the three-month period ended September 30, 2022 from $124.3 million for the three-month period ended September 30, 2021, an increase of $32.8 million, or 26%, primarily due to increased cost of revenue related to advertising revenue growth from our digital commercial partnerships business, and due to our investment in Adsmurai during the third quarter of 2022 and our acquisition of 365 Digital during the fourth quarter of 2021, neither of which incurred cost of revenue for us in the comparable period ended September 30, 2021. As a percentage of digital net revenue, cost of revenue decreased to 83% for the three-month period ended September 30, 2022 from 85% for the three-month period ended September 30, 2021.
Cost of revenue in our digital segment increased to $432.0 million for the nine-month period ended September 30, 2022 from $318.1 million for the nine-month period ended September 30, 2021, an increase of $113.9 million, or 36%, primarily due to increased cost of revenue related to advertising revenue growth from our digital commercial partnerships business, and due to our investment in Adsmurai and our acquisition of 365 Digital during the third quarter of 2022 and fourth quarter of 2021, respectively, neither of which incurred cost of revenue for us in the comparable period ended September 30, 2021, and due to our acquisition of MediaDonuts during the third quarter of 2021, which only partially incurred cost of revenue for us in the comparable period ended September 30, 2021.
We have previously noted a trend in our digital operations globally whereby revenue is shifting more to programmatic revenue. As a result, advertisers are demanding more efficiency and lower cost from intermediaries like us. In response to this trend, we are offering programmatic alternatives to advertisers, which is putting pressure on margins. Among our programmatic solutions is our Smadex ad purchasing platform. Additionally, we experienced lower margins related to revenue generated from the primarily global media companies for which we act as commercial partner as a result of relative negotiating strength and industry trends generally. We expect these trends will continue in future periods, likely further resulting in a higher volume, lower margin business in our digital segment. The digital advertising industry remains dynamic and is continuing to undergo rapid changes in technology and competition. We expect this trend to continue and possibly accelerate. We must continue to remain vigilant to meet these dynamic and rapid changes including the need to further adjust our business strategies accordingly. No assurances can be given that such strategies will be successful.
Direct operating expenses. Direct operating expenses in our digital segment increased to $8.0 million for the three-month period ended September 30, 2022 from $6.2 million for the three-month period ended September 30, 2021, an increase of $1.8 million, or 29%. The increase was primarily due to an increase in expenses associated with the increase in digital advertising revenue and due to our investment in Adsmurai during the third quarter of 2022 and our acquisition of 365 Digital during the fourth quarter of 2021, neither of which incurred direct operating expenses for us in the comparable period ended September 30, 2021.
Direct operating expenses in our digital segment increased to $23.0 million for the nine-month period ended September 30, 2022 from $17.4 million for the nine-month period ended September 30, 2021, an increase of $5.6 million, or 32%. The increase was
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primarily due to an increase in expenses associated with the increase in digital advertising revenue. In addition, the increase in direct operating expenses was due to our investment in Adsmurai and our acquisition of 365 Digital during the third quarter of 2022 and fourth quarter of 2021, respectively, neither of which incurred direct operating expenses for us in the comparable period ended September 30, 2021, and due to our acquisition of MediaDonuts during the third quarter of 2021, which only partially incurred direct operating expenses for us in the comparable period ended September 30, 2021.
Selling, general and administrative expenses. Selling, general and administrative expenses in our digital segment increased to $11.0 million for the three-month period ended September 30, 2022 from $7.0 million for the three-month period ended September 30, 2021, an increase of $4.0 million, or 59%. The increase was primarily due to an increase in salary expense, our investment in Adsmurai during the third quarter of 2022 and our acquisition of 365 Digital during the fourth quarter of 2021, neither of which incurred selling, general and administrative expenses for us in the comparable period ended September 30, 2021.
Selling, general and administrative expenses. Selling, general and administrative expenses in our digital segment increased to $28.6 million for the nine-month period ended September 30, 2022 from $18.7 million for the nine-month period ended September 30, 2021, an increase of $9.9 million, or 53%. The increase was primarily due to an increase in salary expense, our investment in Adsmurai and our acquisition of 365 Digital during the third quarter of 2022 and fourth quarter of 2021, respectively, neither of which incurred selling, general and administrative expenses for us in the comparable period ended September 30, 2021, and due to our acquisition of MediaDonuts during the third quarter of 2021, which only partially incurred selling, general and administrative expenses for us in the comparable period ended September 30, 2021.
Television
Net Revenue. Net revenue in our television segment decreased to $35.7 million for the three-month period ended September 30, 2022 from $36.5 million for the three-month period ended September 30, 2021. This decrease of approximately $0.8 million, or 2%, in net revenue was primarily due to decreases in local and national advertising revenue, and a decrease in retransmission consent revenue. These decreases were mainly attributed to the expiration of our Univision and UniMás network affiliation agreements in Orlando, Tampa and Washington, D.C. on December 31, 2021. We expect retransmission consent revenue from these three markets will continue to decline over the next two years, at which point it will cease. The decrease was partially offset by increases in political advertising revenue and spectrum usage rights revenue. Political advertising revenue increased at an earlier time of year this year compared to previous mid-term election years, and we currently anticipate political advertising revenue will increase for most of the remainder of this fiscal year.
Net revenue in our television segment decreased to $98.9 million for the nine-month period ended September 30, 2022 from $106.6 million for the nine-month period ended September 30, 2021. This decrease of approximately $7.7 million, or 7%, in net revenue was primarily due to decreases in local and national advertising revenue, and a decrease in retransmission consent revenue. These decreases were mainly attributed to the expiration of our Univision and UniMás network affiliation agreements in Orlando, Tampa and Washington, D.C. on December 31, 2021. We expect retransmission consent revenue from these three markets will continue to decline over the next two years, at which point it will cease. The decrease was partially offset by increases in political advertising revenue and spectrum usage rights revenue. Political advertising revenue increased at an earlier time of year this year compared to previous mid-term election years, and we currently anticipate political advertising revenue will increase for most of the remainder of this fiscal year.
In general, our television segment faces declining audiences, which we believe is present across the industry, competitive factors with the other major Spanish-language broadcaster, and changing demographics and preferences of audiences. Additionally, 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 decreased to $14.9 million for the three-month period ended September 30, 2022 from $15.6 million for the three-month period ended September 30, 2021, a decrease of approximately $0.6 million, or 4%. The decrease was primarily due to a decrease in expenses associated with the decrease in local and national advertising revenue.
Direct operating expenses in our television segment decreased to $43.7 million for the nine-month period ended September 30, 2022 from $45.7 million for the nine-month period ended September 30, 2021, a decrease of approximately $2.0 million, or 4%. The decrease was primarily due to a decrease in expenses associated with the decrease in local and national advertising revenue.
Selling, General and Administrative Expenses. Selling, general and administrative expenses in our television segment increased to $5.1 million for the three-month period ended September 30, 2022 from $4.6 million for the three-month period ended September 30, 2021, an increase of approximately $0.5 million, or 10%. The increase was primarily due to an increase in rent expense and an increase in bad debt expense.
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Selling, general and administrative expenses in our television segment increased to $15.3 million for the nine-month period ended September 30, 2022 from $13.8 million for the nine-month period ended September 30, 2021, an increase of approximately $1.5 million, or 10%. The increase was primarily due to an increase in rent expense and an increase in bad debt expense.
Audio
Net Revenue. Net revenue in our audio segment increased to $16.5 million for the three-month period ended September 30, 2022 from $16.4 million for the three-month period ended September 30, 2021. This increase of approximately $0.1 million in net revenue was primarily due to increases in political advertising revenue and local advertising revenue, partially offset by a decrease in national advertising revenue. Political advertising revenue increased at an earlier time of year this year compared to previous mid-term election years, and we currently anticipate political advertising revenue will increase for most of the remainder of this fiscal year.
Net revenue in our audio segment increased to $44.0 million for the nine-month period ended September 30, 2022 from $41.9 million for the nine-month period ended September 30, 2021. This increase of approximately $2.1 million, or 5%, in net revenue was primarily due to increases in political advertising revenue and local advertising revenue, partially offset by a decrease in national advertising revenue. Political advertising revenue increased at an earlier time of year this year compared to previous mid-term election years, and we currently anticipate political advertising revenue will increase for most of the remainder of this fiscal year.
Notwithstanding the foregoing, in general, our audio segment faces declining audiences, which we believe is present across the industry, competitive factors with other major Spanish-language broadcasters, and changing demographics and preferences of audiences. Additionally, notwithstanding the increases in local advertising revenue, we have previously noted a trend for advertising to move increasingly from traditional media, such as radio, to new media, such as digital media, and we expect this trend to continue.
Direct Operating Expenses. Direct operating expenses in our audio segment increased to $7.1 million for the three-month period ended September 30, 2022 from $6.8 million for the three-month period ended September 30, 2021, an increase of $0.3 million, or 5%. The increase was primarily due to an increase in expenses associated with the increase in local advertising revenue.
Direct operating expenses in our audio segment increased to $20.8 million for the nine-month period ended September 30, 2022 from $20.4 million for the nine-month period ended September 30, 2021, an increase of $0.4 million, or 2%. The increase was primarily due to an increase in expenses associated with the increase in local advertising revenue
Selling, General and Administrative Expenses. Selling, general and administrative expenses in our audio segment increased to $3.1 million for the three-month period ended September 30, 2022 from $3.0 million for the three-month period ended September 30, 2021, an increase of $0.1 million.
Selling, general and administrative expenses in our audio segment increased to $9.2 million for the nine-month period ended September 30, 2022 from $9.0 million for the nine-month period ended September 30, 2021, an increase of $0.2 million.
Liquidity and Capital Resources
While we have a history of operating losses in some periods and operating income in other periods, we also have a history of generating significant positive cash flows from our operations. We had net income attributable to common stockholders of $29.3 million for the year ended December 31, 2021, and net losses attributable to common stockholders of $3.9 million and $19.7 million for the years ended December 31, 2020 and 2019, respectively. We had positive cash flow from operations of $65.3 million, $63.4 million and $31.5 million for the years ended December 31, 2021, 2020 and 2019, respectively. We had positive cash flow from operations of $78.1 million for the nine-month period ended September 30, 2022. For at least the next twelve months, we expect to fund our working capital requirements, capital expenditures and payments of principal and interest on outstanding indebtedness, with cash on hand and cash flows from operations.
We currently believe that our cash position is capable of meeting our operating and capital expenses and debt service requirements for at least the next twelve months from the issuance of this report. We believe that our position is strengthened by cash and cash equivalents on hand, in the amount of $121.6 million, and available for sale marketable securities in the additional amount of $43.2 million, as of September 30, 2022. Our liquidity is not materially impacted by the 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
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of the 2017 Credit Facility by up to an additional $100.0 million plus the amount that would result in our first lien net leverage ratio (as such term is used in the 2017 Credit Agreement) not exceeding 4.0 to 1.0, subject to us satisfying certain conditions.
Borrowings under the Term Loan B Facility were used on the Closing Date (a) to repay in full all of our and our subsidiaries’ then outstanding obligations under the previous 2013 credit agreement, or 2013 Credit Agreement, and to terminate the 2013 Credit Agreement, (b) to pay fees and expenses in connection with the 2017 Credit Facility, and (c) for general corporate purposes.
The 2017 Credit Facility is guaranteed on a senior secured basis by certain of our existing and future wholly-owned domestic subsidiaries, and is secured on a first priority basis by our and those subsidiaries’ assets.
Our borrowings under the 2017 Credit Facility bear interest on the outstanding principal amount thereof from the date when made at a rate per annum equal to either: (i) the Eurodollar Rate (as defined in the 2017 Credit Agreement) plus 2.75%; or (ii) the Base Rate (as defined in the 2017 Credit Agreement) plus 1.75%. As of September 30, 2022, the interest rate on our Term Loan B was 5.27%. 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 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 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 it is amortized as interest expense over the remaining term of the Term Loan.
The carrying amount of the Term Loan B Facility as of September 30, 2022 was $208.6 million, net of $1.4 million of unamortized debt issuance costs and original issue discount. The estimated fair value of the Term Loan B Facility as of September 30, 2022 was $205.3 million. The estimated fair value is based on quoted prices in markets where trading occurs infrequently.
Share Repurchase Program
On March 1, 2022, our Board of Directors approved a share repurchase program of up to $20 million of our common stock. Under this 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. On the same date, the Board terminated our previous share repurchase program of up to $45 million of our common stock.
In the three-month period ended September 30, 2022, we did not repurchase any shares of our Class A common stock. As of September 30, 2022, we have repurchased a total of 1.8 million shares of our Class A common stock under the new share repurchase program for an aggregate purchase price of $11.3 million, or an average price per share of $6.43. All such repurchased shares were retired as of September 30, 2022.
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Consolidated Adjusted EBITDA
Consolidated adjusted EBITDA (as defined below) increased to $66.6 million for the nine-month period ended September 30, 2022 compared to $55.2 million for the nine-month period ended September 30, 2021. As a percentage of net revenue, consolidated adjusted EBITDA remained constant at 10% for each of the nine-month periods ended September 30, 2022 and 2021.
Consolidated adjusted EBITDA, as defined in our 2017 Credit Agreement, means net income (loss) plus gain (loss) on sale of assets, depreciation and amortization, non-cash impairment charge, non-cash stock-based compensation included in operating and corporate expenses, net interest expense, other income (loss), non-recurring cash expenses, gain (loss) on debt extinguishment, income tax (expense) benefit, equity in net income (loss) of nonconsolidated affiliate, non-cash losses, syndication programming amortization less syndication programming payments, revenue from FCC spectrum incentive auction less related expenses, expenses associated with investments, EBITDA attributable to redeemable noncontrolling interest, acquisitions and dispositions and certain pro-forma cost savings. We use the term consolidated adjusted EBITDA because that measure is defined in our 2017 Credit Agreement and does not include gain (loss) on sale of assets, depreciation and amortization, non-cash impairment charge, non-cash stock-based compensation, net interest expense, other income (loss), non-recurring cash expenses, gain (loss) on debt extinguishment, income tax (expense) benefit, equity in net income (loss) of nonconsolidated affiliate, non-cash losses, syndication programming amortization less syndication programming payments, revenue from FCC spectrum incentive auction less related expenses, expenses associated with investments, EBITDA attributable to redeemable noncontrolling interest, acquisitions and dispositions and certain pro-forma cost savings.
Since 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): 2022, 1.4 to 1; 2021, 1.6 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 38.
Cash Flow
Net cash flow provided by operating activities was $78.1 million for the nine-month period ended September 30, 2022 compared to net cash flow provided by operating activities of $53.8 million for the nine-month period ended September 30, 2021. We had net income of $19.4 million for the nine-month period ended September 30, 2022, which included non-cash items such as deferred income taxes of $3.2 million, depreciation and amortization expense of $19.2 million, change in fair value of contingent consideration of $6.8 million, non-cash stock-based compensation of $8.0 million, and gain on disposal of property and equipment of $0.6 million. We 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 expect to have positive cash flow from operating activities for the 2022 year.
Net cash flow used in investing activities was $56.0 million for the nine-month period ended September 30, 2022, compared to net cash flow provided by investing activities of $19.3 million for the nine-month period ended September 30, 2021. During the nine-month period ended September 30, 2022, we spent $92.5 million on purchases of marketable securities, spent $7.9 million in net capital expenditures, spent $5.2 million on investments in VIEs, net of cash consolidated, received $46.9 million from the sale of marketable securities, and received $2.7 million from the sale of property and equipment and intangibles. 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
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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. We anticipate that our capital expenditures will be approximately $12.0 million during the full year 2022. Of this amount, we expect that approximately $2.0 million will be reimbursed in connection with our new office lease. 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 $85.7 million for the nine-month period ended September 30, 2022, compared to net cash flow used in financing activities of $9.4 million for the nine-month period ended September 30, 2021. During the nine-month period ended September 30, 2022, we made payments of contingent consideration of $65.3 million, dividend payments of $6.4 million, debt payments of $2.5 million, payments for taxes related to shares withheld for share-based compensation plans of $0.3 million, spent $11.3 million for the repurchase of Class A common stock, and received $0.2 million related to the issuance of common stock upon the exercise of stock options. 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.
Credit Risk
We have credit risk in our digital segment insofar as we are required to pay the media companies for which we act as commercial partner for all inventory purchased regardless of whether we are able to collect on a transaction from the local advertiser or its ad agency. We believe that we manage this credit risk effectively, in part by analyzing the creditworthiness of these customers; however, we can give no assurance that this will continue to be the case in future periods.
Additionally, we are dependent upon one single global media company for the majority of our consolidated revenue, which amounted to approximately 49% and 51% of our consolidated revenue for the three- and nine-month periods ended September 30, 2022, respectively. We expect that dependence will continue. The loss of all or a substantial part of that revenue could have a significant impact on our liquidity and cash flow.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
General
Market risk represents the potential loss that may 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, 2022, we had $210.0 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, 2022 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, 2022.
Foreign Currency
We have foreign currency risks related to our revenue and operating expenses denominated in currencies other than the U.S. dollar. Historically, our revenues have primarily been denominated in U.S. dollars, and the majority of our current revenues continue to be, and are expected to remain, denominated in U.S. dollars. However, we have operations in countries other than the United States, primarily related to our digital business, and as a result we expect an increasing portion of our future revenues to be denominated in currencies other than the U.S. dollar, primarily the Mexican peso, Argentine peso, certain other Latin American currencies and various other currencies. The effect of an immediate and hypothetical 10% adverse change in foreign exchange rates on foreign-denominated accounts receivable at September 30, 2022 would not be material to our overall financial condition or consolidated results of operations. Our operating expenses are primarily denominated in U.S. Dollars. In addition, certain of our operating expenses are denominated in the currencies of the countries in which our operations are located, such as Spain, Latin American countries and other countries. Increases and decreases in our foreign-denominated revenue from movements in foreign exchange rates are partially offset by the corresponding decreases or increases in our foreign-denominated operating expenses.
Based on 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 Condensed Consolidated Financial Statements).
As our international operations continue to grow, our risks associated with fluctuation in currency rates will become greater, and we will continue to reassess our approach to managing this risk. In addition, currency fluctuations or a weakening U.S. dollar can increase the amount of operating expense of our international operations, which are primarily related to our digital business. To date, we have not entered into any foreign currency hedging contracts, since exchange rate fluctuations historically have not had a material 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 effective.
Our disclosure controls and procedures are designed to ensure that the information relating to our company, including our consolidated subsidiaries, required to be disclosed in our SEC reports is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate to allow for timely decisions regarding required disclosure.
Our management, including our chief executive officer and chief financial officer, does not expect that our disclosure controls or our internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
There have not been any changes in our internal control over financial reporting during the period covered by this quarterly report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II.
OTHER INFORMATION
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 March 1, 2022, our Board of Directors approved a share repurchase program of up to $20 million of our common stock. Under this 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. On the same date, the Board terminated our previous share repurchase program of up to $45 million of our common stock.
In the three-month period ended September 30, 2022, we did not repurchase any shares of our Class A common stock. As of September 30, 2022, we have repurchased a total of 1.8 million shares of our Class A common stock under the new share repurchase program for an aggregate purchase price of $11.3 million, or an average price per share of $6.43. All such repurchased shares were retired as of September 30, 2022.
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 4, 2022
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