EVC 10-Q
Entravision Communications Corp (EVC)
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 August 5, 2024, there were
ENTRAVISION COMMUNICATIONS CORPORATION
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2024
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 JUNE 30, 2024 AND DECEMBER 31, 2023 |
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4 |
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5 |
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CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED) FOR THE THREE- AND SIX-MONTH PERIODS ENDED JUNE 30, 2024 AND JUNE 30, 2023 |
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6 |
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CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED) FOR THE THREE- AND SIX-MONTH PERIODS ENDED JUNE 30, 2024 AND JUNE 30, 2023 |
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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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ITEM 3. |
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37 |
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ITEM 4. |
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37 |
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ITEM 1. |
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38 |
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ITEM 1A. |
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38 |
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ITEM 2. |
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38 |
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ITEM 3. |
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38 |
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ITEM 4. |
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38 |
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ITEM 5. |
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38 |
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ITEM 6. |
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39 |
GENERAL NOTE
As discussed in more detail throughout this report, during the second quarter of 2024 we sold our Entravision Global Partners (“EGP”) business, which was the largest business unit of our digital operations. We have continuing operations from certain other digital operations, primarily Smadex, our programmatic ad purchasing platform, and Adwake, our mobile growth solutions business. Unless the context indicates otherwise, references throughout this report to our digital segment refer to our continuing digital operations and references to discontinued operations refer to EGP prior to its sale.
Forward-Looking Statements
This document contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. All statements other than statements of historical fact are “forward-looking statements” for purposes of federal and state securities laws, including, but not limited to, any projections of earnings, revenue or other financial items; any statements of the plans, strategies and objectives of management for future operations; any statements concerning proposed new services or developments; any statements regarding future economic conditions or performance; any statements of belief; and any statements of assumptions underlying any of the foregoing.
Forward-looking statements may include the words “may,” “could,” “will,” “estimate,” “intend,” “continue,” “believe,” “expect”, “anticipate” or other similar words. These forward-looking statements present our estimates and assumptions only as of the date of this report. Except for our ongoing obligation to disclose material information as required by the federal securities laws, we do not intend, and undertake no obligation, to update any forward-looking statement.
Although we believe that the expectations reflected in any of our forward-looking statements are reasonable, actual results could differ materially from those projected or assumed in any of our forward-looking statements. Our future financial condition and results of operations, as well as any forward-looking statements, are subject to change and inherent risks and uncertainties. Some of the key factors impacting these risks and uncertainties include, but are not limited to:
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 11 of our Annual Report on Form 10-K for the year ended December 31, 2023 (our “2023 10-K”) and on page 37 of our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2024.
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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June 30, |
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December 31, |
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2024 |
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2023 |
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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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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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Current assets of discontinued operations |
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- |
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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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Noncurrent assets of discontinued operations |
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- |
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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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Current liabilities of discontinued operations |
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- |
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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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Noncurrent liabilities of discontinued operations |
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- |
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Total liabilities |
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Redeemable noncontrolling interest - discontinued operations |
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- |
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Stockholders' equity |
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Class A common stock, $ |
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Class U common stock, $ |
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Additional paid-in capital |
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Accumulated deficit |
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( |
) |
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( |
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Accumulated other comprehensive income (loss) |
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( |
) |
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( |
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Total stockholders' equity |
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Total liabilities, redeemable noncontrolling interest and equity |
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$ |
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$ |
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See Notes to Condensed Consolidated Financial Statements
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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Six-Month Period |
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Ended June 30, |
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Ended June 30, |
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2024 |
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2023 |
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2024 |
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2023 |
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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 (including related parties of $ |
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Change in fair value of contingent consideration |
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Foreign currency (gain) loss |
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( |
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Operating income (loss) |
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( |
) |
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( |
) |
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( |
) |
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( |
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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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- |
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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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Gain (loss) on debt extinguishment |
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( |
) |
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- |
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( |
) |
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( |
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Income (loss) from continuing operations before income taxes |
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( |
) |
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( |
) |
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( |
) |
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( |
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Income tax benefit (expense) |
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Net income (loss) from continuing operations |
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( |
) |
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( |
) |
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( |
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Net income (loss) from discontinued operations, net of tax |
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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 from continuing operations, basic and diluted |
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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 from discontinued operations, basic and diluted |
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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, basic and 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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Six-Month Period |
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Ended June 30, |
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Ended June 30, |
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2024 |
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2023 |
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2024 |
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2023 |
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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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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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Total other comprehensive income (loss) |
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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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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 U |
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Class A |
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Class 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, 2023 |
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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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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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( |
) |
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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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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( |
) |
Dividends equivalents payable |
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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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OCI release due to 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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- |
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- |
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- |
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Foreign currency translation gain (loss) |
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- |
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- |
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- |
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- |
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- |
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- |
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( |
) |
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- |
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( |
) |
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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- |
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( |
) |
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- |
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- |
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( |
) |
Balance, March 31, 2024 |
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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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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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( |
) |
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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Dividend 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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( |
) |
Dividends equivalents payable |
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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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OCI release due to 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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- |
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- |
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( |
) |
|
- |
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( |
) |
Foreign currency translation gain (loss) |
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- |
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- |
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- |
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- |
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- |
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- |
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- |
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Accounting for discontinued operations |
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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 |
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- |
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- |
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- |
|
|
- |
|
|
- |
|
|
( |
) |
|
- |
|
|
- |
|
|
( |
) |
Balance, June 30, 2024 |
|
|
|
|
|
$ |
|
$ |
|
$ |
|
$ |
( |
) |
$ |
( |
) |
$ |
- |
|
$ |
|
||||||
|
|
Number of Common Shares |
|
Common Stock |
|
|
|
|
|
Accumulated |
|
|
|
|
|
|||||||||||||
|
|
|
|
|
|
|
|
|
|
Additional |
|
Accumulated |
|
Other |
|
Noncontrolling |
|
|
|
|||||||||
|
|
Class A |
|
Class U |
|
Class A |
|
Class U |
|
Capital |
|
Deficit |
|
Income (Loss) |
|
Interest |
|
Total |
|
|||||||||
Balance, December 31, 2022 |
|
|
|
|
|
$ |
|
$ |
|
$ |
|
$ |
( |
) |
$ |
( |
) |
$ |
|
$ |
|
|||||||
Issuance of common stock upon exercise of stock options or awards of restricted stock units |
|
|
|
|
- |
|
|
- |
|
|
- |
|
|
|
|
- |
|
|
- |
|
|
- |
|
|
|
|||
Tax payments related to shares withheld for share-based compensation plans |
|
|
|
|
- |
|
|
- |
|
|
- |
|
|
( |
) |
|
- |
|
|
- |
|
|
- |
|
|
( |
) |
|
Stock-based compensation expense |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
|
|
- |
|
|
- |
|
|
- |
|
|
|
||
Dividends paid |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
( |
) |
|
- |
|
|
- |
|
|
- |
|
|
( |
) |
Distributions to noncontrolling interest |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
( |
) |
|
( |
) |
Change in fair value of marketable securities |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
|
|
- |
|
|
|
||
OCI release due to realized gain (loss) on marketable securities |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
|
|
- |
|
|
|
||
Foreign currency translation gain (loss) |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
|
|
- |
|
|
|
||
Net income (loss) attributable to common stockholders |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
|
|
- |
|
|
( |
) |
|
|
||
Balance, March 31, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
( |
) |
|
|
|
|
|||||||
Issuance of common stock upon exercise of stock options or awards of restricted stock units |
|
|
|
|
- |
|
|
- |
|
|
- |
|
|
|
|
- |
|
|
- |
|
|
- |
|
|
|
|||
Tax payments related to shares withheld for share-based compensation plans |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
( |
) |
|
- |
|
|
- |
|
|
- |
|
|
( |
) |
Stock-based compensation expense |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
|
|
- |
|
|
- |
|
|
- |
|
|
|
||
Dividend paid |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
( |
) |
|
- |
|
|
- |
|
|
- |
|
|
( |
) |
Distributions to noncontrolling interest |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
( |
) |
|
( |
) |
Change in fair value of marketable securities |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
|
|
- |
|
|
|
||
OCI release due to realized gain (loss) on marketable securities |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
|
|
- |
|
|
|
||
Foreign currency translation gain (loss) |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
( |
) |
|
- |
|
|
( |
) |
Acquisition of noncontrolling interest |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
( |
) |
|
- |
|
|
- |
|
|
( |
) |
|
( |
) |
Accounting for Adsmurai transaction |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
( |
) |
|
- |
|
|
- |
|
|
( |
) |
|
( |
) |
Net income (loss) attributable to common stockholders |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
( |
) |
|
- |
|
|
- |
|
|
( |
) |
Balance, June 30, 2023 |
|
|
|
|
|
$ |
|
$ |
|
$ |
|
$ |
( |
) |
$ |
( |
) |
$ |
- |
|
$ |
|
||||||
See Notes to Condensed Consolidated Financial Statements
8
ENTRAVISION COMMUNICATIONS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)
|
Six-Month Period |
|
|||||
|
Ended June 30, |
|
|||||
|
2024 |
|
|
2023 |
|
||
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 |
|
|
|
|
|
||
Loss (gain) on the sale of businesses |
|
|
|
|
- |
|
|
(Gain) loss on debt extinguishment |
|
|
|
|
|
||
Change in fair value of contingent consideration |
|
( |
) |
|
|
( |
) |
Net income (loss) attributable to redeemable noncontrolling interest - discontinued operations |
|
( |
) |
|
|
( |
) |
Net income (loss) attributable to noncontrolling interest - discontinued operations |
|
- |
|
|
|
( |
) |
Changes in assets and liabilities: |
|
|
|
|
|
||
(Increase) decrease in accounts receivable |
|
|
|
|
|
||
(Increase) decrease in prepaid expenses and other current assets, operating leases right of use asset 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 businesses, net of cash divested |
|
( |
) |
|
|
- |
|
Proceeds from sale of assets |
|
- |
|
|
|
|
|
Purchases of property and equipment |
|
( |
) |
|
|
( |
) |
Purchase of a business, net of cash acquired |
|
- |
|
|
|
( |
) |
Purchases of marketable securities |
|
- |
|
|
|
( |
) |
Proceeds from sale of marketable securities |
|
|
|
|
|
||
Proceeds from loan receivable |
|
|
|
|
- |
|
|
Purchases of investments |
|
- |
|
|
|
( |
) |
Issuance of loan receivable |
|
- |
|
|
|
( |
) |
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 debt |
|
( |
) |
|
|
( |
) |
Dividends paid |
|
( |
) |
|
|
( |
) |
Distributions to noncontrolling interest |
|
( |
) |
|
|
( |
) |
Payment of contingent consideration |
|
( |
) |
|
|
( |
) |
Principal payments under finance lease obligation |
|
( |
) |
|
|
( |
) |
Proceeds from borrowings on debt |
|
- |
|
|
|
|
|
Payments for debt issuance costs |
|
- |
|
|
|
( |
) |
Net cash provided by (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 |
$ |
|
|
$ |
|
||
Note receivable |
$ |
( |
) |
|
$ |
- |
|
Dividends equivalents payable |
$ |
|
|
$ |
- |
|
|
See Notes to Condensed Consolidated Financial Statements
ENTRAVISION COMMUNICATIONS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS OF PRESENTATION
Presentation
The condensed consolidated financial statements included herein have been prepared by Entravision Communications Corporation (the “Company”), pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been omitted pursuant to such rules and regulations. These condensed consolidated financial statements and notes thereto should be read in conjunction with the Company’s audited consolidated financial statements for the year ended December 31, 2023 included in the Company’s 2023 Annual Report on Form 10-K for the year ended December 31, 2023 (the "2023 10-K"). The unaudited information contained herein has been prepared on the same basis as the Company’s audited consolidated financial statements and, in the opinion of the Company’s management, includes all adjustments (consisting of only normal recurring adjustments) necessary for a fair presentation of the information for the periods presented. The interim results presented herein are not necessarily indicative of the results of operations that may be expected for the full fiscal year ending December 31, 2024 or any other future period.
Certain amounts in the Company’s prior year period condensed consolidated financial statements and notes to the financial statements have been reclassified to conform to current period presentation, including presentation of discontinued operations as discussed in Notes 2 and 8.
2. THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
With the sale of the Company’s Entravision Global Partners (“EGP”) business during the second quarter of 2024, the Company operates as a media and advertising technology company. The Company's management has determined that the Company operates in three reportable segments as of June 30, 2024, based upon the type of advertising medium: digital, television and audio.
Continuing operations in the Company's digital segment, whose operations are primarily located in the United States and Europe, are comprised of two business units: Smadex, the Company's programmatic ad purchasing platform; and Adwake, the Company's mobile growth solutions business. The Company's television and audio operations reach and engage U.S. Hispanics in the United States. The Company owns and/or operates
Discontinued Operations and Assets Held for Sale
On March 4, 2024, the Company received a communication from Meta that it intended to wind down its Authorized Sales Partners ("ASP") program globally and end its relationship with all of its ASPs, including the Company, by July 1, 2024. For the fiscal year ended December 31, 2023 ASP revenue from Meta represented approximately
As a result of this communication from Meta, the Company conducted a thorough review of its digital strategy, operations and cost structure, and during the second quarter of 2024 made the decision to dispose of the operations of EGP.
Following this decision, during the second quarter of 2024, the Company entered into a definitive agreement to sell substantially all of its EGP business to IMS Internet Media Services, Inc. ("IMS"). The transaction was completed on June 28, 2024. The remaining EGP businesses, Jack of Digital and Adsmurai, S.L. ("Adsmurai"), were each sold back to their respective founders in separate transactions during the second quarter of 2024. See Note 8 for additional details.
A business or asset is classified as held for sale when management having the authority to approve the action commits to a plan to sell the business, the sale is probable to occur during the next 12 months at a price that is reasonable in relation to its current fair value, and when certain other criteria are met. A business or asset classified as held for sale is recorded at the lower of (i) its carrying amount and (ii) estimated fair value less costs to sell. When the carrying amount of the business exceeds its estimated fair value less costs to sell, a loss is recognized and updated each reporting period as appropriate. Depreciation is not recorded on assets classified as held for sale.
The results of operations of a business classified as held for sale are reported as discontinued operations if the disposal represents a strategic shift that will have a major effect on the entity’s operations and financial results. When a business is identified for discontinued operations reporting: (i) results for prior periods are retrospectively reclassified as discontinued operations; (ii) results of operations are reported in a single line, net of tax, in the consolidated statement of operations; and (iii) assets and liabilities are reported as held for sale in the consolidated balance sheets in the period in which the business is classified as held for sale.
The Company concluded that the assets of its EGP business met the criteria for classification as held for sale. Additionally, the Company determined that the disposal, which was initiated and completed during the second quarter of 2024, represented a strategic shift that had a major effect on the Company's operations and financial results. As such, the results of the Company's EGP business are presented as discontinued operations in the Condensed Consolidated Statements of Operations for all periods presented. Prior periods have been adjusted to conform to the current presentation. The assets of the Company's EGP business have been reflected as assets and liabilities of discontinued operations in the Condensed Consolidated Balance Sheet for the year ended December 31, 2023.
Restricted Cash
As of June 30, 2024 and December 31, 2023, the Company’s balance sheet includes $
The Company's cash and cash equivalents and restricted cash, as presented in the Condensed Consolidated Statements of Cash Flows, was as follows (in thousands):
|
As of June 30, |
|
|||||
|
2024 |
|
|
2023 |
|
||
Cash and cash equivalents |
$ |
|
|
$ |
|
||
Restricted cash |
|
|
|
|
|
||
Total as presented in the Condensed 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 TelvisaUnivision’s primary Univision network and UniMás network programming in their respective markets. Under the network affiliation agreement, the Company retains the right to sell no less than four minutes per hour of the available advertising time on stations that broadcast Univision network programming, and the right to sell approximately four and a half minutes per hour of the available advertising time on stations that broadcast UniMás network programming, subject to adjustment from time to time by TelevisaUnivision.
Under the network affiliation agreement, TelevisaUnivision acts as the Company’s exclusive third-party sales representative for the sale of certain national advertising on the Univision- and UniMás-affiliate television stations, and the Company pays certain sales representation fees to TelevisaUnivision relating to sales of all advertising for broadcast on its Univision- and UniMás-affiliate television stations.
During each of the three-month periods ended June 30, 2024 and 2023, the amount the Company paid TelevisaUnivision in this capacity was $
The Company also generates revenue under two marketing and sales agreements with TelevisaUnivision, which give it the right to manage the marketing and sales operations of TelevisaUnivision-owned Univision affiliates in three markets – Albuquerque, Boston and Denver.
On October 2, 2017, the Company entered into the current affiliation agreement which superseded and replaced its prior affiliation agreements with TelevisaUnivision. Additionally, on the same date, the Company entered into a proxy agreement and marketing and sales agreement with TelevisaUnivision, each of which superseded and replaced the prior comparable agreements with TelevisaUnivision. The term of each of these current agreements expires on December 31, 2026 for all of the Company’s Univision and UniMás network affiliate stations, except that each current agreement expired on December 31, 2021 with respect to the Company’s Univision and UniMás network affiliate stations in Orlando, Tampa and Washington, D.C.
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 June 30, 2024, the amount due to the Company from TelevisaUnivision was $
TelevisaUnivision currently owns approximately
11
Stock-Based Compensation
The Company measures all stock-based awards using a fair value method and recognizes the related stock-based compensation expense in the condensed consolidated financial statements over the requisite service period. As stock-based compensation expense recognized in the Company’s condensed consolidated financial statements is based on awards ultimately expected to vest, it has been reduced for estimated forfeitures.
Restricted Stock Units
Stock-based compensation expense related to restricted stock units ("RSUs") 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
During the six-month period ended June 30, 2024, the Company had the following non-vested RSUs activity (in thousands, except grant date fair value data):
|
|
Number of RSUs |
|
|
Weighted-Average Grant Date Fair Value |
|
||
Nonvested balance at December 31, 2023 |
|
|
|
|
$ |
|
||
Granted |
|
|
|
|
|
|
||
Vested |
|
|
( |
) |
|
|
|
|
Forfeited or cancelled |
|
|
( |
) |
|
|
|
|
Nonvested balance at June 30, 2024 |
|
|
|
|
|
|
||
Stock-based compensation expense related to RSUs was $
Stock-based compensation expense related to RSUs was $
As of June 30, 2024, there was $
Performance Stock Units
In connection with the hiring of the Company's CEO in July 2023, the Company has granted the CEO Performance Stock Units ("PSUs"), which are subject to both time-based vesting conditions and market-based conditions. Both the service and market conditions must be satisfied for the PSUs to vest. The PSUs consist of five equal tranches (each, a "Performance Tranche"), based on achievement of a share price condition if the Company achieves share price targets of $
Additionally, in connection with the annual grant in January 2024, the Company has granted PSUs to certain employees, which are subject to both time-based vesting conditions and market-based conditions. Both the service and market conditions must be satisfied for the PSUs to vest. The PSUs consist of four equal tranches (each, a "Performance Tranche"), based on achievement of a share price condition if the Company achieves share price targets of $
12
earned under this PSU grant was
The Company recognizes compensation expense related to the PSUs using the accelerated attribution method over the requisite service period. Stock-based compensation expense for PSUs is based on a performance measurement of
Stock-based compensation expense related to PSUs was $
As of June 30, 2024, there was $
The grant date fair value for each PSU was estimated using a Monte-Carlo simulation model that incorporates option-pricing inputs covering the period from the grant date through the end of the performance period.
|
|
2024 PSUs |
|
|
2023 PSUs |
|
||
Stock price at issuance |
|
$ |
|
|
$ |
|
||
Expected volatility |
|
|
% |
|
|
% |
||
Risk-free interest rate |
|
|
% |
|
|
% |
||
Expected term |
|
|
|
|
|
|
||
Expected dividend yield |
|
|
% |
|
|
% |
||
During the six-month period ended June 30, 2024, the Company had the following non-vested PSUs activity (in thousands, except grant date fair value data):
|
|
Number of PSUs |
|
|
Weighted-Average Grant Date Fair Value |
|
||
Nonvested balance at December 31, 2023 |
|
|
|
|
$ |
|
||
Granted |
|
|
|
|
|
|
||
Vested |
|
|
- |
|
|
|
- |
|
Forfeited or cancelled |
|
|
( |
) |
|
|
|
|
Nonvested balance at June 30, 2024 |
|
|
|
|
|
|
||
Income (Loss) Per Share
The following table illustrates the reconciliation of the basic and diluted income (loss) per share (in thousands, except share and per share data):
13
|
|
Three-Month Period |
|
|
Six-Month Period |
|
||||||||||
|
|
Ended June 30, |
|
|
Ended June 30, |
|
||||||||||
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net income (loss) from continuing operations |
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
Net income (loss) from discontinued operations |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
||
Net income (loss) attributable to common stockholders |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
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|
||||
Basic earnings per share: |
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|
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Denominator: |
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Weighted average common shares outstanding |
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||||
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||||
Per share: |
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|
||||
Income (loss) per share from continuing operations |
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
Income (loss) per share from discontinued operations |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
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|
||
Net income (loss) per share attributable to common stockholders |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
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|
||||
Diluted earnings per share: |
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|
||||
Denominator: |
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|
||||
Weighted average common shares outstanding |
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|
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Dilutive securities: |
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|
||||
Stock options and restricted stock units |
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|
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Diluted shares outstanding |
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||||
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|
||||
Per share: |
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|
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|
||||
Income (loss) per share from continuing operations |
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
Income (loss) per share from discontinued operations |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
||
Net income (loss) per share attributable to common stockholders |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
For the three-month period ended June 30, 2024, a total of
For the six-month period ended June 30, 2024, all dilutive securities have been excluded as their inclusion would have had an antidilutive effect on loss per share. The number of securities whose conversion would result in an incremental number of shares that would be included in determining the weighted average shares outstanding for diluted earnings per share if their effect was not antidilutive was
For the three- and six-month periods ended June 30, 2023, all dilutive securities have been excluded as their inclusion would have had an antidilutive effect on loss per share. The number of securities whose conversion would result in an incremental number of shares that would be included in determining the weighted average shares outstanding for diluted earnings per share if their effect was not antidilutive was
Impairment
The Company has identified each of its
Goodwill and indefinite life intangibles are not amortized but are tested annually for impairment, or more frequently, if events or changes in circumstances indicate that the assets might be impaired. The annual testing date is October 1.
As of the most recent annual goodwill testing date, October 1, 2023, there was $
On March 4, 2024, the Company received a communication from Meta that it intended to wind down its ASP program globally and end its relationship with all of its ASPs, including the Company, by July 1, 2024. For the fiscal year ended December 31, 2023 ASP revenue from Meta represented approximately
14
segment revenue. The Company expected a significant loss of future revenue due to the termination of the ASP by Meta. As a result, during the first quarter of 2024, the Company updated its internal forecasts of future performance and determined that a triggering event had occurred during the first quarter of 2024 that required interim impairment tests.
As a result, the Company conducted a review of certain of its long-lived assets using a two-step approach. In the first step, the carrying value of the asset group is compared to the projected undiscounted cash flows to determine recoverability. If the asset carrying value is not recoverable, then the fair value of the asset group is determined in the second step using an income approach. The income approach requires the Company to make a series of assumptions, such as discount rates, revenue projections, profit margin projections and useful lives.
Based on the assumptions and estimates described above, the carrying values of long-lived assets in the digital reporting unit exceeded their fair values. As a result, the Company performed the second step analysis, resulting in intangibles subject to amortization impairment charge of $
The Company also conducted a review of the fair value of the digital reporting unit in the first quarter of 2024. The estimated fair value of the reporting unit was determined by using a combination of a market approach and an income approach. The market approach estimates fair value by applying sales, earnings and cash flow multiples to the reporting unit’s operating performance. The multiples are derived from comparable publicly-traded companies with similar operating and investment characteristics to the Company’s reporting units. The market approach requires the Company to make a series of assumptions, such as selecting comparable companies and comparable transactions and transaction premiums.
The income approach estimates fair value based on the estimated future cash flows of each reporting unit, discounted by an estimated weighted-average cost of capital that reflects current market conditions, which reflect the overall level of inherent risk of the reporting unit. The income approach also requires the Company to make a series of assumptions, such as discount rates, revenue projections, profit margin projections and terminal value multiples. The Company estimated the discount rate on a blended rate of return considering both debt and equity for comparable publicly-traded companies in the digital media industries. These comparable publicly-traded companies have similar size, operating characteristics and/or financial profiles to the Company’s reporting units. The Company also estimated the terminal value multiple based on comparable publicly-traded companies in the digital media industries. The Company estimated its revenue projections and profit margin projections based on internal forecasts about future performance.
Based on the assumptions and estimates described above, the Company concluded that the digital reporting unit carrying value exceeded its fair value, resulting in a goodwill impairment charge of $
The impairments of the intangibles subject to amortization and goodwill were allocated to the Company's EGP business which is accounted for as discontinued operations. See Note 8 for additional details.
Treasury Stock
On March 1, 2022, the Company's Board of Directors approved a share repurchase program of up to $
During the three- and six-month periods ended June 30, 2024 and 2023, the Company did
On
On
On the 2023 Closing Date, the Company repaid in full all of the outstanding obligations under the 2017 Credit Agreement and accounted for this repayment as an extinguishment of debt in accordance with Accounting Standards Codification ("ASC") 470, "Debt". The repayment resulted in a loss on debt extinguishment of $
15
As provided for in the 2023 Credit Agreement, the 2023 Credit Facility consists of (i) a $
Borrowings under the 2023 Credit Facility were used on the 2023 Closing Date (a) to repay in full all of the outstanding obligations of the Company and its subsidiaries under the 2017 Credit Facility, (b) to pay fees and expenses in connection the 2023 Credit Facility and (c) for general corporate purposes. The 2023 Credit Facility matures on
The 2023 Credit Facility is guaranteed on a senior secured basis by certain of the Company’s existing and future wholly-owned domestic subsidiaries, and secured on a first priority basis by the Company’s and those subsidiaries’ assets.
The Company’s borrowings under the 2023 Credit Facility bear interest on the outstanding principal amount thereof from the date when made at a rate per annum equal to either: (i) the Term SOFR (as defined in the 2023 Credit Agreement) plus a margin between
As of June 30, 2024, the interest rate on the Company's Term A Facility and the drawn portion of the Revolving Credit Facility was
The amounts outstanding under the 2023 Credit Facility may be prepaid at the option of the Company without premium or penalty, provided that certain limitations are observed, and subject to customary breakage fees in connection with the prepayment of a Term SOFR loan. The principal amount of the Term A Facility shall be paid in installments on the dates and in the respective amounts set forth in the 2023 Credit Agreement, with the final balance due on the Maturity Date.
In March 2024, the Company made a prepayment of $
In June 2024, the Company made an additional prepayment of $
The Company recorded a loss on debt extinguishment of $
The Company incurred debt issuance costs of $
The covenants of the Credit Agreement include customary negative covenants that, among other things, restrict the Company’s ability to incur additional indebtedness, grant liens and make certain acquisitions, investments, asset dispositions and restricted payments. In addition, the 2023 Credit Facility requires compliance with financial covenants related to total net leverage ratio, not to exceed
The 2023 Credit Agreement includes customary events of default, as well as the following events of default, that are specific to the Company:
The 2023 Credit Agreement includes customary rights and remedies upon the occurrence of any event of default thereunder, including rights to accelerate the loans, terminate the commitments thereunder and realize upon the collateral securing the obligations under the 2023 Credit Agreement.
The security agreement that the Company entered into with respect to its 2017 Credit Facility remains in effect with respect to its 2023 Credit Facility.
16
Concentrations of Credit Risk and Trade Receivables
The Company’s financial instruments that are exposed to concentrations of credit risk consist primarily of cash and cash equivalents and trade accounts receivable. From time to time, the Company has had, and may have, bank deposits in excess of Federal Deposit Insurance Corporation insurance limits. As of June 30, 2024, the majority of all U.S. deposits are maintained in two financial institutions. The Company has not experienced any losses in such accounts and believes that it is not exposed to significant credit risk on cash and cash equivalents. In addition, to the Company's knowledge, all or substantially all of the bank deposits held in banks outside the United States are not insured.
The Company’s credit risk is spread across a large number of customers in the United States, Europe 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 a customer’s financial condition and credit history, as well as current economic conditions. Trade receivables are written off when deemed uncollectible. Recoveries of trade receivables previously written off are recorded when received. No interest is charged on customer accounts.
Allowance for Doubtful Accounts
The Company's accounts receivable consist of a homogeneous pool of relatively small dollar amounts from a large number of customers. The Company evaluates the collectability of its trade accounts receivable based on a number of factors. When the Company is aware of a specific customer’s inability to meet its financial obligations to us, a specific reserve for bad debts is estimated and recorded which reduces the recognized receivable to the estimated amount the Company believes will ultimately be collected. In addition to specific customer identification of potential bad debts, bad debt charges are recorded based on our recent past loss history and an overall assessment of past due trade accounts receivable amounts outstanding.
Estimated losses for bad debts are provided for in the condensed consolidated financial statements through a charge to expense that aggregated $
Fair Value Measurements
The Company measures certain financial assets and liabilities at fair value on a recurring basis. Fair value is the price the Company would receive to sell an asset or pay to transfer a liability in an orderly transaction with a market participant at the measurement date.
ASC 820, “Fair Value Measurements and Disclosures”, defines and establishes a framework for measuring fair value and expands disclosures about fair value measurements. In accordance with ASC 820, the Company has categorized its financial assets and liabilities, based on the priority of the inputs to the valuation technique, into a three-level fair value hierarchy as set forth below.
Level 1 – Assets and liabilities whose values are based on unadjusted quoted prices for identical assets or liabilities in an active market that the company has the ability to access at the measurement date.
Level 2 – Assets and liabilities whose values are based on quoted prices for similar attributes in active markets; quoted prices in markets where trading occurs infrequently; and inputs other than quoted prices that are observable, either directly or indirectly, for substantially the full term of the asset or liability.
Level 3 – Assets and liabilities whose values are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement.
If the inputs used to measure the financial instruments fall within different levels of the hierarchy, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument.
17
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):
|
|
June 30, 2024 |
|
||||||||||||||||
|
|
Total Fair Value and Carrying Value on Balance Sheet |
|
|
Fair Value Measurement Category |
|
|
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|
||||||||||
Recurring fair value measurements |
|
|
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total Gains (Losses) |
|
||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market account |
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
|
|
||
Corporate bonds and notes |
|
$ |
|
|
|
— |
|
|
$ |
|
|
|
— |
|
|
|
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2023 |
|
||||||||||||||||
|
|
Total Fair Value and Carrying Value on Balance Sheet |
|
|
Fair Value Measurement Category |
|
|
|
|
||||||||||
Recurring fair value measurements |
|
|
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total Gains (Losses) |
|
||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market account |
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
|
|
||
Corporate bonds and notes |
|
$ |
|
|
|
— |
|
|
$ |
|
|
|
— |
|
|
|
|
||
|
|
|
|
|
|
|
|
|
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|
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|
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|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contingent consideration |
|
$ |
|
|
$ |
— |
|
|
|
— |
|
|
$ |
|
|
|
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonrecurring fair value measurements: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FCC licenses |
|
$ |
|
|
|
— |
|
|
|
— |
|
|
$ |
|
$ |
( |
) |
||
The Company’s money market account is comprised of cash and cash equivalents, which are recorded at their fair market value within Cash and cash equivalents in the Condensed Consolidated Balance Sheets.
The Company’s available for sale debt securities are comprised of corporate bonds and notes, asset-backed securities, and U.S. Government securities. The majority of the carrying value of these securities held by the Company are investment grade. These securities are valued using quoted prices for similar attributes in active markets (Level 2). Since these investments are classified as available for sale, they are recorded at their fair market value within Marketable securities in the Condensed Consolidated Balance Sheets and their unrealized gains or losses are included in other comprehensive income. Realized gains and losses from the sale of available for sale securities are included in the Condensed Consolidated Statements of Operations and were determined on a specific identification basis.
As of June 30, 2024, the following table summarizes the amortized cost and the unrealized gains (losses) of the available for sale securities (in thousands):
|
|
|
|
|||||
|
|
Corporate Bonds and Notes |
|
|||||
|
|
Amortized Cost |
|
|
Unrealized gains (losses) |
|
||
Due within a year |
|
$ |
|
|
$ |
( |
) |
|
Due after one year |
|
|
|
|
|
( |
) |
|
Total |
|
$ |
|
|
$ |
( |
) |
|
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 June 30, 2024 and December 31, 2023, the Company determined that a credit loss allowance is not required.
Included in interest income for the three-month periods ended June 30, 2024 and 2023 was interest income related to the Company’s available for sale securities of $
18
periods ended June 30, 2024 and 2023 was interest income related to the Company’s available for sale securities of $
The fair value of the contingent consideration is related to the acquisition of
The fair value of the contingent consideration was estimated by applying the real options approach. Key assumptions include risk-neutral expected growth rates based on management’s assessments of expected growth in EBITDA, adjusted by appropriate factors capturing their correlation with the market and volatility, discounted at a cost of debt. These are significant inputs that are not observable in the market, which ASC 820-10-35 refers to as Level 3 inputs.
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, 2023 |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
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 March 31, 2024 |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
Other comprehensive income (loss) |
|
|
|
|
|
|
|
|
|
|||
Amounts reclassified from AOCI |
|
|
- |
|
|
|
( |
) |
|
|
( |
) |
Other comprehensive income (loss), net of tax |
|
|
|
|
|
- |
|
|
|
|
||
Accumulated other comprehensive income (loss) as of June 30, 2024 |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
Foreign Currency
The Company’s reporting currency is the U.S. dollar. All transactions initiated in foreign currencies are translated into U.S. dollars in accordance with ASC 830, “Foreign Currency Matters” and the related rate fluctuation on transactions is included in the Condensed Consolidated Statements of Operations.
For foreign operations with the local currency as the functional currency, assets and liabilities are translated from the respective local currencies into U.S. dollars at the exchange rate prevailing at the balance sheet date, and equity and long-term assets are translated at historical rates. Revenues and expenses are translated at the average exchange rate for the period. Translation adjustments resulting from the process of translating the local currency financial statements into U.S. dollars are included in determining comprehensive (income) loss.
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.
Recent Accounting Pronouncements
There were no new accounting pronouncements that were issued or became effective since the issuance of the 2023 10-K that had, or are expected to have, a material impact on the Company’s condensed consolidated financial statements.
Newly Adopted Accounting Standards
There were no new accounting standards that were adopted since the issuance of the 2023 10-K.
19
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 related to the Company's 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. The Company has concluded that it is the principal in the transaction and therefore recognizes revenue on a gross basis, because (i) the Company is responsible for fulfillment of the contract, including customer support, resolving customer complaints, and accepting responsibility for the quality or suitability of the product or service; (ii) the Company has pricing discretion over the transaction; and (iii) the Company carries inventory risk for all inventory purchased regardless of whether the Company is able to collect on a transaction.
Broadcast Advertising. Revenue related to the sale of advertising in the television and audio segments is recognized at the time of broadcast. Revenue for contracts with advertising agencies is recorded at an amount that is net of the commission retained by the agency. Revenue from contracts directly with the advertisers is recorded as gross revenue and the related commission or national representation fee is recorded in operating expense.
Retransmission Consent. The Company generates revenue from retransmission consent agreements that are entered into with multichannel video programming distributors ("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. Revenue is recognized as the television signal is delivered to the MVPD.
Spectrum Usage Rights. The Company generates revenue from agreements associated with its television stations’ spectrum usage rights. Revenue is recognized in accordance with the contractual fees over the term of the agreement or when the Company has relinquished all or a portion of its spectrum usage rights for a station or have relinquished its rights to operate a station on the existing channel free from interference.
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.
The Company expenses 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.
The Company records deferred revenues within Accounts payable and accrued expenses in the Consolidated Balance Sheets, when cash payments are received or due in advance of its performance, including amounts which are refundable. The change in the deferred revenue balance 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 in the prior period.
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.
Disaggregated Revenue
The following table presents our revenues disaggregated by major source (in thousands):
|
|
Three-Month Period |
|
|
Six-Month Period |
|
||||||||||
|
|
Ended June 30, |
|
|
Ended June 30, |
|
||||||||||
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
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
20
from outside the DMA are referred to as national revenue.
|
|
Three-Month Period |
|
|
Six-Month Period |
|
||||||||||
|
|
Ended June 30, |
|
|
Ended June 30, |
|
||||||||||
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
Local direct |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Local agency |
|
|
|
|
|
|
|
|
|
|
|
|
||||
National agency |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total revenue |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
|
Three-Month Period |
|
|
Six-Month Period |
|
||||||||||
|
|
Ended June 30, |
|
|
Ended June 30, |
|
||||||||||
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
United States |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Rest of the World |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total revenue |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Deferred Revenue
(in thousands) |
December 31, 2023 |
|
Increase |
|
Decrease |
|
|
June 30, 2024 |
|
||
Deferred revenue |
$ |
|
|
( |
|
|
$ |
|
|||
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. The operating leases are reflected within the consolidated balance sheet as Operating leases right of use asset with the related liability presented as Operating lease liabilities and Long-term operating lease liabilities. Lease expense is recognized on a straight-line basis over the lease term. Generally, lease terms include options to renew or extend the lease. Unless the renewal option is considered reasonably certain, the exercise of any such options has been excluded from the calculation of lease liabilities.
The following table summarizes the expected future payments related to lease liabilities as of June 30, 2024:
(in thousands) |
|
|
|
|
Remainder of 2024 |
|
$ |
|
|
2025 |
|
|
|
|
2026 |
|
|
|
|
2027 |
|
|
|
|
2028 |
|
|
|
|
2029 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 |
|
$ |
|
|
21
The following table summarizes lease payments and supplemental non-cash disclosures:
|
|
Six-Month Period Ended June 30, |
|||||
(in thousands) |
|
2024 |
|
|
2023 |
||
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 |
|
|
Six-Month Period |
|
||||||||||
|
|
Ended June 30, |
|
|
Ended June 30, |
|
||||||||||
(in thousands) |
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
Operating lease cost |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Variable lease cost |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Short-term lease cost |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total lease cost |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
For the three-month period ended June 30, 2024, lease cost of $
For the three-month period ended June 30, 2023, lease cost of $
5. SEGMENT INFORMATION
The Company’s management has determined that the Company operates in
Segment operating profit (loss) is defined as operating profit (loss) before corporate expenses, change in fair value of contingent consideration, impairment charge, other operating (gain) loss, and foreign currency (gain) loss. The Company generated
The accounting policies applied to determine the segment information are generally the same as those described in the summary of significant accounting policies (see Note 2). The Company evaluates the performance of its operating segments based on separate financial data for each operating segment as provided below (in thousands):
22
|
|
Three-Month Period |
|
|
|
|
|
Six-Month Period |
|
|
|
|
||||||||||||
|
|
Ended June 30, |
|
|
% |
|
|
Ended June 30, |
|
|
% |
|
||||||||||||
|
|
2024 |
|
|
2023 |
|
|
Change |
|
|
2024 |
|
|
2023 |
|
|
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 |
|
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
|
( |
)% |
|||||
Foreign currency (gain) loss |
|
|
( |
) |
|
|
|
|
* |
|
|
|
|
|
|
|
|
|
( |
)% |
||||
Operating income (loss) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
)% |
|
|
( |
) |
|
|
( |
) |
|
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Interest expense |
|
$ |
( |
) |
|
$ |
( |
) |
|
|
( |
)% |
|
$ |
( |
) |
|
$ |
( |
) |
|
|
% |
|
Interest income |
|
|
|
|
|
|
|
|
( |
)% |
|
|
|
|
|
|
|
|
( |
)% |
||||
Dividend income |
|
|
- |
|
|
|
|
|
|
( |
)% |
|
|
|
|
|
|
|
|
( |
)% |
|||
Realized gain (loss) on marketable securities |
|
|
|
|
|
( |
) |
|
* |
|
|
|
( |
) |
|
|
( |
) |
|
|
% |
|||
Gain (loss) on debt extinguishment |
|
|
( |
) |
|
|
|
|
* |
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
)% |
||
Income (loss) before income taxes |
|
|
( |
) |
|
|
( |
) |
|
|
( |
)% |
|
|
( |
) |
|
|
( |
) |
|
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Capital expenditures |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Digital |
|
$ |
|
|
$ |
|
|
|
|
|
$ |
|
|
$ |
|
|
|
|
||||||
Television |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Audio |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Consolidated |
|
$ |
|
|
$ |
|
|
|
|
|
$ |
|
|
$ |
|
|
|
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
|
June 30, |
|
|
December 31, |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Total assets |
|
2024 |
|
|
2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Digital |
|
$ |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Television |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Audio |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Assets of discontinued operations |
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Consolidated |
|
$ |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
* Percentage not meaningful.
6. COMMITMENTS AND CONTINGENCIES
23
7. ACQUISITIONS
BCNMonetize
On
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 |
|
( |
) |
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 assets acquired includes trade receivables of $
The goodwill, which is not expected to be deductible for tax purposes, is assigned to the Company’s digital segment and is attributable to BCNMonetize's workforce and expected synergies from combining BCNMonetize's operations with the Company's operations.
As noted above, the acquisition of BCNMonetize includes a contingent consideration arrangement that requires additional consideration to be paid by the Company to the selling stockholders of BCNMonetize, based on a pre-determined multiple of BCNMonetize's 12-month EBITDA in calendar years 2023 through 2026. The fair value of the contingent consideration recognized on the acquisition date of $
The following unaudited pro forma information has been prepared to give effect to the Company’s acquisition of BCNMonetize as if the acquisition had occurred on January 1, 2023. This pro forma information was adjusted to exclude acquisition fees and costs of $
24
In thousands, except share and per share data |
|
Three-Month Period |
|
|
Six-Month Period |
|
||
|
|
Ended June 30, |
|
|
Ended June 30, |
|
||
|
|
2023 |
|
|
2023 |
|
||
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 and diluted |
|
$ |
( |
) |
|
$ |
|
|
|
|
|
|
|
|
|
||
Weighted average common shares outstanding, basic |
|
|
|
|
|
|
||
Weighted average common shares outstanding, diluted |
|
|
|
|
|
|
||
8. DISCONTINUED OPERATIONS
As discussed in Note 2, as a result of the communication from Meta on March 4, 2024, that it intended to wind down its ASP program globally and end its relationship with all of its ASPs, including the Company, by July 1, 2024, the Company conducted a thorough review of its digital strategy, operations and cost structure, and during the second quarter of 2024 made the decision to dispose of the operations of its EGP business, the Company's digital commercial partnerships business, which took place in the following three transactions:
Sale to IMS
During the second quarter of 2024, the Company entered into a definitive agreement to sell substantially all of its EGP business to IMS. The transaction was completed on June 28, 2024. Cash proceeds from the transaction received at the closing were $
The Company recorded a loss of $
Sale of Adsmurai
On August 5, 2022, the Company made a loan (the "Adsmurai Loan") in the principal amount of €
On
In connection with the Adsmurai Acquisition, on April 3, 2023 the Company made a loan to entities affiliated with owners of the remaining
On May 6, 2024 (the "Effective Date"), the Company entered into a Share Purchase Agreement (the “Adsmurai Purchase Agreement”), among Adsmurai, the Company and the other stockholders of Adsmurai (the “Adsmurai Buyers”). Pursuant to the Adsmurai Purchase Agreement, on such date (i) the Company sold its
The Total Consideration is payable to the Company as follows:
The Company recorded a loss of $
25
Sale of Jack of Digital
On August 3, 2022, the Company acquired
On April 3, 2023, the Company acquired the remaining issued and outstanding stock of Jack of Digital for $
On June 28, 2024, the Company sold
The Company recorded a loss of $
The Company concluded that the assets of the EGP business met the criteria for classification as held for sale. Additionally, the Company determined that the disposal, which was initiated and completed during the second quarter of 2024, represented a strategic shift that had a major effect on the Company's operations and financial results. As such, the results of the Company's EGP business are presented as discontinued operations in the Condensed Consolidated Statements of Operations for all periods presented. Prior periods have been adjusted to conform to the current presentation. The assets of the Company's EGP business have been reflected as assets and liabilities of discontinued operations in the Condensed Consolidated Balance Sheet as of December 31, 2023.
The following table summarizes the results of discontinued operations, net of tax (in thousands):
|
|
Three-Month Period |
|
|
Six-Month Period |
|
||||||||||
|
|
Ended June 30, |
|
|
Ended June 30, |
|
||||||||||
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
Net Revenue |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cost of revenue - digital |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Direct operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Selling, general and administrative expenses |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Depreciation and amortization |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Change in fair value of contingent consideration |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
Impairment charge |
|
|
- |
|
|
|
- |
|
|
|
|
|
|
- |
|
|
Foreign currency (gain) loss |
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
||
Other operating (gain) loss |
|
|
|
|
|
- |
|
|
|
|
|
|
- |
|
||
Operating income (loss) |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
||
Interest expense |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Interest income |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Income (loss) from discontinued operations before income taxes |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
||
Income tax benefit (expense) |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
Net income (loss) from discontinued operations before noncontrolling interests in discontinued operations |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
||
Net (income) loss attributable to redeemable noncontrolling interest |
|
|
- |
|
|
|
|
|
|
|
|
|
|
|||
Net (income) loss attributable to noncontrolling interest |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
Net income (loss) from discontinued operations, net of tax |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||
Allocated general corporate overhead costs do not meet the criteria to be presented within net loss from discontinued operations, net of tax, and were excluded from all figures presented in the table above.
The Company and IMS entered into a transition services agreement, pursuant to which the Company and IMS provide certain services to each other through October 2024. For the three- and six-months periods ended June 30, 2024, the Company did not collect or pay any cash related to these activities, and does not expect to collect or pay any cash related to these activities during the term of this agreement.
For the three- and six-months periods ended June 30, 2024, there was a tax expense and tax benefit, respectively, in discontinued operations as a result of the (i) tax effect of a pre-tax loss, (ii) benefit related to disposal, and (iii) permanent items and state taxes related to the Disposition. For the three- and six-months periods ended June 30, 2023, there was a tax expense in discontinued operations as a result of the (i) tax effect of a pre-tax loss, (ii) benefit related to disposal, and (iii) permanent items and state taxes related to the Disposition.
26
As a result of the EGP disposition, the Company was required to repay $
Details of the assets and liabilities of discontinued operations were as follows:
|
|
December 31, |
|
|
|
|
2023 |
|
|
ASSETS OF DISCONTINUED OPERATIONS |
|
|
|
|
Current assets |
|
|
|
|
Cash and cash equivalents |
|
$ |
|
|
Trade receivables |
|
|
|
|
Prepaid expenses and other current assets |
|
|
|
|
Total current assets of discontinued operations |
|
|
|
|
Property and equipment, net |
|
|
|
|
Intangible assets subject to amortization, net |
|
|
|
|
Goodwill |
|
|
|
|
Deferred income taxes |
|
|
|
|
Operating leases right of use asset |
|
|
|
|
Other assets |
|
|
|
|
Noncurrent assets of discontinued operations |
|
|
|
|
Total assets of discontinued operations |
|
$ |
|
|
LIABILITIES OF DISCONTINUED OPERATIONS |
|
|
|
|
Current liabilities |
|
|
|
|
Current maturities of long-term debt |
|
$ |
|
|
Accounts payable and accrued expenses |
|
|
|
|
Operating lease liabilities |
|
|
|
|
Total current liabilities of discontinued operations |
|
|
|
|
Long-term debt, less current maturities |
|
|
|
|
Long-term operating lease liabilities |
|
|
|
|
Other long-term liabilities |
|
|
|
|
Deferred income taxes |
|
|
|
|
Noncurrent liabilities of discontinued operations |
|
|
|
|
Total liabilities of discontinued operations |
|
$ |
|
|
The goodwill was allocated between the discontinued operations and the continuing operations based on the relative fair value of the components representing a business. Goodwill is not allocated to a portion of a reporting unit that does not meet the definition of a business.
The following table presents significant non-cash items and capital expenditures of discontinued operations for the periods presented:
|
Six-Month Period |
|
|||||
|
Ended June 30, |
|
|||||
|
2024 |
|
|
2023 |
|
||
Depreciation and amortization |
$ |
|
|
$ |
|
||
Impairment charge |
$ |
|
|
$ |
|
||
Loss (gain) on the sale of assets/businesses |
$ |
|
|
$ |
- |
|
|
Change in fair value of contingent consideration |
$ |
( |
) |
|
$ |
( |
) |
Non-cash stock-based compensation |
$ |
( |
) |
|
$ |
|
|
Purchases of property and equipment |
$ |
|
|
$ |
|
||
27
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
With the sale of our EGP business during the second quarter of 2024, as discussed in more detail under “Highlights and Recent Developments” below and in Note 8 to Notes to Condensed Consolidated Financial Statements, we identify ourselves as a media and advertising technology company.
Our television and audio operations reach and engage U.S. Hispanics in the United States. We own and/or operate 49 primary television stations. Our television operations comprise the largest affiliate group of both the top-ranked Univision television network and TelevisaUnivision’s UniMás network, with TelevisaUnivision-affiliated stations in 15 of the nation’s top 50 U.S. Hispanic markets. We own and operate one of the largest groups of primarily Spanish-language radio stations in the United States. We own and operate 44 radio stations, consisting of 37 FM and 7 AM stations, in 14 U.S. markets. We own and/or operate media properties in 13 of the 20 highest-density U.S. Hispanic markets.
Our advertising technology operations consist of:
For financial reporting purposes, we currently report in three segments based upon the type of advertising medium: digital, television and audio.
Our net revenue for the three-month period ended June 30, 2024 was $82.7 million. Of this amount, revenue generated by our digital segment accounted for approximately 50%, revenue generated by our television segment accounted for approximately 34%, and revenue generated by our audio segment accounted for approximately 16% of total revenue. Prior to the sale of our EGP business during the second quarter of 2024, our digital segment accounted for the majority of our revenue. With the sale of our EGP business, we anticipate that net revenue will be significantly lower in future periods, at least for the foreseeable future, the percentage of revenue contributed by our remaining digital operations will be significantly lower in future periods and, correspondingly, the percentage of revenue contributed by our media operations will be significantly higher in future periods. As a result, cash flow from operations will be materially and adversely affected in future periods.
Highlights and Recent Developments
As a result of the communication from Meta on March 4, 2024, that it intended to wind down its ASP program globally and end its relationship with all of its ASPs, including us, by July 1, 2024, we conducted a thorough review of our digital strategy, operations and cost structure, and during the second quarter of 2024 made the decision to dispose of the operations of EGP, our digital commercial partnerships business.
In furtherance of this decision, during the second quarter of 2024, we:
We used some of the net proceeds of these dispositions to satisfy a remaining contingent liability owed to the founders of MediaDonuts in the amount of $6.5 million and made a mandatory prepayment in the amount of $4.9 million under the terms of our 2023 Credit Facility. We made certain additional prepayments in the aggregate amount of $5.1 million during the second quarter of 2024 under the terms of our 2023 Credit Facility.
We believe that the disposition of our digital commercial partnerships business will allow us to enhance our strategic focus on our media business and our advertising technology business. We intend to continue to monitor our business operations and may make further adjustments if we believe that is appropriate, although we can provide no assurance that we will be successful in any such endeavors.
Relationship with TelevisaUnivision
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. We also generate revenue under a marketing and sales agreement with TelevisaUnivision, which give us the right to manage the marketing and
28
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 with multichannel video programming distributors, or MVPDs, for our Univision- and UniMás-affiliated television station signals. Revenue generated from retransmission consent agreements 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. The term of each of these current agreements expires on December 31, 2026 for all of our Univision and UniMás network affiliate stations. TelevisaUnivision also owns approximately 10% of our common stock on a fully-converted basis. For more information regarding these agreements and the stock that TelevisaUnivision owns, see Note 2 to Notes to Condensed Consolidated Financial Statements.
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 2023 10-K.
Recent Accounting Pronouncements
For further information on recently issued accounting pronouncements, see Note 2 to Notes to Condensed Consolidated Financial Statements.
Three- and Six-Month Periods Ended June 30, 2024 and 2023
The following table sets forth selected data from our operating results for the three- and six-month periods ended June 30, 2024 and 2023 (in thousands):
|
|
Three-Month Period |
|
|
|
|
|
Six-Month Period |
|
|
|
|
||||||||||||
|
|
Ended June 30, |
|
|
% |
|
|
Ended June 30, |
|
|
% |
|
||||||||||||
|
|
2024 |
|
|
2023 |
|
|
Change |
|
|
2024 |
|
|
2023 |
|
|
Change |
|
||||||
Statements of Operations Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Net Revenue |
|
$ |
82,654 |
|
|
$ |
73,719 |
|
|
|
12 |
% |
|
$ |
160,830 |
|
|
$ |
141,366 |
|
|
|
14 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Cost of revenue - digital |
|
|
24,424 |
|
|
|
19,649 |
|
|
|
24 |
% |
|
|
47,082 |
|
|
|
36,516 |
|
|
|
29 |
% |
Direct operating expenses |
|
|
31,756 |
|
|
|
28,856 |
|
|
|
10 |
% |
|
|
63,557 |
|
|
|
55,458 |
|
|
|
15 |
% |
Selling, general and administrative expenses |
|
|
14,363 |
|
|
|
12,610 |
|
|
|
14 |
% |
|
|
28,697 |
|
|
|
25,417 |
|
|
|
13 |
% |
Corporate expenses |
|
|
10,811 |
|
|
|
12,042 |
|
|
|
(10 |
)% |
|
|
23,059 |
|
|
|
22,544 |
|
|
|
2 |
% |
Depreciation and amortization |
|
|
4,428 |
|
|
|
3,713 |
|
|
|
19 |
% |
|
|
9,167 |
|
|
|
7,214 |
|
|
|
27 |
% |
Change in fair value of contingent consideration |
|
|
240 |
|
|
|
21 |
|
|
|
1043 |
% |
|
|
20 |
|
|
|
721 |
|
|
|
(97 |
)% |
Foreign currency (gain) loss |
|
|
(24 |
) |
|
|
792 |
|
|
* |
|
|
|
241 |
|
|
|
1,006 |
|
|
|
(76 |
)% |
|
|
|
|
85,998 |
|
|
|
77,683 |
|
|
|
11 |
% |
|
|
171,823 |
|
|
|
148,876 |
|
|
|
15 |
% |
Operating income (loss) |
|
|
(3,344 |
) |
|
|
(3,964 |
) |
|
|
(16 |
)% |
|
|
(10,993 |
) |
|
|
(7,510 |
) |
|
|
46 |
% |
Interest expense |
|
|
(4,118 |
) |
|
|
(4,195 |
) |
|
|
(2 |
)% |
|
|
(8,561 |
) |
|
|
(8,118 |
) |
|
|
5 |
% |
Interest income |
|
|
577 |
|
|
|
720 |
|
|
|
(20 |
)% |
|
|
1,155 |
|
|
|
1,328 |
|
|
|
(13 |
)% |
Dividend income |
|
|
- |
|
|
|
14 |
|
|
|
(100 |
)% |
|
|
10 |
|
|
|
32 |
|
|
|
(69 |
)% |
Realized gain (loss) on marketable securities |
|
|
4 |
|
|
|
(29 |
) |
|
* |
|
|
|
(109 |
) |
|
|
(61 |
) |
|
|
79 |
% |
|
Loss on debt extinguishment |
|
|
(51 |
) |
|
|
- |
|
|
* |
|
|
|
(91 |
) |
|
|
(1,556 |
) |
|
|
(94 |
)% |
|
Income before income (loss) taxes |
|
|
(6,932 |
) |
|
|
(7,454 |
) |
|
|
(7 |
)% |
|
|
(18,589 |
) |
|
|
(15,885 |
) |
|
|
17 |
% |
Income tax benefit (expense) |
|
|
10,664 |
|
|
|
1,628 |
|
|
|
555 |
% |
|
|
14,811 |
|
|
|
2,043 |
|
|
|
625 |
% |
Net income (loss) from continuing operations |
|
|
3,732 |
|
|
|
(5,826 |
) |
|
* |
|
|
|
(3,778 |
) |
|
|
(13,842 |
) |
|
* |
|
||
Net income (loss) from discontinued operations, net of tax |
|
|
(35,412 |
) |
|
|
3,837 |
|
|
* |
|
|
|
(76,792 |
) |
|
|
13,894 |
|
|
* |
|
||
Net income (loss) attributable to common stockholders |
|
$ |
(31,680 |
) |
|
$ |
(1,989 |
) |
|
|
1493 |
% |
|
$ |
(80,570 |
) |
|
$ |
52 |
|
|
* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Other Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Capital expenditures |
|
$ |
1,723 |
|
|
$ |
5,783 |
|
|
|
|
|
|
3,793 |
|
|
|
13,689 |
|
|
|
|
||
Net cash provided by operating activities |
|
|
|
|
|
|
|
|
|
|
|
51,071 |
|
|
|
47,091 |
|
|
|
|
||||
Net cash provided by (used in) investing activities |
|
|
|
|
|
|
|
|
|
|
|
(26,937 |
) |
|
|
(12,103 |
) |
|
|
|
||||
Net cash provided by (used in) financing activities |
|
|
|
|
|
|
|
|
|
|
|
(44,726 |
) |
|
|
(46,092 |
) |
|
|
|
||||
29
Consolidated Operations
Net Revenue. Net revenue increased to $82.7 million for the three-month period ended June 30, 2024 from $73.7 million for the three-month period ended June 30, 2023. This increase was primarily attributable to an increase of $10.8 million in advertising revenue from our digital segment, partially offset by decreases of $1.4 million and $0.5 million in advertising revenue from our television and audio segments, respectively.
Net revenue increased to $160.8 million for the six-month period ended June 30, 2024 from $141.4 million for the six-month period ended June 30, 2023. This increase was primarily attributable to an increase of $23.9 million in advertising revenue from our digital segment, partially offset by decreases of $3.1 million and $1.3 million in advertising revenue from our television and audio segments, respectively.
Cost of revenue-Digital. Cost of revenue in our digital segment increased to $24.4 million for the three-month period ended June 30, 2024 from $19.6 million for the three-month period ended June 30, 2023, primarily due to the increase in digital advertising revenue.
Cost of revenue in our digital segment increased to $47.1 million for the six-month period ended June 30, 2024 from $36.5 million for the six-month period ended June 30, 2023, primarily due to the increase in digital advertising revenue.
Direct Operating Expenses. Direct operating expenses increased to $31.8 million for the three-month period ended June 30, 2024, from $28.9 million for the three-month period ended June 30, 2023. This increase was primarily attributable to an increase of $1.4 million in direct operating expenses in our digital segment and $1.9 million in direct operating expenses in our television segment, partially offset by a decrease of $0.4 million in direct operating expenses in our audio segment.
Direct operating expenses increased to $63.6 million for the six-month period ended June 30, 2024, from $55.5 million for the six-month period ended June 30, 2023. This increase was primarily attributable to an increase of $3.6 million in direct operating expenses in our digital segment, $4.1 million in direct operating expenses in our television segment, and $0.4 million in direct operating expenses in our audio segment.
Selling, General and Administrative Expenses. Selling, general and administrative expenses increased to $14.4 million for the three-month period ended June 30, 2024 from $12.6 million for the three-month period ended June 30, 2023. This increase was primarily attributable to an increase of $1.5 million in selling, general and administrative expenses in our digital segment and $0.8 million in selling, general and administrative expenses in our television segment, partially offset by a decrease of $0.6 million in selling, general and administrative expenses in our audio segment.
Selling, general and administrative expenses increased to $28.7 million for the six-month period ended June 30, 2024 from $25.4 million for the six-month period ended June 30, 2023. This increase was primarily attributable to an increase of $3.0 million in selling, general and administrative expenses in our digital segment and $1.5 million in selling, general and administrative expenses in our television segment, partially offset by a decrease of $1.2 million in selling, general and administrative expenses in our audio segment.
Corporate Expenses. Corporate expenses decreased to $10.8 million for the three-month period ended June 30, 2024 from $12.0 million for the three-month period ended June 30, 2023. This decrease was primarily due to a decrease of $1.9 million in professional services expense, and a decrease of $0.5 million in non-cash stock-based compensation, partially offset by an increase of $1.1 million in severance expense.
Corporate expenses increased to $23.1 million for the six-month period ended June 30, 2024 from $22.5 million for the six-month period ended June 30, 2023. This increase was primarily due to an increase of $1.1 million in severance expense, an increase of $1.0 million in non-cash stock-based compensation, and an increase of $0.7 million in salaries, partially offset by a decrease of $2.2 million in professional services expense.
Depreciation and amortization increased to $4.4 million for the three-month period ended June 30, 2024 compared to $3.7 million for the three-month period ended June 30, 2023. Of this increase, $0.3 million was attributable to the acquisition of BCNMonetize, which did not fully contribute to our financial results in the comparable prior period, and $0.4 million was attributable to depreciation expense related to our new corporate headquarters.
Depreciation and amortization increased to $9.2 million for the six-month period ended June 30, 2024 compared to $7.2 million for the six-month period ended June 30, 2023. Of this increase, $1.0 million was attributable to the acquisition of BCNMonetize, which did not fully contribute to our financial results in the comparable prior period, and $0.9 million was attributable to depreciation expense related to our new corporate headquarters.
Change in fair value of contingent consideration. As a result of the change in fair value of the contingent consideration related to the acquisition of BCNMonetize, we recognized an expense of $0.2 million and a de minimis amount for the three-month periods ended June 30, 2024 and 2023, respectively.
As a result of the change in fair value of the contingent consideration, we recognized a de minimis amount related to the acquisition of BCNMonetize for the six-month period ended June 30, 2024, and we recognized an expense of $0.7 million related to a previous acquisition for the six-month period ended June 30, 2023.
30
Foreign currency (gain) loss. We had a de minimis amount of foreign currency gain for the three-month period ended June 30, 2024 compared to a foreign currency loss of $0.8 million for the three-month period ended June 30, 2023. Foreign currency gains and losses are primarily due to currency fluctuations that affect our digital segment operations located outside the United States.
We had a foreign currency loss of $0.2 million for the six-month period ended June 30, 2024 compared to a foreign currency loss of $1.0 million for the six-month period ended June 30, 2023. Foreign currency gains and losses are primarily due to currency fluctuations that affect our digital segment operations located outside the United States.
Interest Expense, net. Interest expense, net remained constant at $3.5 million for each of the three-month periods ended June 30, 2024 and 2023.
Interest expense, net increased to $7.4 million for the six-month period ended June 30, 2024 from $6.8 million for the six-month period ended June 30, 2023. This increase was primarily due to a higher interest rate on our debt and a lower interest income.
Gain (loss) on debt extinguishment. We recorded a loss on debt extinguishment of $0.1 million for the three-month period ended June 30, 2024 due to a prepayment of $10.0 million of our 2023 Credit Facility.
We recorded a loss on debt extinguishment of $0.1 million for the six-month period ended June 30, 2024 due to prepayments totaling $20.0 million of our 2023 Credit Facility. We recorded a loss on debt extinguishment of $1.6 million for the six-month period ended June 30, 2023 due to the refinancing of our previous credit facility with our 2023 Credit Facility.
Realized gain (loss) on marketable securities. For each of the three-month periods ended June 30, 2024 and 2023 we recorded a de minimis amount of realized gain and loss, respectively, related to our available for sale securities.
For each of the six-month periods ended June 30, 2024 and 2023 we recorded $0.1 million of realized loss, related to our available for sale securities.
Income Tax Expense or Benefit. Income tax benefit for the three-month period ended June 30, 2024 was $10.7 million. The effective tax rate for the three-month period ended June 30, 2024 was different from our statutory rate due to foreign and state taxes, changes in valuation allowances on deferred tax assets, non-deductible executive compensation, changes in the fair value of the contingent consideration liability, goodwill impairment, and non-taxable non-territorial income. Income tax benefit for the three-month period ended June 30, 2023 was $1.6 million. The effective tax rate for the three-month period ended June 30, 2023 was different from our statutory rate due to foreign and state taxes, changes in valuation allowances on deferred tax assets, non-deductible executive compensation, changes in the fair value of the contingent consideration liability, and non-taxable non-territorial income.
Income tax benefit for the six-month period ended June 30, 2024 was $14.8 million. The effective tax rate for the six-month period ended June 30, 2024 was different from our statutory rate due to foreign and state taxes, changes in valuation allowances on deferred tax assets, non-deductible executive compensation, changes in the fair value of the contingent consideration liability, goodwill impairment, and non-taxable non-territorial income. Income tax benefit for the six-month period ended June 30, 2023 was $2.0 million. The effective tax rate for the six-month period ended June 30, 2023 was different from our statutory rate due to foreign and state taxes, changes in valuation allowances on deferred tax assets, non-deductible executive compensation, changes in the fair value of the contingent consideration liability, and non-taxable non-territorial income.
Our management periodically evaluates the realizability of the deferred tax assets and, if it is determined that it is more likely than not that the deferred tax assets are, or are not, realizable, adjusts the valuation allowance accordingly. Valuation allowances are established and maintained for deferred tax assets on a “more likely than not” threshold. The process of evaluating the need to maintain a valuation allowance for deferred tax assets and the amount maintained in any such allowance is highly subjective and is based on many factors, several of which are subject to significant judgment calls.
Based on our analysis, we determined that it was more likely than not that our deferred tax assets would be realized for all jurisdictions with the exception of certain of our digital operations and certain U.S. Foreign Tax Credit carryovers. As a result of historical losses from our digital operations primarily in Spain, Uruguay, Mexico and Argentina, certain U.S. Foreign Tax Credit carryovers and capital losses due to sale of subsidiaries management has determined that it is more likely than not that deferred tax assets of $31.3 million at June 30, 2024 will not be realized and therefore we have established a valuation allowance in that amount on those assets.
The Organization for Economic Co-operation and Development (“OECD”) Pillar 2 guidelines address the increasing digitalization of the global economy, re-allocating taxing rights among countries. The OECD, many other member states and various other governments have adopted, or are in the process of adopting, Pillar 2 which calls for a global minimum tax of 15% to be effective for tax years beginning in 2024. The OECD guidelines published to date include transition and safe harbor rules around the implementation of the Pillar 2 global minimum tax. The Company is monitoring developments and evaluating the impacts these new rules will have on its tax rate, including eligibility to qualify for these safe harbor rules.
31
Segment Operations
Digital
Net Revenue. Net revenue in our digital segment increased to $41.1 million for the three-month period ended June 30, 2024 from $30.2 million for the three-month period ended June 30, 2023. The increase was primarily due to increases in advertising revenue from Smadex.
Net revenue in our digital segment increased to $79.3 million for the six-month period ended June 30, 2024 from $55.4 million for the six-month period ended June 30, 2023. The increase was primarily due to increases in advertising revenue from Smadex.
Cost of revenue. Cost of revenue in our digital segment increased to $24.4 million for the three-month period ended June 30, 2024 from $19.6 million for the three-month period ended June 30, 2023, primarily due to the increase in advertising revenue.
Cost of revenue in our digital segment increased to $47.1 million for the six-month period ended June 30, 2024 from $36.5 million for the six-month period ended June 30, 2023, primarily due to the increase in advertising revenue.
We have previously noted a trend in our digital operations globally whereby revenue is shifting more to programmatic revenue. As a result, advertisers are demanding more efficiency and lower cost from intermediaries like us. In response to this trend, we have been offering our programmatic purchasing platform, Smadex, to advertisers. The digital advertising industry remains dynamic and is continuing to undergo rapid changes in technology, customer expectation and competition. We expect this trend to continue and possibly accelerate. We must continue to remain vigilant to meet these dynamic and rapid changes including the need to further adjust our business strategies accordingly. No assurances can be given that such strategies will be successful.
Direct operating expenses. Direct operating expenses in our digital segment increased to $7.4 million for the three-month period ended June 30, 2024 from $6.1 million for the three-month period ended June 30, 2023, primarily due to an increase in cloud infrastructure expenses associated with the increase in digital advertising revenue.
Direct operating expenses in our digital segment increased to $14.4 million for the six-month period ended June 30, 2024 from $10.8 million for the six-month period ended June 30, 2023, primarily due to an increase of $2.6 million in cloud infrastructure expenses and an increase of $1.0 million in salaries associated with the increase in digital advertising revenue.
Selling, general and administrative expenses. Selling, general and administrative expenses in our digital segment increased to $5.4 million for the three-month period ended June 30, 2024, from $3.8 million for the three-month period ended June 30, 2023, primarily due to an increase in salaries.
Selling, general and administrative expenses in our digital segment increased to $10.3 million for the six-month period ended June 30, 2024, from $7.4 million for the six-month period ended June 30, 2023, primarily due to an increase in salaries.
Television
Net Revenue. Net revenue in our television segment decreased to $28.6 million for the three-month period ended June 30, 2024 from $29.9 million for the three-month period ended June 30, 2023. This decrease was primarily due to a decrease of $1.5 million in advertising revenue, a decrease of $0.5 million in spectrum usage rights revenue and a decrease of $0.5 million in retransmission consent revenue, partially offset by an increase of $1.2 million in political advertising revenue.
Net revenue in our television segment decreased to $57.1 million for the six-month period ended June 30, 2024 from $60.3 million for the six-month period ended June 30, 2023. This decrease was primarily due to a decrease of $2.8 million in advertising revenue, a decrease of $0.8 million in spectrum usage rights revenue and a decrease of $1.0 million in retransmission consent revenue, partially offset by an increase of $1.4 million in political advertising revenue.
In general, our television segment faces declining audiences, which we believe is present across the industry, competitive factors with the other major Spanish-language broadcasters, and changing demographics and preferences of audiences, particularly younger audiences, in terms of the media they prefer to view, including streaming and social media. We anticipate that these changes in viewer habits will persist at least for the foreseeable future and possibly permanently. Additionally, we have previously noted a trend for advertising to move increasingly from traditional media, such as television, to new media, such as digital media, and we expect this trend will also continue.
Direct Operating Expenses. Direct operating expenses in our television segment increased to $17.0 million for the three-month period ended June 30, 2024 from $15.0 million for the three-month period ended June 30, 2023, primarily due to an increase in salaries, primarily associated with the expansion of our news programming in anticipation of this year's election cycle.
Direct operating expenses in our television segment increased to $33.9 million for the six-month period ended June 30, 2024 from $29.8 million for the six-month period ended June 30, 2023, primarily due to an increase of $3.6 million in salaries, primarily associated with the expansion of our news programming in anticipation of this year's election cycle, and $0.2 million in programming fees.
32
Selling, General and Administrative Expenses. Selling, general and administrative expenses in our television segment increased to $5.7 million for the three-month period ended June 30, 2024 from $4.8 million for the three-month period ended June 30, 2023, primarily due to an increase in salaries and other employee benefits.
Selling, general and administrative expenses in our television segment decreased to $11.7 million for the six-month period ended June 30, 2024 from $10.2 million for the three-month period ended June 30, 2023, primarily due to an increase in salaries and other employee benefits.
Audio
Net Revenue. Net revenue in our audio segment decreased to $13.0 million for the three-month period ended June 30, 2024 from $13.5 million for the three-month period ended June 30, 2023. This decrease was primarily due to a decrease of $0.8 million in advertising revenue, partially offset by an increase of $0.3 million in political advertising revenue.
Net revenue in our audio segment decreased to $24.4 million for the six-month period ended June 30, 2024 from $25.8 million for the six-month period ended June 30, 2023. This decrease was primarily due to a decrease of $1.9 million in advertising revenue, partially offset by an increase of $0.5 million in political advertising revenue.
In general, our audio segment faces declining audiences, which we believe is present across the industry, competitive factors with other major Spanish-language broadcasters, and changing demographics and preferences of listening audiences, particularly younger audiences, including podcasts and other streaming services. We anticipate that these changes in listener habits will persist at least for at least for the foreseeable future and possibly permanently. Additionally, we have previously noted a trend for advertising to move increasingly from traditional media, such as radio, to new media, such as digital media, and we expect this trend will also continue. While we believe that none of these new technologies and services can completely replace local broadcast radio stations due to the element of localism that broadcast radio offers, the challenges we face in our radio operations from new technologies and services will continue to require attention from management.
Direct Operating Expenses. Direct operating expenses in our audio segment decreased to $7.4 million for the three-month period ended June 30, 2024 from $7.8 million for the three-month period ended June 30, 2023, primarily due to a decrease of $0.7 million in expenses associated with the decrease in advertising revenue, partially offset by an increase of $0.2 million in ratings services expense.
Direct operating expenses in our audio segment increased to $15.3 million for the six-month period ended June 30, 2024 from $14.9 million for the six-month period ended June 30, 2023, primarily due to an increase of $0.4 million in salaries expense and $0.4 million in ratings services expense, partially offset by a decrease of $0.5 million in expenses associated with the decrease in advertising revenue.
Selling, General and Administrative Expenses. Selling, general and administrative expenses in our audio segment decreased to $3.3 million for the three-month period ended June 30, 2024 from $4.0 million for the three-month period ended June 30, 2023, primarily due to a decrease in rent expense.
Selling, general and administrative expenses in our audio segment decreased to $6.7 million for the six-month period ended June 30, 2024 from $7.9 million for the six-month period ended June 30, 2023, primarily due to a decrease in rent expense.
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 loss attributable to common stockholders of $15.4 million for the year ended December 31, 2023, and net income attributable to common stockholders of $18.1 million and $29.3 million for the years ended December 31, 2022 and 2021, respectively. We had positive cash flow from operations of $75.2 million, $78.9 million and $65.3 million for the years ended December 31, 2023, 2022 and 2021, respectively. We had positive cash flow from operations of $51.1 million for the six-month period ended June 30, 2024. 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 $85.1 million, and available for sale marketable securities in the additional amount of $3.2 million, as of June 30, 2024. Our liquidity is not materially affected by the amounts held in accounts outside the United States.
On March 4, 2024, we received a communication from Meta that it intended to wind down its authorized sales partner, or ASP, program globally and end its relationship with all of its ASPs, including us, by July 1, 2024. As a result, we conducted a thorough review of our digital strategy, operations and cost structure, and during the second quarter of 2024 made the decision to dispose of the operations of EGP, our digital commercial partnerships business, which was completed during the second quarter of 2024.
33
We expect that the disposition of our EGP business, the largest business unit of our digital segment, will have a material effect on our results of operations in that total revenue from our digital segment is expected to be significantly lower than it was prior to the disposition of our EGP business. Additionally, cash flow from operations will be materially and adversely affected in future periods, which could also adversely affect our liquidity. To the extent that our then current liquidity is insufficient to fund our business activities or if we do not remain in compliance with our financial covenants under the 2023 Credit Agreement, whether as a direct or indirect result of the disposition of our EGP business or otherwise, we may be required to seek additional equity or debt financing in the future to satisfy capital requirements. There is no guarantee that any such capital would be available to us on favorable terms, or at all. The failure to obtain any required capital could have a material adverse effect on our operations and financial condition.
Credit Facility
On March 17, 2023, we entered into the 2023 Credit Facility, pursuant to the 2023 Credit Agreement, by and among us, Bank of America, N.A., as Administrative Agent, and the other financial institutions party thereto as Lenders (collectively, the “Lenders” and individually each a “Lender”). The 2023 Credit Agreement amended, restated and replaced in its entirety our previous credit agreement (the "2017 Credit Agreement"). For detailed information regarding certain terms of our 2023 Credit Agreement and Credit Facility, see Note 2 to Notes to Condensed Consolidated Financial Statements.
In March 2024, we made a prepayment of $10.0 million, of which $8.75 million was applied to the upcoming quarterly principal payments in 2024 under the Term A Facility, and $1.25 million was applied to the Revolving Credit Facility.
In June 2024, we made an additional prepayment of $10.0 million, of which $4.9 million was a mandatory prepayment as a result of the EGP disposition. The prepayment was applied to the quarterly principal payments in 2025 under the Term A Facility.
Consolidated EBITDA
Consolidated EBITDA is a non-GAAP measure. The most directly comparable GAAP financial measure to consolidated EBITDA is net income (loss) attributable to common stockholders.
We use the term “consolidated EBITDA” because that term is defined in our 2023 Credit Agreement. Under the terms of our 2023 Credit Agreement, consolidated EBITDA is a measure that governs several critical aspects of our 2023 Credit Facility, including, among other things, financial covenants with which we must comply and financial ratios which we must maintain in order to borrow funds needed for the operation of our business and with respect to the interest rates that we pay on our 2023 Credit Facility. For example, our 2023 Credit Agreement contains a total net leverage ratio financial covenant. The total net leverage ratio, or the ratio of consolidated total debt (net of up to $50.0 million of unrestricted cash) to trailing-twelve-month consolidated EBITDA, affects both our ability to borrow from our Revolving Credit Facility and our applicable margin for the interest rate calculation. Under our 2023 Credit Agreement, our maximum total leverage ratio may not exceed 3.25 to 1.00. In addition, our 2023 Credit Agreement contains an interest coverage ratio financial covenant (calculated as set forth in the 2023 Credit Agreement), with a minimum permitted ratio of 3.00 to 1.00.
Therefore, we believe that it is important to disclose consolidated EBITDA to our investors to understand our compliance with these, and certain other, terms of our 2023 Credit Agreement. While many in the financial community and we consider consolidated EBITDA to be important, it should be considered in addition to, but not as a substitute for or superior to, other measures of financial performance and liquidity prepared in accordance with accounting principles generally accepted in the United States of America, such as operating income (loss), net income (loss) and cash flows from operating activities. Consolidated EBITDA has certain limitations because it excludes and includes several important financial line items as noted above. Therefore, we consider both non-GAAP and GAAP measures when evaluating our business. Consolidated EBITDA is also used to make executive compensation decisions.
A reconciliation of this non-GAAP measure to its most directly comparable GAAP financial measure follows (in thousands):
34
|
|
Six-Month Period |
|
|||||
|
|
Ended June 30, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
Net income (loss) attributable to common stockholders |
|
$ |
(80,570 |
) |
|
$ |
52 |
|
Net income (loss) attributable to redeemable noncontrolling interest - discontinued operations |
|
|
(2,779 |
) |
|
|
(12 |
) |
Net income (loss) attributable to noncontrolling interest - discontinued operations |
|
|
— |
|
|
|
(342 |
) |
Interest expense |
|
|
8,561 |
|
|
|
8,118 |
|
Interest expense - discontinued operations |
|
|
219 |
|
|
|
216 |
|
Interest income |
|
|
(1,155 |
) |
|
|
(1,328 |
) |
Interest income - discontinued operations |
|
|
(731 |
) |
|
|
(569 |
) |
Dividend income |
|
|
(10 |
) |
|
|
(32 |
) |
Realized gain (loss) on marketable securities |
|
|
109 |
|
|
|
61 |
|
(Gain) loss on debt extinguishment |
|
|
91 |
|
|
|
1,556 |
|
Income tax expense |
|
|
(14,811 |
) |
|
|
(2,043 |
) |
Income tax expense - discontinued operations |
|
|
(645 |
) |
|
|
1,535 |
|
Amortization of syndication contracts |
|
|
227 |
|
|
|
240 |
|
Payments on syndication contracts |
|
|
(229 |
) |
|
|
(241 |
) |
Non-cash stock-based compensation |
|
|
8,734 |
|
|
|
10,021 |
|
Depreciation and amortization |
|
|
9,167 |
|
|
|
7,214 |
|
Depreciation and amortization - discontinued operations |
|
|
3,958 |
|
|
|
5,766 |
|
Change in fair value of contingent consideration |
|
|
20 |
|
|
|
721 |
|
Change in fair value of contingent consideration - discontinued operations |
|
|
(12,568 |
) |
|
|
(3,663 |
) |
Impairment charge - discontinued operations |
|
|
49,438 |
|
|
|
— |
|
Non-recurring cash severance and restructuring charge |
|
|
3,127 |
|
|
|
612 |
|
Other operating (gain) loss - discontinued operations |
|
|
45,014 |
|
|
|
— |
|
EBITDA attributable to redeemable noncontrolling interest - discontinued operations |
|
|
(167 |
) |
|
|
(417 |
) |
EBITDA attributable to noncontrolling interest - discontinued operations |
|
|
— |
|
|
|
(230 |
) |
Consolidated EBITDA (1) |
|
$ |
15,000 |
|
|
$ |
27,235 |
|
Cash Flow
Net cash flow provided by operating activities was $51.1 million for the six-month period ended June 30, 2024, compared to $47.1 million for the three-month period ended June 30, 2023. The increase in cash flow from operating activities was primarily due to net changes in our working capital of $29.9 million for the six-months periods ended June 30, 2024 compared to $25.7 million for the six-months periods ended June 30, 2023. The net changes in working were primarily due to the timing of cash payments to publishers in the EGP business and timing of collections in the EGP business. The increase in cash flow provided by operating activities was partially offset by a decrease in net income after adjusting for non-cash items. Significant non-cash items in the six-month period ended June 30, 2024 included the loss on sale related to the EGP business of $45.0 million, impairment charges of $49.4 million, depreciation and amortization expense of $13.1 million, non-cash stock based compensation of $8.7 million, and income related to the change in fair value of contingent consideration of $12.5 million. Significant non-cash items in the six-month period ended June 30, 2023 included depreciation and amortization expense of $13.0 million, non-cash stock based compensation of $10.0 million, and income related to the change in fair value of contingent consideration of $2.9 million. We expect to have positive cash flow from operating activities for the 2024 year.
Net cash flow used in investing activities was $26.9 million for the six-month period ended June 30, 2024, compared to $12.1 million for the six-month period ended June 30, 2023. The increase in cash flow used in investing activities was primarily due to net cash divested in the sale of the EGP business of $43.0 million for the six-month period ended June 30, 2024 compared to $6.9 million spent on the purchase of businesses for the six-month period ended June 30, 2023, and a reduction in proceeds from the sale of marketable securities to $10.0 million for the six-month period ended June 30, 2024 compared to $28.1 million for the six-month period ended June 30, 2023. The increase in cash flow used in operating activities was partially offset by a reduction in capital expenditures to $4.7 million for the six-month period ended June 30, 2024 compared to $14.9 million for the six-month period ended June 30, 2023 as a result of the build out of our corporate headquarters in the prior year period, no spend on purchases of marketable securities for the six-month period ended June 30, 2024 compared to $10.2 million for the six-month period ended June 30, 2023, and proceeds from a loan receivable associated with the sale of the EGP business of $10.7 million for the six-month period ended June 30, 2024 compared to the issuance of a loan receivable of $8.1 million for the six-month period ended June 30, 2023. We anticipate that our capital expenditures will be approximately $7.0 million during the full year 2024. 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.
35
Net cash flow used in financing activities was $44.7 million for the six-month period ended June 30, 2024, compared to $46.1 million for the six-month period ended June 30, 2023. The decrease in cash flow used in financing activities was primarily due to payments of contingent consideration of $14.3 million for the six-month period ended June 30, 2024 compared to $31.7 million for the six-month period ended June 30, 2023, distributions to noncontrolling interest of $1.1 million for the six-month period ended June 30, 2024 compared to $3.4 million for the six-month period ended June 30, 2023, and payments of $1.8 million of debt issuance costs for the six-month period ended June 30, 2023 as a result of the refinancing of our credit facility. The decrease in cash flow used in financing activities was partially offset by $20.0 million of debt prepayments during the six-month period ended June 30, 2024.
36
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
General
Market risk represents the potential loss that may affect our financial position, results of operations and/or cash flows due to adverse changes in the financial markets. We are also exposed to market risk from changes in the base rates on our 2023 Credit Facility.
Interest Rates
As of June 30, 2024, we had $187.8 million of variable rate bank debt outstanding under our 2023 Credit Facility. Our borrowings bear interest on the outstanding principal amount thereof from the date when made at a rate per annum equal to either: (i) the Term SOFR (as defined in the 2023 Credit Agreement) plus a margin between 2.50% and 3.00%, depending on the Total Net Leverage Ratio (as defined in the 2023 Credit Agreement) or (ii) the Base Rate (as defined in the 2023 Credit Agreement) plus a margin between 1.50% and 2.00%, depending on the Total Net Leverage Ratio. In addition, the unused portion of the Revolving Credit Facility is subject to a rate per annum between 0.30% and 0.40%, depending on the Total Net Leverage Ratio.
Because our debt is subject to interest at a variable rate, our earnings will be affected in future periods by changes in interest rates. If the SOFR were to increase by a hypothetical 100 basis points, or one percentage point, from its June 30, 2024 level, our annual interest expense would increase and cash flow from operations would decrease by $1.9 million based on the outstanding balance of our term loan as of June 30, 2024.
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 continuing digital operations, and expect a portion of our future revenues will be denominated in currencies other than the U.S. dollar. The effect of an immediate and hypothetical 10% adverse change in foreign exchange rates on foreign-denominated accounts receivable at June 30, 2024 would not be material to our consolidated results of operations or overall financial condition.
Our operating expenses are primarily denominated in U.S. dollars. In addition, certain of our operating expenses are denominated in the currencies of the countries in which our operations are located, primarily Spain. 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.
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 continuing digital operations. To date, we have not entered into any foreign currency hedging contracts, since exchange rate fluctuations historically have not had a material effect on our operating results and cash flows.
ITEM 4. CONTROLS AND PROCEDURES
We conducted an evaluation, under the supervision and with the participation of management, including our chief executive officer and chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this quarterly report. Based on this evaluation, our chief executive officer and chief financial officer concluded that, as of the evaluation date, our disclosure controls and procedures were effective.
Our disclosure controls and procedures are designed to ensure that the information relating to our company, including our consolidated subsidiaries, required to be disclosed in our SEC reports is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate to allow for timely decisions regarding required disclosure.
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.
37
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, USE OF PROCEEDS, AND ISSUER PURCHASES OF EQUITY SECURITIES
Issuer Purchases of Equity Securities
On March 1, 2022, our Board of Directors approved a share repurchase program of up to $20 million of our Class A common stock. Under this share repurchase program, we are authorized to purchase shares of our Class A common stock from time to time through open market purchases or negotiated purchases, subject to market conditions and other factors.
We did not repurchase any shares of our Class A common stock during three-month periods ended March 31, 2024 and 2023. As of March 31, 2024, we have repurchased a total of 1.8 million shares of our Class A common stock under the current share repurchase program for an aggregate purchase price of $11.3 million, or an average price per share of $6.43. All such repurchased shares were retired as of March 31, 2024.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
Insider Trading Arrangements
During the quarter ended June 30, 2024, none of our directors or officers informed us of the
ITEM 6. EXHIBITS
3.1(1) |
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10.1(2) |
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Entravision Communications Corporation Amended and Restated 2004 Equity Incentive Plan |
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10.2(2) |
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Entravision Communications Corporation 2024 Employee Stock Purchase Plan |
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10.3(3) |
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10.4(3) |
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10.5(4) |
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10.6* |
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10.7* |
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Participation Agreement effective as of March 18, 2024 by and between the Company and Mark Boelke |
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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 – the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document. |
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101.SCH* |
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Inline XBRL Taxonomy Extension Schema With Embedded Linkbase Documents. |
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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.
† Management contract or compensatory plan, contract or arrangement.
(1) Incorporation by reference from our Registration Statement on Form S-8, No. 333-280534, filed with the SEC on June 27, 2024.
(2) Incorporated by reference from our Current Report on Form 8-K, filed with the SEC on June 5, 2024.
(3) Incorporated by reference from our Current Report on Form 8-K, filed with the SEC on June 14, 2024.
(4) Incorporated by reference from our Current Report on Form 8-K, filed with the SEC on May 7 2024.
39
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/ MARK BOELKE |
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Mark Boelke Chief Financial Officer and Treasurer |
Date: August 8, 2024
40