Entravision(EVC) - 2023 Q3 - Quarterly Report

Forward-Looking Statements This section highlights that the document contains forward-looking statements, which are estimates and assumptions subject to inherent risks - The document contains forward-looking statements regarding projections of earnings, revenue, financial items, management plans, new services, economic conditions, and beliefs, which are estimates and assumptions as of the report date[9][10] - Actual results may differ materially due to inherent risks and uncertainties, including substantial indebtedness, rapid changes in the digital advertising industry, evolving media preferences, technological changes, regulatory actions (including AI and data privacy), integration of acquired businesses, global expansion, advertising cancellations/reductions, competition, and dependence on a single global media company[11][12][13] PART I. FINANCIAL INFORMATION This section presents the unaudited condensed consolidated financial statements and detailed notes on accounting policies, revenue, leases, segments, and acquisitions ITEM 1. FINANCIAL STATEMENTS This section presents the unaudited condensed consolidated financial statements and related notes, covering balance sheets, income, equity, and cash flows Condensed Consolidated Balance Sheets (Unaudited) This section provides a snapshot of the company's assets, liabilities, and equity at specific reporting dates | ASSETS (in thousands) | Sep 30, 2023 | Dec 31, 2022 | | :-------------------- | :----------- | :----------- | | Cash and cash equivalents | $110,624 | $110,691 | | Marketable securities | $18,063 | $44,528 | | Total current assets | $385,254 | $407,923 | | Total assets | $876,135 | $880,841 | | LIABILITIES AND STOCKHOLDERS' EQUITY (in thousands) | Sep 30, 2023 | Dec 31, 2022 | | :------------------------------------------------ | :----------- | :----------- | | Total current liabilities | $256,210 | $248,241 | | Long-term debt, less current maturities | $201,301 | $207,292 | | Total liabilities | $590,118 | $595,472 | | Total stockholders' equity | $238,716 | $270,422 | | Total liabilities and equity | $876,135 | $880,841 | - Total assets decreased slightly from $880.8 million at December 31, 2022, to $876.1 million at September 30, 2023. Total liabilities also saw a minor decrease, while total stockholders' equity decreased by approximately $31.7 million[15] Condensed Consolidated Statements of Operations (Unaudited) This section details the company's revenues, expenses, and net income over specific three- and nine-month periods | Metric (in thousands) | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :-------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net Revenue | $274,417 | $241,014 | $786,804 | $659,881 | | Operating income (loss) | $5,131 | $15,904 | $12,343 | $33,511 | | Net income (loss) | $2,732 | $9,090 | $2,430 | $19,444 | | Net income (loss) attributable to common stockholders | $2,719 | $9,393 | $2,771 | $19,747 | | Basic and diluted EPS | $0.03 | $0.11 | $0.03 | $0.23 | | Cash dividends declared per common share | $0.05 | $0.03 | $0.15 | $0.08 | - Net revenue increased by 14% for the three-month period and 19% for the nine-month period ended September 30, 2023, compared to the prior year periods. However, operating income and net income attributable to common stockholders significantly decreased, with operating income down 68% and 63% for the three- and nine-month periods, respectively, and net income attributable to common stockholders down 71% and 86% for the respective periods[17] Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited) This section presents net income alongside other comprehensive income items, reflecting total changes in equity from non-owner sources | Metric (in thousands) | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :-------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net income (loss) | $2,732 | $9,090 | $2,430 | $19,444 | | Total other comprehensive income (loss) | $(391) | $528 | $(219) | $(1,048) | | Comprehensive income (loss) | $2,341 | $9,618 | $2,211 | $18,396 | | Comprehensive income (loss) attributable to common stockholders | $2,328 | $9,921 | $2,552 | $18,699 | - Total other comprehensive income (loss) shifted from a gain of $528 thousand in Q3 2022 to a loss of $391 thousand in Q3 2023, primarily due to changes in foreign currency translation and fair value of marketable securities. This contributed to a significant decrease in comprehensive income (loss) attributable to common stockholders[18] Condensed Consolidated Statements of Stockholders' Equity (Unaudited) This section details changes in the company's equity components, including stock, paid-in capital, and accumulated deficit | Equity Component (in thousands) | Dec 31, 2022 | Sep 30, 2023 | | :------------------------------ | :----------- | :----------- | | Class A common stock | $8 | $8 | | Class U common stock | $1 | $1 | | Additional paid-in capital | $776,298 | $742,040 | | Accumulated deficit | $(504,375) | $(501,604) | | Accumulated other comprehensive income (loss) | $(1,510) | $(1,729) | | Total stockholders' equity | $270,422 | $238,716 | - Total stockholders' equity decreased from $270.4 million at December 31, 2022, to $238.7 million at September 30, 2023. This was primarily driven by a decrease in additional paid-in capital and an increase in accumulated other comprehensive loss, partially offset by a reduction in accumulated deficit[15][19] - Key activities impacting equity during the nine-month period ended September 30, 2023, included stock-based compensation expense of $7.0 million, dividends paid of $4.4 million, and significant accounting adjustments for the Adsmurai transaction, which reduced additional paid-in capital by $37.7 million and noncontrolling interest by $9.6 million[19] Condensed Consolidated Statements of Cash Flows (Unaudited) This section outlines cash inflows and outflows from operating, investing, and financing activities over specific periods | Cash Flow Activity (in thousands) | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :-------------------------------- | :-------------------------- | :-------------------------- | | Net cash provided by operating activities | $69,117 | $78,142 | | Net cash used in investing activities | $(13,926) | $(55,987) | | Net cash used in financing activities | $(55,244) | $(85,657) | | Net increase (decrease) in cash, cash equivalents and restricted cash | $(55) | $(63,503) | | Ending cash, cash equivalents and restricted cash | $111,389 | $122,340 | - Net cash provided by operating activities decreased by $9.0 million YoY. Net cash used in investing activities significantly decreased from $56.0 million in 2022 to $13.9 million in 2023, primarily due to lower purchases of marketable securities and higher proceeds from sales of marketable securities. Net cash used in financing activities also decreased, mainly due to proceeds from new debt borrowings offsetting debt payments[21] Notes to Condensed Consolidated Financial Statements (Unaudited) This section provides detailed explanations and disclosures supporting the condensed consolidated financial statements 1. Basis of Presentation This note explains the preparation of unaudited financial statements in accordance with SEC rules and GAAP disclosures - The financial statements are unaudited and prepared in accordance with SEC rules, omitting certain GAAP disclosures. They include normal recurring adjustments and are not indicative of full fiscal year results[23] 2. The Company and Significant Accounting Policies This note describes the company's business nature and outlines its significant accounting policies Nature of Business The company is a global advertising solutions, media, and technology firm with digital, television, and audio segments - The Company is a global advertising solutions, media, and technology company operating in three reportable segments: digital, television, and audio. The digital segment focuses on global markets, especially emerging economies, advertising on platforms of global media companies (e.g., Meta, X, ByteDance, Spotify). The television and audio segments primarily target Hispanic audiences in the U.S.[24][25][26][27][28][29][30] Impact of the COVID-19 Pandemic on the Company's Business The COVID-19 pandemic did not materially impact the company's operations or finances during the reporting periods - The COVID-19 pandemic did not materially affect the Company's business operationally or financially during the three- and nine-month periods ended September 30, 2023, and is not anticipated to have a material effect in future periods, though resurgences could still pose risks[31] Restricted Cash This note details the amount of cash held as collateral for the company's letters of credit | Cash Type (in thousands) | Sep 30, 2023 | Sep 30, 2022 | | :----------------------- | :----------- | :----------- | | Cash and cash equivalents | $110,624 | $121,589 | | Restricted cash | $765 | $751 | | Total | $111,389 | $122,340 | - Restricted cash of $0.8 million as of September 30, 2023, serves as collateral for the Company's letters of credit[32] Related Party This note describes the company's relationship with TelevisaUnivision, including sales representation and equity ownership - The Company's television stations are primarily Univision- or UniMás-affiliated, with TelevisaUnivision acting as the exclusive third-party sales representative for national advertising, for which the Company paid $1.5 million (Q3 2023) and $4.5 million (YTD Q3 2023) in sales representation fees[33][34] | Retransmission Consent Revenue (in millions) | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :------------------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Total Retransmission Consent Revenue | $8.9 | $8.9 | $27.9 | $27.2 | | Related to TelevisaUnivision proxy agreement | $6.2 | $6.2 | $19.3 | $18.7 | - TelevisaUnivision owns approximately 11% of the Company's common stock and holds Class U common stock with limited voting rights, granting it certain consent rights over significant corporate actions[39] Stock-Based Compensation This note outlines the company's stock-based compensation expense, including restricted and performance stock units | Stock-Based Compensation Expense (in millions) | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :--------------------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Restricted Stock Units | $6.7 | $2.8 | $16.7 | $8.0 | | Performance Stock Units | $0.3 | $0.0 | $0.3 | $0.0 | - Total unrecognized compensation expense for restricted stock units was $22.9 million as of September 30, 2023, expected to be recognized over 1.8 years. For Performance Stock Units (PSUs), unrecognized expense was $2.9 million over 2.8 years[44][48] - PSUs granted to the CEO in July 2023 are subject to time-based and market-based conditions, with share price targets ranging from $5.75 to $13.75 by July 2028. The maximum number of shares that can be earned is 1,000,000[45][46] Income (Loss) Per Share This note presents basic and diluted earnings per share, along with weighted average common shares outstanding | EPS (per share) | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :---------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Basic EPS | $0.03 | $0.11 | $0.03 | $0.23 | | Diluted EPS | $0.03 | $0.11 | $0.03 | $0.23 | | Weighted Average Common Shares Outstanding | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :----------------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Basic | 87,995,567 | 84,945,873 | 87,803,770 | 85,469,675 | | Diluted | 89,888,721 | 87,417,501 | 89,835,363 | 87,671,726 | - Dilutive securities totaling 551,378 shares (Q3 2023) and 932,230 shares (YTD Q3 2023) were excluded from diluted EPS calculations because their exercise prices exceeded the average market price of common shares[51] Impairment This note discloses a $1.0 million impairment charge on intangible assets due to a terminated agreement - The Company incurred a $1.0 million impairment charge on intangible assets subject to amortization during the three- and nine-month periods ended September 30, 2023, due to the termination of an agreement with a digital segment media company[54] Treasury Stock This note details the company's share repurchase activities and the status of its treasury stock program - The Company did not repurchase any Class A common stock during the three- and nine-month periods ended September 30, 2023. As of September 30, 2023, a total of 1.8 million shares have been repurchased under the $20 million program for $11.3 million (average $6.43/share) and subsequently retired[55][56] 2017 Credit Facility This note describes the full repayment of the $300.0 million Term Loan B Facility and the resulting debt extinguishment loss - The $300.0 million senior secured Term Loan B Facility from 2017 was fully repaid on March 17, 2023, and accounted for as debt extinguishment, resulting in a $1.6 million loss, including a $1.1 million write-off of unamortized debt issuance costs[60][65] 2023 Credit Facility This note details the new $200.0 million Term A Facility and $75.0 million Revolving Credit Facility, including interest rates and covenants - On March 17, 2023, the Company entered into a new $200.0 million senior secured Term A Facility and a $75.0 million Revolving Credit Facility, maturing on March 17, 2028. Borrowings bear variable interest rates (Term SOFR + 2.50-3.00% or Base Rate + 1.50-2.00%)[67][68][70][72] - As of September 30, 2023, the interest rate on the Term A Facility and drawn Revolving Credit Facility was 8.16%. The Company believes it is in compliance with all covenants, including financial ratios related to total net leverage and interest coverage[73][77][79] - The facility includes covenants limiting various corporate actions and requires compliance with financial ratios (total net leverage ratio not exceeding 3.25 to 1.00 and interest coverage ratio minimum 3.00 to 1.00)[76][77] Concentrations of Credit Risk and Trade Receivables This note discusses the company's credit risk exposure and the diversification of its trade receivables - The Company's credit risk is diversified across numerous customers globally. Receivables from the top five advertisers represented 5% of total trade receivables as of September 30, 2023, with no single advertiser exceeding 5%[81][83] - Revenue from the largest advertiser accounted for 14% (Q3 2023) and 13% (YTD Q3 2023) of total revenue, but management does not consider this a significant credit risk due to frequent payments[84] | Bad Debts (in millions) | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :---------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Estimated losses | $0.3 | $1.2 | $2.0 | $2.2 | | Net charge off | $1.0 | $1.3 | $1.3 | $1.8 | Dependence on Global Media Companies This note highlights the company's significant dependence on a single global media company for a majority of its revenue - The Company is highly dependent on a single global media company, which generated 54% (Q3 2023) and 53% (YTD Q3 2023) of its total revenue. This dependence is expected to continue, and a lower payment rate from this partner since H2 2023 is resulting in reduced margins[86][87] Fair Value Measurements This note provides fair value measurements for financial instruments, including marketable securities and contingent consideration | Financial Instrument (in millions) | Sep 30, 2023 | Dec 31, 2022 | | :------------------------------- | :----------- | :----------- | | Money market account | $0.4 | $1.4 | | Corporate bonds and notes | $17.4 | $44.5 | | Asset-backed securities | $0.6 | $0.0 | | U.S. Government securities | $0.1 | $0.0 | | Contingent consideration | $21.6 | $63.8 | | FCC licenses (nonrecurring) | $24.5 | $24.5 | - Contingent consideration liabilities, primarily related to acquisitions of Cisneros Interactive, MediaDonuts, 365 Digital, Jack of Digital, and BCNMonetize, decreased from $63.8 million at December 31, 2022, to $21.6 million at September 30, 2023. The fair value is estimated using a real options approach with Level 3 inputs[98][99][100] | Available for Sale Securities (in thousands) | Amortized Cost | Unrealized gains (losses) | | :------------------------------------------- | :------------- | :------------------------ | | Corporate Bonds and Notes | $17,884 | $(507) | | Asset-Backed Securities | $591 | $(3) | | U.S. Government securities | $98 | $0 | | Total | $18,573 | $(510) | Accumulated Other Comprehensive Income (Loss) This note details components of accumulated other comprehensive income (loss), primarily foreign currency translation adjustments | AOCI Component (in thousands) | Dec 31, 2022 | Sep 30, 2023 | | :---------------------------- | :----------- | :----------- | | Foreign Currency Translation | $(1,345) | $(1,808) | | Marketable Securities | $(165) | $79 | | Total AOCI | $(1,510) | $(1,729) | - Accumulated other comprehensive income (loss) primarily includes foreign currency translation adjustments and changes in the fair value of available-for-sale securities. The total AOCI shifted from $(1,510) thousand at December 31, 2022, to $(1,729) thousand at September 30, 2023, mainly due to increased foreign currency translation losses[101][102] Foreign Currency This note explains the company's foreign currency translation policies and the treatment of highly inflationary economies - The Company's reporting currency is the U.S. dollar. Foreign operations with local functional currencies translate assets/liabilities at period-end rates and revenues/expenses at average rates, with translation adjustments included in comprehensive income (loss). Argentina's operations have been accounted for as highly inflationary since July 1, 2018, with the functional currency changed to the U.S. dollar[103][104][105] Cost of Revenue This note clarifies that digital segment cost of revenue primarily consists of online media acquisition costs - Cost of revenue for the digital segment primarily consists of costs for online media acquired from third-party media companies[106] Assets Held For Sale This note identifies $1.2 million in assets, including tower sites, classified as held for sale - As of September 30, 2023, the Company classified $1.2 million in assets as held for sale, including tower sites in Phoenix ($0.9 million carrying value) and Boston ($0.3 million carrying value), with transactions expected to close in Q4 2023[15][107][108] Variable Interest Entities This note explains the company's evaluation and consolidation policy for Variable Interest Entities (VIEs) - The Company evaluates entities for which control is achieved through means other than voting rights (Variable Interest Entities or VIEs) to determine if it is the primary beneficiary, consolidating those where it has the power to direct significant activities and the obligation to absorb losses or right to receive benefits[109][110] Recent Accounting Pronouncements This note confirms no new accounting pronouncements are expected to materially impact the financial statements - No new accounting pronouncements issued or effective since the 2022 10-K are expected to have a material impact on the Company's consolidated financial statements[112][113] 3. Revenues This note details the company's revenue recognition policies and disaggregated revenue streams by source and geography Revenue Recognition This section outlines the company's policies for recognizing revenue from digital, broadcast, retransmission, and other sources - Revenue is recognized when control of promised services is transferred to customers. Digital advertising revenue is recognized when ads record impressions or performance criteria are met. Broadcast advertising revenue is recognized at the time of broadcast. Retransmission consent revenue is recognized over time as the television signal is delivered. Spectrum usage rights revenue is recognized over the agreement term or upon relinquishment of rights. Other revenues include representation fees, talent fees, and event sales[114][115][117][119][121][123] Practical Expedients and Exemptions This section describes the company's use of practical expedients for revenue recognition, particularly for short-term contracts - The Company does not disclose unsatisfied performance obligations for contracts with an expected length of one year or less (most advertising contracts) or for sales-based/usage-based royalties from intellectual property licenses (retransmission consent). Contract acquisition costs are expensed when incurred due to amortization periods of one year or less[125][126] Disaggregated Revenue This section breaks down revenue by source, sales channel, and geographical region for detailed analysis | Revenue Source (in thousands) | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :---------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Digital advertising | $231,487 | $188,877 | $657,865 | $516,966 | | Broadcast advertising | $30,791 | $39,965 | $91,401 | $106,769 | | Spectrum usage rights | $2,086 | $1,584 | $6,310 | $4,793 | | Retransmission consent | $8,925 | $8,926 | $27,872 | $27,159 | | Other | $1,128 | $1,662 | $3,356 | $4,194 | | Total revenue | $274,417 | $241,014 | $786,804 | $659,881 | | Broadcast Advertising Revenue by Sales Channel (in thousands) | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :------------------------------------------------------------ | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Local direct | $5,485 | $5,935 | $16,273 | $17,365 | | Local agency | $13,946 | $13,410 | $40,505 | $38,980 | | National agency | $11,360 | $20,620 | $34,623 | $50,424 | | Total revenue | $30,791 | $39,965 | $91,401 | $106,769 | | Revenue by Geographical Region (in thousands) | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :-------------------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | United States | $57,497 | $61,735 | $156,413 | $173,075 | | Latin America | $152,926 | $130,515 | $439,075 | $373,353 | | EMEA | $36,350 | $27,287 | $110,107 | $55,902 | | Asia | $27,644 | $21,477 | $81,209 | $57,551 | | Total revenue | $274,417 | $241,014 | $786,804 | $659,881 | Deferred Revenue This section reports the balance of deferred revenue, reflecting cash received in advance of service delivery | Deferred Revenue (in thousands) | Dec 31, 2022 | Sep 30, 2023 | | :------------------------------ | :----------- | :----------- | | Deferred revenue | $7,175 | $6,302 | - Deferred revenue decreased from $7.175 million at December 31, 2022, to $6.302 million at September 30, 2023. This change is primarily due to cash payments received or due in advance being offset by revenues recognized from the prior period's deferred balance[130][132] 4. Leases This note details the company's operating lease liabilities, including ROU assets, lease terms, and discount rates - The Company's leases are primarily operating leases for real estate (office space, broadcasting towers, land). ROU assets and lease liabilities are recognized based on the present value of future minimum lease payments, discounted using an incremental borrowing rate[133] | Operating Lease Liabilities (in thousands) | Amount | | :--------------------------------------- | :----- | | Total minimum payments | $71,405 | | Less amounts representing interest | $(17,007) | | Less amounts representing tenant improvement allowance | $(399) | | Present value of minimum lease payments | $53,999 | | Less current operating lease liabilities | $(7,150) | | Long-term operating lease liabilities | $46,849 | - The weighted average remaining lease term is 8.7 years, and the weighted average discount rate is 6.2% as of September 30, 2023. Total lease cost for the nine-month period ended September 30, 2023, was $11.5 million[140][141] 5. Segment Information This note provides financial and operational details for the company's digital, television, and audio reportable segments Digital Segment This section describes the digital segment's global advertising solutions, programmatic platform, and mobile growth offerings - The digital segment provides end-to-end advertising solutions globally, focusing on emerging economies, through digital commercial partnerships (largest unit), Smadex programmatic platform, mobile growth solutions, and digital audio business[144][145][146][147][148] Television Segment This section outlines the television segment's operations, primarily targeting U.S. Hispanics with advertising and retransmission revenue - The television segment operates 49 primary television stations, primarily targeting U.S. Hispanics, generating revenue from advertising, retransmission consent, and spectrum usage rights[149] Audio Segment This section describes the audio segment's 45 radio stations serving U.S. Hispanics, generating revenue from advertising and syndication - The audio segment operates 45 radio stations (37 FM, 8 AM) in 14 U.S. markets, primarily serving U.S. Hispanics, and also sells advertisements and syndicates radio programming[150] Consolidated Segment Performance This section summarizes the financial performance of all segments, including net revenue, operating profit, and capital expenditures | Metric (in thousands) | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | % Change | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | % Change | | :-------------------- | :-------------------------- | :-------------------------- | :------- | :-------------------------- | :-------------------------- | :------- | | Net Revenue: | | | | | | | | Digital | $231,487 | $188,877 | 23% | $657,865 | $516,966 | 27% | | Television | $29,552 | $35,678 | (17)% | $89,807 | $98,918 | (9)% | | Audio | $13,378 | $16,459 | (19)% | $39,132 | $43,997 | (11)% | | Segment operating profit (loss): | | | | | | | | Digital | $4,957 | $9,472 | (48)% | $13,801 | $24,887 | (45)% | | Television | $6,938 | $12,952 | (46)% | $22,017 | $31,525 | (30)% | | Audio | $2,068 | $5,647 | (63)% | $4,700 | $11,779 | (60)% | | Capital expenditures: | | | | | | | | Digital | $1,304 | $977 | | $3,785 | $2,838 | | | Television | $1,108 | $3,121 | | $7,983 | $4,257 | | | Audio | $1,579 | $123 | | $7,069 | $534 | | | Total assets: | | | | | | | | Digital | $397,144 | $408,027 | | | | | | Television | $367,681 | $363,904 | | | | | | Audio | $111,310 | $108,910 | | | | | - The digital segment's net revenue grew significantly (23% in Q3, 27% YTD), while television and audio segments experienced revenue declines (17% and 19% in Q3, 9% and 11% YTD, respectively). All segments saw substantial decreases in operating profit, with digital down 48% in Q3 and 45% YTD[152] - The Company generated 79% of its revenue outside the United States during the three-month period ended September 30, 2023, and 80% during the nine-month period, indicating a strong international focus[151][152] 6. Commitments and Contingencies This note addresses the company's legal proceedings, asserting no material adverse impact on financial position or results - The Company is involved in various legal proceedings in the ordinary course of business, but management believes any resulting liability will not materially adversely affect its financial position, results of operations, or cash flows[153] 7. Acquisitions This note details recent acquisitions, including Adsmurai, Jack of Digital, and BCNMonetize, and their financial impacts Adsmurai This section describes the acquisition of a 51% equity interest in Adsmurai and its purchase price allocation - On April 3, 2023, the Company acquired a 51% equity interest in Adsmurai, a digital advertising solutions company, by converting a €13.0 million ($14.2 million) loan. This acquisition resulted in the classification of the noncontrolling interest as redeemable, with a fair value of $47.3 million[158][159][163] | Adsmurai Purchase Price Allocation (in millions) | Amount | | :----------------------------------------------- | :----- | | Cash | $7.4 | | Accounts receivable | $11.9 | | Other assets | $0.7 | | Fixed assets | $2.8 | | Intangible assets subject to amortization | $8.2 | | Goodwill | $13.3 | | Current liabilities | $(14.4) | | Deferred tax | $(2.0) | | Debt | $(2.8) | | Noncontrolling interest | $(12.3) | | Convertible loan | $(12.8) | - Goodwill of $13.3 million was assigned to the digital segment, attributable to Adsmurai's workforce and expected synergies. The acquisition also involved a new loan of €7.36 million ($8.1 million) and €4.99 million ($5.6 million) to affiliated entities for the remaining 49% interest[157][160] Jack of Digital This section details the acquisition of the remaining 85% interest in Jack of Digital for $1.1 million plus an earn-out - On April 3, 2023, the Company acquired the remaining 85% of Jack of Digital for $1.1 million, with an initial payment of $0.5 million and the balance in installments through December 2025, plus a contingent earn-out based on 2026 EBITDA. The total purchase price, including contingent consideration, was $1.4 million[169] - The Company initially acquired 15% of Jack of Digital on August 3, 2022, for $0.1 million, and determined it was the primary beneficiary of this Variable Interest Entity (VIE)[167][168] BCNMonetize This section outlines the acquisition of 100% of BCNMonetize for $7.2 million cash, including contingent earn-out payments - On May 19, 2023, the Company acquired 100% of BCNMonetize, a global mobile app marketing solutions company, for an initial purchase price of $7.2 million in cash, with a total purchase price of $8.8 million including contingent earn-out payments based on EBITDA targets through 2026[173] | BCNMonetize Preliminary Purchase Price Allocation (in millions) | Amount | | :-------------------------------------------------------------- | :----- | | Cash | $0.8 | | Accounts receivable | $2.8 | | Other assets | $0.7 | | Intangible assets subject to amortization | $4.2 | | Goodwill | $3.5 | | Current liabilities | $(2.1) | | Deferred tax | $(1.1) | - BCNMonetize generated net revenue of $4.1 million (Q3 2023) and $4.9 million (YTD Q3 2023), and net income (excluding contingent consideration adjustments) of $0.2 million (Q3 2023) and $0.3 million (YTD Q3 2023)[177] ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management discusses the company's financial condition and operating results, covering business overview, highlights, COVID-19 impact, and liquidity Overview This section provides a high-level description of the company's global advertising solutions and segment operations - The Company is a global advertising solutions, media, and technology company with digital, television, and audio segments. The digital segment, primarily located in Latin America, Europe, the U.S., Asia, and Africa, focuses on advertisers in emerging economies using global media platforms. Television and audio operations target U.S. Hispanics[181][182] - For Q3 2023, digital segment revenue accounted for 84% of total net revenue ($274.4 million), television for 11%, and audio for 5%, indicating the digital segment's dominant and growing contribution[183] - Revenue generation in the digital segment is primarily from advertising sales on third-party digital platforms or through the Smadex platform. Television and audio segments generate revenue from national and local advertising, retransmission consent, and spectrum usage rights[189][190] Highlights This section summarizes key financial performance indicators, particularly consolidated and segment net revenue changes | Segment Net Revenue (in millions) | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | % Change | | :-------------------------------- | :-------------------------- | :-------------------------- | :------- | | Consolidated | $274.4 | $241.0 | 14% | | Digital | $231.5 | $188.9 | 23% | | Television | $29.6 | $35.7 | (17)% | | Audio | $13.4 | $16.5 | (19)% | - Consolidated revenue increased by 14% in Q3 2023, driven by a $42.6 million (23%) increase in the digital segment, partially offset by decreases in television ($6.1 million or 17%) and audio ($3.1 million or 19%) segments[195][196][197][198] The Impact of the COVID-19 Pandemic on our Business This section confirms the COVID-19 pandemic had no material operational or financial impact during the reporting periods - The COVID-19 pandemic did not have a material operational or financial effect on the Company during the three- and nine-month periods ended September 30, 2023, and is not expected to in future periods, though potential resurgences remain a risk[200][202] Relationship with TelevisaUnivision This section details the company's affiliation with TelevisaUnivision for national advertising sales and retransmission consent - The Company's television stations are largely Univision- or UniMás-affiliated, with TelevisaUnivision serving as the exclusive national advertising sales representative. Sales representation fees paid to TelevisaUnivision were $1.5 million (Q3 2023) and $4.5 million (YTD Q3 2023)[203][204] - Retransmission consent revenue from the TelevisaUnivision proxy agreement was $6.2 million for both Q3 2023 and Q3 2022, and $19.3 million (YTD Q3 2023) versus $18.7 million (YTD Q3 2022)[206] - TelevisaUnivision holds approximately 11% of the Company's common stock (Class U), granting it limited voting rights and consent over certain major corporate transactions[208] Critical Accounting Policies This section refers to the company's 2022 Annual Report for a description of critical accounting policies - For a description of critical accounting policies, refer to the 'Application of Critical Accounting Policies and Accounting Estimates' section in the Company's 2022 Annual Report on Form 10-K[209] Recent Accounting Pronouncements This section confirms no new accounting pronouncements are expected to materially impact the financial statements - No new accounting pronouncements issued or effective since the 2022 10-K are expected to have a material impact on the Company's consolidated financial statements[210] Three- and Nine-Month Periods Ended September 30, 2023 and 2022 This section analyzes the company's financial performance for the three- and nine-month periods ending September 30, 2023 and 2022 Consolidated Operations This section provides a detailed analysis of the company's consolidated revenues, expenses, and net income performance | Metric (in thousands) | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | % Change | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | % Change | | :-------------------- | :-------------------------- | :-------------------------- | :------- | :-------------------------- | :-------------------------- | :------- | | Net Revenue | $274,417 | $241,014 | 14% | $786,804 | $659,881 | 19% | | Cost of revenue - digital | $199,289 | $157,095 | 27% | $562,881 | $431,951 | 30% | | Direct operating expenses | $31,855 | $30,086 | 6% | $94,782 | $87,505 | 8% | | Selling, general and administrative expenses | $21,954 | $19,208 | 14% | $68,287 | $53,022 | 29% | | Corporate expenses | $13,292 | $9,525 | 40% | $35,836 | $26,769 | 34% | | Depreciation and amortization | $7,356 | $6,554 | 12% | $20,336 | $19,212 | 6% | | Operating income (loss) | $5,131 | $15,904 | (68)% | $12,343 | $33,511 | (63)% | | Net income (loss) attributable to common stockholders | $2,719 | $9,393 | (71)% | $2,771 | $19,747 | (86)% | - Consolidated net revenue increased by 14% in Q3 2023 and 19% YTD, primarily driven by digital segment growth. However, operating income decreased by 68% in Q3 and 63% YTD, and net income attributable to common stockholders decreased by 71% in Q3 and 86% YTD, largely due to increased cost of digital revenue, higher operating expenses, and corporate expenses[218][219][223][224][225][226][228][230][232][233][235][236][241] - Interest expense, net, increased by 26% in Q3 and 75% YTD, primarily due to higher interest rates on debt. The Company recorded a $1.6 million loss on debt extinguishment in the nine-month period due to refinancing the 2017 Credit Facility[242][243][246] - Income tax benefit for the nine-month period ended September 30, 2023, was $1.0 million (75% effective rate), compared to an expense of $8.3 million (30% effective rate) in the prior year, influenced by foreign and state taxes, valuation allowances, and non-taxable income[247] Segment Operations This section analyzes the operational and financial performance of the company's digital, television, and audio segments Digital Segment Operations This section details the digital segment's revenue growth, increasing costs, and margin pressures from programmatic shifts - Digital net revenue increased by 23% in Q3 2023 ($42.6 million) and 27% YTD ($140.9 million), driven by advertising growth from digital commercial partnerships and acquisitions. Cost of revenue increased by 27% in Q3 and 30% YTD, outpacing revenue growth, leading to lower margins (86% of digital net revenue in Q3 2023 vs. 83% in Q3 2022)[251][252][253][254] - Direct operating expenses increased by 16% in Q3 and 20% YTD, primarily due to higher non-cash stock-based compensation and increased expenses tied to digital advertising revenue. Selling, general and administrative expenses rose by 26% in Q3 and 48% YTD, mainly from increased salary expense and acquisitions[256][257][258][259] - The digital segment faces pressure on margins due to a shift towards programmatic revenue, advertiser demands for efficiency, and lower payment rates from its largest commercial partner, trends expected to continue[255] Television Segment Operations This section analyzes the television segment's revenue declines, expense changes, and challenges from audience shifts - Television net revenue decreased by 17% in Q3 2023 ($6.1 million) and 9% YTD ($9.1 million), primarily due to declines in political and national advertising revenue, partially offset by increases in local advertising and spectrum usage rights revenue[260][261][262] - Direct operating expenses increased by 2% YTD, mainly due to higher non-cash stock-based compensation. Selling, general and administrative expenses decreased by 3% in Q3 and 1% YTD, primarily due to lower bad debt expense[264][265][266][267] - The television segment faces challenges from declining audiences, competition from other Spanish-language broadcasters, changing demographics, and a shift of advertising from traditional to digital media[263] Audio Segment Operations This section examines the audio segment's revenue declines, expense increases, and impacts from changing listener preferences - Audio net revenue decreased by 19% in Q3 2023 ($3.1 million) and 11% YTD ($4.9 million), mainly due to decreases in political, local, and national advertising revenue[268][269] - Direct operating expenses increased by 7% in Q3 and 8% YTD, driven by higher non-cash stock-based compensation and salaries. Selling, general and administrative expenses increased by 20% YTD, primarily due to increased rent expense in temporary office space[271][272][273][274] - The audio segment is impacted by declining audiences, competition, changing listener preferences (e.g., podcasts, streaming), and the ongoing shift of advertising to digital media[270] Liquidity and Capital Resources This section discusses the company's ability to fund operations, capital expenditures, and debt using cash and cash flows - The Company expects to fund working capital, capital expenditures, and debt payments for the next twelve months using cash on hand ($110.6 million) and cash flows from operations ($69.1 million YTD Q3 2023), supplemented by marketable securities ($18.1 million)[275][276] - The majority of cash and cash equivalents are held outside the U.S., primarily in countries without foreign currency controls, though smaller amounts in South Africa and Argentina could face repatriation restrictions[277] | Cash Flow Activity (in millions) | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :------------------------------- | :-------------------------- | :-------------------------- | | Net cash provided by operating activities | $69.1 | $78.1 | | Net cash used in investing activities | $(13.9) | $(56.0) | | Net cash used in financing activities | $(55.2) | $(85.7) | - Consolidated EBITDA decreased to $41.4 million for the nine-month period ended September 30, 2023, from $66.6 million in the prior year, representing a decrease from 10% to 5% as a percentage of net revenue[291] - The Company did not repurchase any Class A common stock in Q3 or YTD Q3 2023. Under the current program, 1.8 million shares have been repurchased for $11.3 million (average $6.43/share) and retired[293][294] - Capital expenditures are anticipated to be $21.5 million for the full year 2023, to be funded by cash on hand and operating cash flows[298] - The Company faces credit risk in its digital segment, as it must pay media companies for inventory regardless of advertiser collection, and is highly dependent on a single global media company for the majority of its revenue (54% in Q3 2023)[300][301] ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK This section outlines the Company's exposure to market risks, primarily from changes in interest rates on its variable-rate debt and foreign currency fluctuations affecting its international operations - As of September 30, 2023, the Company had $209.0 million in variable-rate bank debt under its 2023 Credit Facility. A hypothetical 100 basis point increase in SOFR would increase annual interest expense and decrease cash flow from operations by $2.1 million[303][304] - The Company has foreign currency risks from revenues and operating expenses denominated in non-U.S. dollar currencies, primarily Mexican peso, Argentine peso, Euro, and various Asian/African currencies. A 10% adverse change in foreign exchange rates on foreign-denominated accounts receivable would not be material[305] - Cash and cash equivalents in Argentina and South Africa are subject to foreign exchange controls, which could impact repatriation. The Company has not used foreign currency hedging contracts to date[307][308] ITEM 4. CONTROLS AND PROCEDURES This section confirms that management, including the CEO and CFO, evaluated the effectiveness of the Company's disclosure controls and procedures as of September 30, 2023, concluding they were effective. It also notes that no material changes to internal control over financial reporting occurred during the period - The CEO and CFO concluded that the Company's disclosure controls and procedures were effective as of September 30, 2023[309] - Disclosure controls are designed to ensure timely recording, processing, summarizing, and reporting of information required in SEC reports[310] - No material changes in internal control over financial reporting occurred during the quarter ended September 30, 2023[312] PART II. OTHER INFORMATION This section covers legal proceedings, risk factors, equity security sales, defaults, mine safety, and other disclosures ITEM 1. LEGAL PROCEEDINGS This section states that the Company is subject to various legal claims and proceedings in the ordinary course of business, but management believes these will not materially adversely affect its financial position, results of operations, or cash flows - The Company is involved in various outstanding claims and legal proceedings, but management does not expect them to materially impact financial position, results of operations, or cash flows[314] ITEM 1A. RISK FACTORS This section indicates that there are no new material risk factors to report for the current period, referring to the detailed description of risk factors in the Company's Annual Report on Form 10-K for the year ended December 31, 2022 - No new material risk factors are reported in this quarterly filing[315] ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES, USE OF PROCEEDS, AND ISSUER PURCHASES OF EQUITY SECURITIES This section details the Company's share repurchase program, noting no repurchases were made during the current reporting period, but providing an update on the total shares repurchased under the program to date - The Company did not repurchase any Class A common stock during the three- and nine-month periods ended September 30, 2023[317] - Under the $20 million share repurchase program approved on March 1, 2022, the Company has repurchased a total of 1.8 million shares for $11.3 million (average $6.43 per share), all of which were retired as of September 30, 2023[316][317] ITEM 3. DEFAULTS UPON SENIOR SECURITIES This section confirms that there were no defaults upon senior securities during the reporting period - There were no defaults upon senior securities during the reporting period[318] ITEM 4. MINE SAFETY DISCLOSURES This section states that mine safety disclosures are not applicable to the Company's operations - Mine safety disclosures are not applicable to the Company[319] ITEM 5. OTHER INFORMATION This section provides information on insider trading arrangements, specifically noting that no directors or officers adopted or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the quarter - No directors or officers informed the Company of the adoption or termination of Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the quarter ended September 30, 2023[320] ITEM 6. EXHIBITS This section lists all exhibits filed with the Form 10-Q, including executive comp