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Entravision Communications Corporation (NYSE:EVC) - A Transformative Year Ahead as the Company Navigates the Termination of its Largest Partnership
Published on September 24, 2024 | Ticker: EVC

Entravision Communications Corporation (NYSE:EVC) is a leading global advertising solutions, media, and technology company. The company operates in three reportable segments: digital, television, and audio. Entravision's digital segment, which primarily operates outside the United States, focuses on providing advertising solutions to global media companies. The television and audio segments reach and engage U.S. Hispanic audiences in the United States.

Financials

For the fiscal year ended December 31, 2023, Entravision reported annual net income of -$15,437,000, annual revenue of $1,106,867,000, annual operating cash flow of $73,419,000, and annual free cash flow of $46,092,000. The company's financial performance in 2023 was impacted by a significant impairment charge related to the impending termination of its largest digital partnership.

In the first quarter of 2024, Entravision generated net revenue of $277,445,000, up 16% from the same period in 2023. This increase was primarily attributable to growth in the company's digital segment and higher political advertising revenue, partially offset by declines in national advertising, spectrum usage rights, and retransmission consent revenue in the television segment, as well as decreases in local and national advertising revenue in the audio segment.

Net loss attributable to common stockholders in the first quarter of 2024 was $48,890,000, compared to net income of $2,041,000 in the same period of 2023. This decline was primarily driven by a $49,438,000 impairment charge related to the wind-down of Meta's authorized sales partner (ASP) program, as well as lower margins in the digital segment. Consolidated EBITDA in the first quarter of 2024 was $4,530,000, down 65% from the first quarter of 2023.

Digital Segment Performance

The company's digital segment revenue increased 21% year-over-year in the first quarter of 2024 to $237,491,000, driven by growth in the Entravision Global Partners, Smadex, and Mobile Growth Solutions business units. However, digital segment operating profit declined 34% to $2,339,000, and digital segment operating margin decreased from 2% to 1% due to lower margins in the partnerships business.

Television Segment Performance

Entravision's television segment revenue declined 6% year-over-year in the first quarter of 2024 to $28,549,000, primarily due to decreases in national advertising, spectrum usage rights, and retransmission consent revenue, partially offset by higher political advertising revenue. Excluding political revenue, core television revenue declined 7%. Television segment operating profit decreased 65% to $2,655,000, and operating margin declined from 25% to 9%, primarily due to the company's strategic decision to expand its local news operations.

Audio Segment Performance

In the audio segment, revenue decreased 7% year-over-year in the first quarter of 2024 to $11,405,000, driven by declines in local and national advertising revenue, partially offset by higher political advertising revenue. Excluding political revenue, core audio revenue declined 8%. The audio segment reported an operating loss of $178,000 in the first quarter of 2024, compared to an operating profit of $1,038,000 in the same period of 2023, with operating margin declining from 8% to -2%.

Liquidity

The company's balance sheet remains strong, with cash and marketable securities totaling $132,700,000 as of March 31, 2024. Total debt was $199,100,000, and the company's leverage ratio, as defined in its credit agreement, was 3.1x. Net of total cash and marketable securities, Entravision's total net leverage was 1.4x.

Entravision's capital expenditures for the first quarter of 2024 were $2,700,000, representing 8% of net cash provided by operating activities, compared to 16% in the first quarter of 2023. The company expects capital expenditures to be approximately $6,000,000 for the full year 2024.

The company paid $4,500,000 in dividends, or $0.05 per share, to its stockholders in the first quarter of 2024, representing 13% of its net cash provided by operating activities. Entravision's Board of Directors also approved a quarterly $0.05 dividend per share, payable on June 28, 2024, to stockholders of record as of June 14, 2024.

Recent Developments

The key event impacting Entravision's business in 2024 is the termination of its relationship with Meta, which was the company's largest digital partner and accounted for approximately 53% of its consolidated revenue and 62% of its digital segment revenue in the first quarter of 2024. On March 4, 2024, Entravision received communication from Meta that it intends to wind down its ASP program globally and end its relationship with all of its ASPs, including Entravision, by July 1, 2024.

The termination of the Meta ASP program will have a significant impact on Entravision's digital operations and overall financial performance. As a result, the company has initiated a thorough review of its current digital strategy, operations, and cost structure, which may include the nature and extent to which it remains involved in this business and the timing thereof.

Outlook

Despite the challenges posed by the loss of the Meta partnership, Entravision remains focused on its core television and audio businesses, which continue to generate significant cash flow. The company has a strong balance sheet and financial capacity to navigate this transition, and it is excited about the opportunities ahead, particularly in the areas of local news and political advertising.

Entravision's television segment has invested in expanding its local news operations, adding morning news across all of its Univision markets and expanding weekend news in select markets. This strategic decision has resulted in the hiring of 70 new employees and has already shown positive results, with Entravision's morning news outperforming Telemundo in 14 out of 18 markets where they compete head-to-head in the latest Nielsen ratings for adults 18-49.

In the audio segment, Entravision has launched a new urban Latino format, Fuego, on KFUE FM-106.7 in Phoenix, targeting the fast-growing bilingual Latino 18-34 demographic. The company also plans to upgrade KVVA FM-107.1 and relocate its transmitter to South Mountain, the premier tower location in the Phoenix market.

Conclusion

Overall, Entravision is facing a transformative year as it navigates the termination of its largest digital partnership. However, the company's strong balance sheet, profitable core businesses, and strategic investments in local news and audio provide a solid foundation for the future. Investors will be closely watching Entravision's progress as it redefines its digital strategy and continues to serve its loyal Hispanic audience across the United States.

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