NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 2019
1. BASIS OF PRESENTATION
Presentation
The 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 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, 2018 included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018. 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, 2019 or any other future period.
Certain amounts in
the Company’s prior year period
consolidated financial statements and notes to the financial statements have been reclassified to conform to current period presentation.
2. THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
The Company is a leading global media company that, through its television and radio segments, reaches and engages U.S. Hispanics across acculturation levels and media channels. Additionally, the Company’s digital segment, whose operations are located primarily in Spain, Mexico, Argentina and other countries in Latin America, reaches a global market. Entravision’s operations encompass integrated marketing and media solutions, comprised of television, radio and digital properties and data analytics services. The Company’s management has determined that the Company operates in three reportable segments as of June 30, 2019, based upon the type of advertising medium, which segments are television, radio and digital. As of June 30, 2019, the Company owns and/or operates 55 primary television stations located primarily in California, Colorado, Connecticut, Florida, Kansas, Massachusetts, Nevada, New Mexico, Texas and Washington, D.C. The Company’s television operations comprise the largest affiliate group of both the top-ranked primary television network of Univision Communications Inc. (“Univision”) and Univision’s UniMás network. The television segment includes revenue generated from advertising, retransmission consent agreements and the monetization of the Company’s spectrum assets. Radio operations consist of 49 operational radio stations, 38 FM and 11 AM, in 16 markets located in Arizona, California, Colorado, Florida, Nevada, New Mexico and Texas. Entravision also operates Entravision Solutions as its national sales representation division, through which it sells advertisements and syndicated radio programming to more than 100 markets across the United States. The Company operates a proprietary technology and data platform that delivers digital advertising in various advertising formats that allows advertisers to reach audiences across a wide range of Internet-connected devices on its owned and operated digital media sites; the digital media sites of its publisher partners; and on other digital media sites it can access through third-party platforms and exchanges.
Restricted Cash
As of June 30, 2019 and December 31, 2018, the Company’s balance sheet includes $0.7 million in restricted cash, which was deposited into a separate account as collateral for the Company’s letters of credit.
Related Party
Substantially all of the Company’s stations are Univision- or UniMás-affiliated television stations. The Company’s network affiliation agreements with Univision provide certain of its owned stations the exclusive right to broadcast Univision’s primary network and UniMás network programming in their respective markets. Under the network affiliation agreement, the Company retains the right to sell no less than four minutes per hour of the available advertising time on stations that broadcast Univision network programming, and the right to sell approximately four and a half minutes per hour of the available advertising time on stations that broadcast UniMás network programming, subject to adjustment from time to time by Univision.
10
Under the network affiliation agreement, Univision acts as the Company’s exclusive third-party sales representative for the sale of certain nati
onal advertising on the Company’s Univision- and UniMás-affiliate television stations, and it pays certain sales representation fees to Univision relating to sales of all advertising for broadcast on the Company’s Univision- and UniMás-affiliate television
stations.
D
uring the three-month periods ended June 30, 2019 and 2018, the amount the Company paid Univision in this capacity was $2.0 million and $2.2 million, respectively. During the six-month periods ended June 30, 2019 and 2018, the amount the Compan
y paid Univision in this capacity was $4.0 million and $4.3 million, respectively.
The Company also generates revenue under two marketing and sales agreements with Univision, which gives the Company the right to manage the marketing and sales operations of Univision-owned Univision affiliates in six markets – Albuquerque, Boston, Denver, Orlando, Tampa and Washington, D.C.
Under the Company’s proxy agreement with Univision, the Company grants Univision the right to negotiate the terms of retransmission consent agreements for its Univision- and UniMás-affiliated television station signals. Among other things, the proxy agreement provides terms relating to compensation to be paid to the Company by Univision with respect to retransmission consent agreements entered into with multichannel video programming distributors, (“MVPDs”). As of June 30, 2019, the amount due to the Company from Univision was $5.1 million related to the agreements for the carriage of its Univision and UniMás-affiliated television station signals. During each of the three-month periods ended June 30, 2019 and 2018, retransmission consent revenue accounted for approximately $9.1 million, of which $7.0 million and $7.5 million, respectively, relate to the Univision proxy agreement. During the six-month periods ended June 30, 2019 and 2018, retransmission consent revenue accounted for approximately $17.8 million and $18.0 million, respectively, of which $13.7 million and $15.1 million, respectively, relate to the Univision proxy agreement. The term of the proxy agreement extends with respect to any MVPD for the length of the term of any retransmission consent agreement in effect before the expiration of the proxy agreement.
Univision currently owns approximately 11% of the Company’s common stock on a fully-converted basis. The Class U common stock held by Univision has limited voting rights and does not include the right to elect directors. As the holder of all of the Company’s issued and outstanding Class U common stock, so long as Univision holds a certain number of shares, the Company will not, without the consent of Univision, merge, consolidate or enter into another business combination, dissolve or liquidate the Company or dispose of any interest in any Federal Communications Commission, or FCC, license for any of its Univision-affiliated television stations, among other things. Each share of Class U common stock is automatically convertible into one share of Class A common stock (subject to adjustment for stock splits, dividends or combinations) in connection with any transfer to a third party that is not an affiliate of Univision.
Stock-Based Compensation
The Company measures all stock-based awards using a fair value method and recognizes the related stock-based compensation expense in the consolidated financial statements over the requisite service period. As stock-based compensation expense recognized in the Company’s consolidated financial statements is based on awards ultimately expected to vest, it has been reduced for estimated forfeitures.
Stock-based compensation expense related to grants of stock options and restricted stock units was $0.8 million and $1.2 million for the three-month periods ended June 30, 2019 and 2018, respectively. Stock-based compensation expense related to grants of stock options and restricted stock units was $1.6 million and $2.4 million for the six-month periods ended June 30, 2019 and 2018, respectively.
Stock Options
Stock-based compensation expense related to stock options is based on the fair value on the date of grant using the Black-Scholes option pricing model and is amortized over the vesting period, generally between 1 to 4 years.
As of June 30, 2019, there was de minimis stock-based compensation expense related to grants of stock options. All grants of stock options have been fully expensed.
Restricted Stock Units
Stock-based compensation expense related to restricted stock units is based on the fair value of the Company’s stock price on the date of grant and is amortized over the vesting period, generally between 1 to 4 years.
11
The following is a summary of non-ves
ted restricted stock units granted (in thousands, except grant date fair value data):
|
|
|
|
|
|
|
|
|
Six-Month Period
|
|
|
Ended June 30, 2019
|
|
|
Number
Granted
|
|
|
Weighted-Average
Fair Value
|
|
Restricted stock units
|
|
178
|
|
|
$
|
3.14
|
|
As of June 30, 2019, there was approximately $3.1 million of total unrecognized compensation expense related to grants of restricted stock units that is expected to be recognized over a weighted-average period of 1.3 years.
Income (Loss) Per Share
The following table illustrates the reconciliation of the basic and diluted income (loss) per share computations required by Accounting Standards Codification (ASC) 260-10, “Earnings per Share” (in thousands, except share and per share data):
|
|
Three-Month Period
|
|
|
Six-Month Period
|
|
|
|
Ended June 30,
|
|
|
Ended June 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
Basic earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(16,279
|
)
|
|
$
|
4,840
|
|
|
$
|
(14,855
|
)
|
|
$
|
3,033
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
|
85,359,998
|
|
|
|
88,959,935
|
|
|
|
85,728,820
|
|
|
|
89,635,759
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share
|
|
$
|
(0.19
|
)
|
|
$
|
0.05
|
|
|
$
|
(0.17
|
)
|
|
$
|
0.03
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(16,279
|
)
|
|
$
|
4,840
|
|
|
$
|
(14,855
|
)
|
|
$
|
3,033
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
|
85,359,998
|
|
|
|
88,959,935
|
|
|
|
85,728,820
|
|
|
|
89,635,759
|
|
Dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options and restricted stock units
|
|
-
|
|
|
|
1,062,014
|
|
|
|
-
|
|
|
|
1,169,327
|
|
Diluted shares outstanding
|
|
|
85,359,998
|
|
|
|
90,021,949
|
|
|
|
85,728,820
|
|
|
|
90,805,086
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share
|
|
$
|
(0.19
|
)
|
|
$
|
0.05
|
|
|
$
|
(0.17
|
)
|
|
$
|
0.03
|
|
Basic income (loss) per share is computed as net income (loss) divided by the weighted average number of shares outstanding for the period. Diluted income (loss) per share reflects the potential dilution, if any, that could occur from shares issuable through stock options and restricted stock awards.
For the three- and six-month periods ended June 30, 2019, 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 952,026 and 1,001,636 equivalent shares of dilutive securities for the three- and six-month periods ended June 30, 2019, respectively.
12
For the three- an
d six-month periods ended June 30, 2018, a total of 242,735 and 139,468 shares of dilutive securities, respectively, were not included in the computation of diluted income per share because the exercise prices of the dilutive securities were greater than t
he average market price of the common shares.
Goodwill Impairment
The Company has identified each of its three operating segments to be separate reporting units: television, radio and digital. The carrying values of the reporting units are determined by allocating all applicable assets (including goodwill) and liabilities based upon the unit in which the assets are employed and to which the liabilities relate, considering the methodologies utilized to determine the fair value of the reporting units.
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 last annual testing date, October 1, 2018, and as noted in the Annual Report on Form 10-K for the year ended December 31, 2018, the Company determined there was no impairment to goodwill and indefinite life intangibles for any of its reporting units.
Due to lower than anticipated performance of the Company’s digital reporting unit in the second quarter of 2019, changes in key personnel, and updated internal forecasts of future performance of the digital reporting unit, the Company determined that triggering events had occurred during the second quarter of 2019 that required an interim impairment assessment for its digital reporting unit.
The Company conducted a review of the fair value of the digital reporting unit in the second quarter of 2019. The estimated fair value of the digital goodwill 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 digital reporting unit. 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 the digital 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 industry. These comparable publicly-traded companies have similar size, operating characteristics and/or financial profiles to the Company’s digital reporting unit. The Company also estimated the terminal value multiple based on comparable publicly-traded companies in the digital media industry. 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 $22.4 million during the quarter ended June 30, 2019
.
The carrying amount of goodwill for each of the Company’s operating segments for the six-months ended June 30, 2019 is as follows (in thousands):
|
|
December 31,
2018
|
|
|
Currency
|
|
|
Impairment
|
|
|
June 30,
2019
|
|
Television
|
|
$
|
40,549
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
40,549
|
|
Radio
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Digital
|
|
|
33,743
|
|
|
|
(67
|
)
|
|
|
(22,368
|
)
|
|
|
11,308
|
|
Consolidated
|
|
$
|
74,292
|
|
|
$
|
(67
|
)
|
|
$
|
(22,368
|
)
|
|
$
|
51,857
|
|
Treasury Stock
On July 13, 2017, the
Board of Directors approved a share repurchase of up to $15.0 million of the Company’s outstanding Class A common stock.
On April 11, 2018, the
Board of Directors approved the repurchase of up to an additional $15.0 million of the Company’s Class A common stock, for a total repurchase authorization of up to $30.0 million. Under the share repurchase program, the Company is authorized to purchase shares from time to time through open market purchases or negotiated purchases, subject to market conditions and other factors
. The share repurchase program may be suspended or discontinued at any time without prior notice.
13
Treasury stock is included as a deduction from equity in the Stockholders’ Equity section of the
Unaudited
Consolidated Balance Sheets. Shares repurchased pursuant to the Company’s share repurchase program are retired during the same calendar year.
The Company repurchased 0.4 million shares of Class A common stock at an average price of $2.95, for an aggregate purchase price of approximately $1.3 million, during the three-month period ended June 30, 2019. As of June 30, 2019, the Company has repurchased a total of approximately 7.0 million shares of Class A common stock, for an aggregate purchase price of approximately $28.1 million, or an average price per share of $3.98, since the beginning of the share repurchase program. All such repurchased shares were retired as of June 30, 2019.
2017 Credit Facility
On November 30, 2017 (the “Closing Date”), the Company entered into its 2017 Credit Facility pursuant to the 2017 Credit Agreement. The 2017 Credit Facility consists of a $300.0 million senior secured Term Loan B Facility (the “Term Loan B Facility”), which was drawn in full on the Closing Date. In addition, the 2017 Credit Facility provides that the Company may increase the aggregate principal amount of the 2017 Credit Facility by up to an additional $100.0 million plus the amount that would result in its first lien net leverage ratio (as such term is used in the 2017 Credit Agreement) not exceeding 4.0 to 1.0, subject to the Company satisfying certain conditions.
Borrowings under the Term Loan B Facility were used on the Closing Date to (a) repay in full all of the Company’s and its subsidiaries’ outstanding obligations under the Company’s previous credit facility (“2013 Credit Facility”) and to terminate the 2013 Credit Agreement, (b) pay fees and expenses in connection with the 2017 Credit Facility, and (c) for general corporate purposes.
The 2017 Credit Facility is guaranteed on a senior secured basis by certain of its existing and future wholly-owned domestic subsidiaries, and is secured on a first priority basis by the Company’s and those subsidiaries’ assets.
The Company’s borrowings under the 2017 Credit Facility bear interest on the outstanding principal amount thereof from the date when made at a rate per annum equal to either: (i) the Eurodollar Rate (as defined in the 2017 Credit Agreement) plus 2.75%; or (ii) the Base Rate (as defined in the 2017 Credit Agreement) plus 1.75%.
The Term Loan B Facility expires on November 30, 2024 (the “Maturity Date”).
In the event the Company engages in a transaction that has the effect of reducing the yield of any loans outstanding under the Term Loan B Facility within six months of the Closing Date, the Company will owe 1% of the amount of the loans so repriced or replaced to the Lenders thereof (such fee, the “Repricing Fee”). Other than the Repricing Fee, the amounts outstanding under the 2017 Credit Facility may be prepaid at the Company’s option without premium or penalty, provided that certain limitations are observed, and subject to customary breakage fees in connection with the prepayment of a Eurodollar rate loan. The principal amount of the Term Loan B Facility shall be paid in installments on the dates and in the respective amounts set forth in the 2017 Credit Agreement, with the final balance due on the Maturity Date.
Subject to certain exceptions, the 2017 Credit Facility contains covenants that limit the ability of the Company and its restricted subsidiaries to, among other things:
|
•
|
incur liens on the Company’s property or assets;
|
|
•
|
make certain investments;
|
|
•
|
incur additional indebtedness;
|
|
•
|
consummate any merger, dissolution, liquidation, consolidation or sale of substantially all assets;
|
|
•
|
dispose of certain assets;
|
|
•
|
make certain restricted payments;
|
|
•
|
make certain acquisitions;
|
|
•
|
enter into substantially different lines of business;
|
|
•
|
enter into certain transactions with affiliates;
|
|
•
|
use loan proceeds to purchase or carry margin stock or for any other prohibited purpose;
|
|
•
|
change or amend the terms of the Company’s organizational documents or the organization documents of certain restricted subsidiaries in a materially adverse way to the lenders, or change or amend the terms of certain indebtedness;
|
14
|
•
|
enter into sale and leaseback transactions;
|
|
•
|
make prepayments of any subordinated indebtedness, subject to certain conditions; and
|
|
•
|
change the Company’s fiscal year, or accounting policies or reporting practices.
|
The 2017 Credit Facility also provides for certain customary events of default, including the following:
|
•
|
default for three (3) business days in the payment of interest on borrowings under the 2017 Credit Facility when due;
|
|
•
|
default in payment when due of the principal amount of borrowings under the 2017 Credit Facility;
|
|
•
|
failure by the Company or any subsidiary to comply with the negative covenants and certain other covenants relating to maintaining the legal existence of the Company and certain of its restricted subsidiaries and compliance with anti-corruption laws;
|
|
•
|
failure by the Company or any subsidiary to comply with any of the other agreements in the 2017 Credit Agreement and related loan documents that continues for thirty (30) days (or ten (10) days in the case of failure to comply with covenants related to inspection rights of the administrative agent and lenders and permitted uses of proceeds from borrowings under the 2017 Credit Facility) after the Company’s officers first become aware of such failure or first receive written notice of such failure from any lender;
|
|
•
|
default in the payment of other indebtedness if the amount of such indebtedness aggregates to $15.0 million or more, or failure to comply with the terms of any agreements related to such indebtedness if the holder or holders of such indebtedness can cause such indebtedness to be declared due and payable;
|
|
•
|
certain events of bankruptcy or insolvency with respect to the Company or any significant subsidiary;
|
|
•
|
final judgment is entered against the Company or any restricted subsidiary in an aggregate amount over $15.0 million, and either enforcement proceedings are commenced by any creditor or there is a period of 30 consecutive days during which the judgment remains unpaid and no stay is in effect;
|
|
•
|
any material provision of any agreement or instrument governing the 2017 Credit Facility ceases to be in full force and effect; and
|
|
•
|
any revocation, termination, substantial and adverse modification, or refusal by final order to renew, any media license, or the requirement (by final non-appealable order) to sell a television or radio station, where any such event or failure is reasonably expected to have a material adverse effect.
|
The Term Loan B Facility does not contain any financial covenants. In connection with the Company entering into the 2017 Credit Agreement, the Company and its restricted subsidiaries also entered into a Security Agreement, pursuant to which the Company and the Credit Parties each granted a first priority security interest in the collateral securing the 2017 Credit Facility for the benefit of the lenders under the 2017 Credit Facility.
On April 30, 2019, the Company entered into an amendment to the 2017 Credit Agreement, which became effective on May 1, 2019. Pursuant to this amendment, the lenders:
|
i.
|
waived any events of default that may have arisen under the 2017 Credit Agreement in connection with the Company’s failure to timely deliver audited financial statements for fiscal year 2018, and
|
|
ii.
|
amended the 2017 Credit Agreement, giving the Company until May 31, 2019 to deliver the 2018 audited financial statements.
|
On May 7, 2019, the Company filed its Annual Report on Form 10-K for the fiscal year ended December 31, 2018, which Annual Report contained the 2018 audited financial statements. By filing its Annual Report on Form 10-K prior to May 31, 2019, the Company believes that it has complied with the affirmative covenants in the amendment to the 2017 Credit Agreement regarding delivery of the 2018 audited financial statements.
Pursuant to this amendment, the Company agreed to pay to the lenders consenting to this amendment a fee equal to 0.10% of the aggregate principal amount of the outstanding loans held by such lenders under the 2017 Credit Agreement as of May 1, 2019. This fee totaled approximately $0.2 million.
The carrying amount of the Term Loan B Facility as of June 30, 2019
was
$242.0 million, net of $2.7 million of unamortized debt issuance costs and original issue discount. The estimated fair value of the Term Loan B Facility as of June 30, 2019
was
$233.7 million. The estimated fair value is based on quoted prices in markets where trading occurs infrequently.
15
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.
The following table presents the Company’s financial assets and liabilities measured at fair value on a recurring basis in the Unaudited Consolidated Balance Sheets (in millions):
|
|
June 30, 2019
|
|
|
Total Fair Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and Carrying
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Value on Balance
|
|
|
Fair Value Measurement Category
|
(in millions)
|
|
Sheet
|
|
|
Level 1
|
|
Level 2
|
|
|
Level 3
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
Money market account
|
|
$
|
37.2
|
|
|
$
|
-
|
|
$
|
37.2
|
|
|
$
|
-
|
Certificates of deposit
|
|
$
|
7.8
|
|
|
$
|
-
|
|
$
|
7.8
|
|
|
$
|
-
|
Corporate bonds
|
|
$
|
105.6
|
|
|
$
|
-
|
|
$
|
|
105.6
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contingent Consideration
|
|
$
|
5.7
|
|
|
$
|
-
|
|
$
|
|
-
|
|
|
$
|
5.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
|
Total Fair Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and Carrying
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Value on Balance
|
|
|
Fair Value Measurement Category
|
|
|
Sheet
|
|
|
Level 1
|
|
Level 2
|
|
|
Level 3
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market account
|
|
$
|
34.6
|
|
|
$
|
-
|
|
$
|
34.6
|
|
|
$
|
-
|
Certificates of deposit
|
|
$
|
8.2
|
|
|
$
|
-
|
|
$
|
8.2
|
|
|
$
|
-
|
Corporate bonds
|
|
$
|
124.2
|
|
|
$
|
-
|
|
$
|
124.2
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contingent Consideration
|
|
$
|
8.1
|
|
|
$
|
-
|
|
$
|
-
|
|
|
$
|
8.1
|
As of June 30, 2019, the Company held investments in a money market fund, certificates of deposit, and corporate bonds. All certificates of deposit are within the current FDIC insurance limits and all corporate bonds are investment grade.
The Company’s available for sale securities are comprised of certificates of deposit and bonds. These securities are valued using quoted prices for similar attributes in active markets (Level 2). Since these investments are classified as available for sale, they are recorded at their fair market value within Cash and cash equivalents and Marketable securities in the Unaudited Consolidated Balance Sheets and their unrealized gains or losses are included in other comprehensive income.
16
As of
June
3
0
, 201
9
, th
e following table summarizes the amortized cost and the unrealized (gains) losses of the available for sale securities (in thousands):
|
|
Certificates of Deposit
|
|
|
Corporate Bonds
|
|
|
|
Amortized
Cost
|
|
|
Unrealized gains
(losses)
|
|
|
Amortized
Cost
|
|
|
Unrealized gains
(losses)
|
|
Due within a year
|
|
$
|
2,880
|
|
|
$
|
1
|
|
|
$
|
29,997
|
|
|
$
|
41
|
|
Due after one year through five years
|
|
|
4,882
|
|
|
|
19
|
|
|
|
75,206
|
|
|
|
323
|
|
Total
|
|
$
|
7,762
|
|
|
$
|
20
|
|
|
$
|
105,203
|
|
|
$
|
364
|
|
The Company periodically reviews its available for sale securities for other-than-temporary impairment. For the three- and six-month periods ended June 30, 2019, the Company did not consider any of its securities to be other-than-temporarily impaired and, accordingly, did not recognize any impairment losses.
Included in interest income for the three- and six-month periods ended June 30, 2019 was interest income related to the Company’s available-for-sale securities of $0.8 and $1.7 million, respectively.
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) for the three- and six-month periods ended June 30, 2019
(in millions):
|
|
Foreign
Currency
Translation
|
|
|
Marketable
Securities
|
|
|
Total
|
|
Accumulated other comprehensive income (loss) as of December 31, 2018
|
|
$
|
(0.4
|
)
|
|
$
|
(1.0
|
)
|
|
$
|
(1.4
|
)
|
Other comprehensive income (loss)
|
|
|
-
|
|
|
|
1.0
|
|
|
|
1.0
|
|
Income tax (expense) benefit
|
|
|
-
|
|
|
|
(0.2
|
)
|
|
|
(0.2
|
)
|
Other comprehensive income (loss), net of tax
|
|
|
-
|
|
|
|
0.8
|
|
|
|
0.8
|
|
Accumulated other comprehensive income (loss) as of March 31, 2019
|
|
|
(0.4
|
)
|
|
|
(0.2
|
)
|
|
|
(0.6
|
)
|
Other comprehensive income (loss)
|
|
|
(0.3
|
)
|
|
|
0.7
|
|
|
|
0.4
|
|
Income tax (expense) benefit
|
|
|
-
|
|
|
|
(0.2
|
)
|
|
|
(0.2
|
)
|
Other comprehensive income (loss), net of tax
|
|
|
(0.3
|
)
|
|
|
0.5
|
|
|
|
0.2
|
|
Accumulated other comprehensive income (loss) as of June 30, 2019
|
|
|
(0.7
|
)
|
|
|
0.3
|
|
|
|
(0.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign Currency
The Company’s reporting currency is the U.S. dollar. All transactions initiated in foreign currencies are translated into U.S. dollars in accordance with ASC Topic 830, “Foreign Currency Matters” and the related rate fluctuation on transactions is included in the consolidated statements of operations.
For foreign operations with the local currency as the functional currency, assets and liabilities are translated from the local currencies into U.S. dollars at the exchange rate prevailing at the balance sheet date and equity is translated at historical rates. Revenues and expenses are translated at the average exchange rate for the period. Translation adjustments resulting from the process of translating the local currency financial statements into U.S. dollars are included in determining comprehensive (income) loss.
Based on recent data reported by the International Monetary Fund, Argentina has been identified as a country with a highly inflationary economy. According to U.S. GAAP, a registrant should apply highly inflationary accounting in the first reporting period after such determination. Therefore, the Company transitioned the accounting for its Argentine operations to highly inflationary status as of July 1, 2018 and, commencing that date, changed the functional currency from the Argentine Peso to U.S. dollar.
17
Cost of Revenue
Cost of revenue related to the Company’s digital segment consists primarily of the costs of online media acquired from third-party publishers.
Assets Held For Sale
Assets are classified as held for sale when the carrying value is expected to be recovered through a sale rather than through their continued use and all of the necessary classification criteria have been met. Assets held for sale are recorded at the lower of their carrying value or estimated fair value less selling costs and classified as current assets. Depreciation is not recorded on assets classified as held for sale.
During the second quarter of 2018, the Company relocated the operations of two of its television stations in the Palm Springs, California market and management approved the sale of the vacated building. The building and related improvements met the criteria for classification as assets held for sale and their carrying value is presented separately in the consolidated balance sheet. As of June 30, 2019, the Company adjusted the selling price to current market conditions and believes that the long-lived asset continues to meet the criteria for classification as an asset held for sale. Assets held for sale are classified as current assets as management believes the sale will be completed within one year.
Recent Accounting Pronouncements
In August 2018, the FASB issued ASU 2018-15,
Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract
. The amendments in this update align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). The accounting for the service element of a hosting arrangement that is a service contract is not affected by the amendments in this update. The amendments in this update are effective for annual reporting periods beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted. The amendments in this update should be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. The Company is in the process of assessing the impact of this ASU on its Consolidated Financial Statements.
In August 2018, the FASB issued ASU No. 2018-13 “Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement,” (“ASU No. 2018-13”), which modifies the disclosure requirements on fair value measurements, including the consideration of costs and benefits. ASU 2018-13 is effective for all entities for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, but entities are permitted to early adopt either the entire standard or only the provisions that eliminate or modify the requirements. The Company is in the process of assessing the impact of this ASU on its Consolidated Financial Statements.
In June 2016, the FASB issued ASU 2016-13,
Financial Instruments—Credit Losses (Topic 326),
which
amends current guidance on other-than-temporary impairments of available-for-sale debt securities. This amended standard requires the use of an allowance to record estimated credit losses on these assets when the fair value is below the amortized cost of the asset. This standard also removes the evaluation of the length of time that a security has been in a loss position to avoid recording a credit loss. The update is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Company is in the process of assessing the impact of this ASU on its Consolidated Financial Statements.
Newly Adopted Accounting Standards
In February 2016, the FASB issued ASU 2016-02,
Leases (Topic 842)
, which increases transparency and comparability among organizations relating to leases. Lessees are required to recognize a liability to make lease payments and a right-of-use asset representing the right to use the underlying asset for the lease term. The FASB retained a dual model for lease classification, requiring leases to be classified as finance or operating leases to determine recognition in the earnings statement and cash flows; however, substantially all leases are required to be recognized on the balance sheet. ASU 2016-02 also requires quantitative and qualitative disclosures regarding key information about leasing arrangements. ASU 2016-02 is effective using a modified retrospective approach for fiscal years and interim periods beginning after December 15, 2018. This standard allowed entities to initially apply the new leases standard at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. The standard also provides for certain practical expedients.
The Company adopted this ASU in the first quarter of 2019. As permitted under the transition guidance of the standard, the Company applied the guidance on a prospective basis as of the adoption date. As a result, prior period amounts were not adjusted and continue to be reported in accordance with accounting guidance under ASC 840.
18
The Company elected the package of practical expedients such that the Compa
ny did not reassess whether any expired or existing contracts are or contain leases. In addition, the Company did not reassess prior conclusions reached for lease classification and did not reassess initial direct costs for existing leases.
Based on the Company’s assessment, the adoption of the guidance resulted in a material impact on the Company’s consolidated balance sheet. However, the impact to the Company’s results of operations and cash flows through June 30, 2019 are not considered material. As of the adoption date, the Company recognized right-of-use (“ROU”) assets of $45.8 million and lease liabilities of $52.4 million. The difference between the ROU assets and lease liabilities is attributed to deferred rent and lease incentives which were combined and presented net within the ROU assets. Refer to Note 4 for additional information.
In June 2018, the FASB issued ASU 2018-07,
Compensation—Stock Compensation (Topic 718): Improvements to Non-employee Share-based Payment Accounting
, which supersedes Subtopic 505-50, Equity—Equity-Based Payments to Non-Employees and expands the scope of ASC Topic 718, “Compensation—Stock Compensation” to include share-based payments issued to nonemployees for goods and services. Consequently, the accounting for share-based payments to nonemployees and employees will be substantially aligned. The amendments in this ASU are effective for public companies for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. The Company adopted this ASU in the first quarter of 2019 which did not have a material impact on our condensed consolidated financial statements and related disclosures.
In August 2018, the SEC issued a final rule to amend certain disclosure requirements that were redundant, duplicative, overlapping or superseded by other SEC disclosure requirements, US GAAP or IFRS.2 The amendments generally eliminated or otherwise reduced certain disclosure requirements of various SEC rules and regulations. However, in some cases, the amendments require additional information to be disclosed, including changes in stockholders’ equity in interim periods. The Company adopted the rule in the first quarter of 2019 and included a statement of stockholders’ equity in our Form 10-Q.
3. REVENUES
Revenue Recognition
Revenues are recognized when control of the promised services is transferred to the Company’s customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those services.
Broadcast Advertising.
Television and radio revenue related to the sale of advertising is recognized at the time of broadcast. Broadcast advertising rates are fixed based on each medium’s ability to attract audiences in demographic groups targeted by advertisers and rates can vary based on the time of day and ratings of the programming airing in that day part.
Digital Advertising.
Revenue from digital advertising primarily consists of two types:
|
•
|
Display advertisements on websites and mobile applications that are sold based on a cost-per-thousand impressions delivered. These impressions are delivered through the Company’s websites and through third party publishers either through direct relationships with the publishers or through digital advertising exchanges.
|
|
•
|
Performance driven advertising whereby the customer engages the Company to drive consumers to perform an action such as the download of a mobile application, the installation of an application, or the first use of an application (typically referred to cost per action or cost per installation).
|
Broadcast and digital advertising revenue is recognized over time in a series as a single performance obligation as the ad, impression or performance advertising is delivered per the insertion order. The Company applies the practical expedient to recognize revenue for each distinct advertising service delivered at the amount the Company has the right to invoice, which corresponds directly to the value a customer has received relative to the Company’s performance. Contracts with customers are short term in nature and billing occurs on a monthly basis with payment due in 30 days. Value added taxes collected concurrent with advertising revenue producing activities are excluded from revenue. Cash payments received prior to services rendered result in deferred revenue, which is then recognized as revenue when the advertising time or space is actually provided.
19
Retransmission Consent.
The Company generates revenue from retransmission consent agreements that are ente
red into with multichannel video programming distributors, or MVPDs. The Company grants the MVPDs access to its television station signals so that they may rebroadcast the signals and charge their subscribers for this programming. Payments are received on
a monthly basis based on the number of monthly subscribers.
Retransmission revenues are considered licenses of functional intellectual property and are recognized over time utilizing the sale-based or usage-based royalty exception. The Company’s performance obligation is to provide the licensee access to our intellectual property. MVPD subscribers receive and consume the content monthly as the television signal is delivered.
Spectrum Usage Rights.
The Company generates revenue from agreements associated with its television stations’ spectrum usage rights from a variety of sources, including but not limited to agreements with third parties to utilize excess spectrum for the broadcast of their multicast networks; charging fees to accommodate the operations of third parties, including moving channel positions or accepting interference with broadcasting operations; and modifying and/or relinquishing spectrum usage rights while continuing to broadcast through channel sharing or other arrangements.
Revenue generated by spectrum usage rights agreements are recognized over the period of the lease or when we have relinquished all or a portion of our spectrum usage rights for a station or have relinquished our rights to operate a station on the existing channel free from interference.
Other Revenue.
The Company generates other revenues that are related to its broadcast operations which primarily consist of representation fees earned by the Company’s radio national representation firm, talent fees for the Company’s on air personalities, ticket and concession sales for radio events, rent from tenants of the Company’s owned facilities, barter revenue, and revenue generated under joint sales agreements.
In the case of representation fees, the Company does not control the distinct service, the commercial advertisement, prior to delivery and therefore recognizes revenue on a net basis. Similarly for joint service agreements, the Company does not own the station providing the airtime and therefore recognizes revenue on a net basis. In the case of talent fees, the on air personality is an employee of the Company and therefore the Company controls the service provided and recognizes revenue gross with an expense for fees paid to the employee.
Practical Expedients and Exemptions
The Company does not disclose the value of unsatisfied performance obligations when (i) contracts have an original expected length of one year or less, which applies to effectively all advertising contracts, and (ii) variable consideration is a sales-based or usage-based royalty promised in exchange for a license of intellectual property, which applies to retransmission consent revenue.
The Company applies the practical expedient to expense contract acquisition costs, such as sales commissions generated either by internal direct sales employees or through third party advertising agency intermediaries, when incurred because the amortization period is one year or less. These costs are recorded within direct operating expenses.
Disaggregated Revenue
The following table presents our revenues disaggregated by major source for the three- and six-month periods ended (in thousands):
|
|
Three-Month Period
|
|
|
Six-Month Period
|
|
|
|
Ended June 30,
|
|
|
Ended June 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
Broadcast advertising
|
|
$
|
37,237
|
|
|
$
|
41,533
|
|
|
$
|
71,945
|
|
|
$
|
79,242
|
|
Digital advertising
|
|
|
16,804
|
|
|
|
20,558
|
|
|
|
31,276
|
|
|
|
38,802
|
|
Spectrum usage rights
|
|
|
3,952
|
|
|
|
523
|
|
|
|
9,036
|
|
|
|
631
|
|
Retransmission consent
|
|
|
9,086
|
|
|
|
9,143
|
|
|
|
17,846
|
|
|
|
17,996
|
|
Other
|
|
|
2,162
|
|
|
|
2,572
|
|
|
|
3,818
|
|
|
|
4,496
|
|
Total revenue
|
|
$
|
69,241
|
|
|
$
|
74,329
|
|
|
$
|
133,921
|
|
|
$
|
141,167
|
|
20
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 sal
es from outside the DMA are referred to as national revenue. The following table further disaggregates the Company’s broadcast advertising revenue by sales channel for the
three-
and six-
month periods ended
(in thousands):
|
|
Three-Month Period
|
|
|
Six-Month Period
|
|
|
|
Ended June 30,
|
|
|
Ended June 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
Local direct
|
|
$
|
6,456
|
|
|
$
|
7,059
|
|
|
$
|
12,511
|
|
|
$
|
13,975
|
|
Local agency
|
|
|
14,966
|
|
|
|
15,521
|
|
|
|
28,666
|
|
|
|
30,114
|
|
National agency
|
|
|
15,815
|
|
|
|
18,953
|
|
|
|
30,768
|
|
|
|
35,153
|
|
Total revenue
|
|
$
|
37,237
|
|
|
$
|
41,533
|
|
|
$
|
71,945
|
|
|
$
|
79,242
|
|
Deferred Revenues
The Company records deferred revenues when cash payments are received or due in advance of its performance, including amounts which are refundable. The decrease in the deferred revenue balance for the six-month period ended June 30, 2019 is primarily driven by cash payments received or due in advance of satisfying the Company’s performance obligations, offset by revenues recognized that were included in the deferred revenue balance as of December 31, 2018.
The Company’s payment terms vary by the type and location of customer and the products or services offered. The term between invoicing and when payment is due is not significant, typically 30 days. For certain customer types, the Company requires payment before the services are delivered to the customer.
(in thousands)
|
December 31, 2018
|
|
Increase
|
|
Decrease *
|
|
|
June 30, 2019
|
Deferred revenue
|
$
|
2,759
|
|
1,593
|
|
(2,759
|
)
|
|
$
|
1,593
|
|
*
|
The amount disclosed in the decrease column reflects revenue that has been recorded in the six-month period ended June 30, 2019.
|
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. ROU asset and lease liability is recognized as of lease commencement date based on the present value of the future minimum lease payments over the lease term. As the implicit rate for operating leases is not readily determinable, the future minimum lease payments were discounted using an incremental borrowing rate. Due to the Company having a centralized treasury function, the Company applied a portfolio approach to discount its domestic lease obligations using its secured publicly traded U.S. dollar denominated debt instruments interpolating the duration of the debt to the remaining lease term. The incremental borrowing rate for international leases is the interest rate that the Company would have to pay to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment.
The Company’s operating leases are reflected within the consolidated balance sheet as right-of-use assets with the related liability presented as lease liability, current and lease liability, net of current portion. Lease expense is recognized on a straight-line basis over the lease term.
Generally, lease terms include options to renew or extend the lease. Unless the renewal option is considered reasonably certain, the exercise of any such options have been excluded from the calculation of lease liabilities. In addition, as permitted within the guidance, ROU assets and lease liabilities are not recorded for leases within an initial term of one year or less. The Company’s existing leases have remaining terms of less than one year up to 32 years. Certain of the Company’s lease agreements include rental payments based on changes in the consumer price index (“CPI”). Lease liabilities are not remeasured as a result of changes in the CPI; instead, changes in the CPI are treated as variable lease payments and recognized in the period in which the related obligation was incurred. Lease agreements do not contain any material residual value guarantees or material restrictive covenants.
Certain
real estate leases include additional costs such as common area maintenance (non-lease component), as well as property insurance and property taxes. These costs were excluded from future minimum lease payments as they are variable payments. As such, these costs were not part of the calculation of ROU assets and lease liabilities associated with operating leases upon transition
.
21
The following table summarizes the expected future paym
ents rela
ted to lease liabilities as of
June
3
0
, 2019
:
(in thousands)
|
|
|
|
Remainder of 2019
|
|
$
|
|
5,747
|
|
2020
|
|
|
|
11,620
|
|
2021
|
|
|
|
9,222
|
|
2022
|
|
|
|
7,788
|
|
2023
|
|
|
|
6,177
|
|
2024 and thereafter
|
|
|
|
36,646
|
|
Total minimum payments
|
|
$
|
|
77,200
|
|
Less amounts representing interest
|
|
|
|
(29,048
|
)
|
Present value of minimum lease payments
|
|
$
|
|
48,152
|
|
The weighted average remaining lease term and the weighted average discount rate used to calculate the Company’s lease liabilities as of June 30, 2019 were 14.0 years and 6.2%, respectively.
The following table summarizes lease payments and supplemental non-cash disclosures for the six-month period ended June 30, 2019:
(in thousands)
|
|
Six-Month
Period Ended
June 30, 2019
|
|
Cash paid for amounts included in lease liabilities:
|
|
|
|
|
|
|
|
|
|
Operating cash flows from operating leases
|
|
$
|
2,910
|
|
Non-cash additions to operating lease assets
|
|
$
|
4,359
|
|
The tables below summarize our future minimum rental commitments for operating leases as of December 31, 2018:
(in thousands)
|
|
Amount
|
|
2019
|
|
$10,432
|
|
2020
|
|
|
10,677
|
|
2021
|
|
|
8,507
|
|
2022
|
|
|
7,560
|
|
2023
|
|
|
6,137
|
|
2024 and thereafter
|
|
|
38,515
|
|
|
|
$81,828
|
|
The following table summarizes the components of lease expense for the three- and six-months ended June 30, 2019:
|
|
Three-Month Period
|
|
|
Six-Month Period
|
|
|
|
|
Ended June 30,
|
|
|
Ended June 30,
|
|
|
(in thousands)
|
|
2019
|
|
|
2019
|
|
|
Operating lease cost
|
|
$
|
2,560
|
|
|
$
|
4,957
|
|
|
Variable lease cost
|
|
369
|
|
|
790
|
|
|
Short-term lease cost
|
|
182
|
|
|
289
|
|
|
Total lease cost
|
|
$
|
3,111
|
|
|
$
|
6,036
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three-month periods ended June 30, 2019 lease cost of $1.4 million, $1.6 million and $0.1 million, were recorded to direct operating expenses, selling, general and administrative expenses and corporate expenses, respectively. For the six-month periods ended June 30, 2019 lease cost of $2.7 million, $3.0 million and $0.3 million, were recorded to direct operating expenses, selling, general and administrative expenses and corporate expenses, respectively.
22
5
.
SEGMENT INFORMATION
The Company’s management has determined that the Company operates in three reportable segments as of June 30, 2019, based upon the type of advertising medium, which segments are television, radio, and digital. The Company’s segments results reflect information presented on the same basis that is used for internal management reporting and it is also how the chief operating decision maker evaluates the business.
Television
The Company owns and/or operates 55 primary television stations located primarily in California, Colorado, Connecticut, Florida, Kansas, Massachusetts, Nevada, New Mexico, Texas and Washington, D.C.
Radio
The Company owns and operates 49 radio stations (38 FM and 11 AM) located in Arizona, California, Colorado, Florida, Nevada, New Mexico and Texas.
The Company owns and operates a national sales representation division, Entravision Solutions, through which the Company sells advertisements and syndicates radio programming to more than 100 markets across the United States.
Digital
The Company operates a proprietary technology and data platform that delivers digital advertising in various advertising formats that allows advertisers to reach audiences across a wide range of Internet-connected devices on its owned and operated digital media sites; the digital media sites of its publisher partners; and on other digital media sites it can access through third-party platforms and exchanges.
23
Separate financial data for each of the Company’s operating segments are provided below. Segment operat
ing profit (loss) is defined as operating profit (loss) before corporate expenses
,
change in fair value contingent consideration, impairment charge, f
oreign currency (gain) loss
and other operating (gain) loss
. The Company generated
17
% and
20
% of its
revenue outside the United States during the three-month period
s
ended June
3
0
, 201
9
and
June 30
, 2018
, respectively
.
The Company generated
16
% and
19
% of its revenue outside the United States during the six-month periods ended June 30, 2019 and June 30, 2
018, respectively.
The Company evaluates the performance of its operating segments based on the following (in thousands):
|
|
Three-Month Period
|
|
|
|
|
|
|
Six-Month Period
|
|
|
|
|
|
|
|
Ended June 30,
|
|
|
%
|
|
|
Ended June 30,
|
|
|
%
|
|
|
|
|
2019
|
|
|
|
2018
|
|
|
Change
|
|
|
|
2019
|
|
|
|
2018
|
|
|
Change
|
|
Net revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Television
|
|
$
|
38,071
|
|
|
$
|
36,531
|
|
|
|
4
|
%
|
|
$
|
76,324
|
|
|
$
|
71,022
|
|
|
|
7
|
%
|
Radio
|
|
|
14,366
|
|
|
|
17,240
|
|
|
|
(17
|
)%
|
|
|
26,321
|
|
|
|
31,343
|
|
|
|
(16
|
)%
|
Digital
|
|
|
16,804
|
|
|
|
20,558
|
|
|
|
(18
|
)%
|
|
|
31,276
|
|
|
|
38,802
|
|
|
|
(19
|
)%
|
Consolidated
|
|
|
69,241
|
|
|
|
74,329
|
|
|
|
(7
|
)%
|
|
|
133,921
|
|
|
|
141,167
|
|
|
|
(5
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue - digital media
|
|
|
8,859
|
|
|
|
11,384
|
|
|
|
(22
|
)%
|
|
|
16,501
|
|
|
|
22,009
|
|
|
|
(25
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Television
|
|
|
15,157
|
|
|
|
15,038
|
|
|
|
1
|
%
|
|
|
30,084
|
|
|
|
30,588
|
|
|
|
(2
|
)%
|
Radio
|
|
|
9,528
|
|
|
|
10,935
|
|
|
|
(13
|
)%
|
|
|
19,036
|
|
|
|
21,609
|
|
|
|
(12
|
)%
|
Digital
|
|
|
4,970
|
|
|
|
5,144
|
|
|
|
(3
|
)%
|
|
|
9,465
|
|
|
|
9,953
|
|
|
|
(5
|
)%
|
Consolidated
|
|
|
29,655
|
|
|
|
31,117
|
|
|
|
(5
|
)%
|
|
|
58,585
|
|
|
|
62,150
|
|
|
|
(6
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Television
|
|
|
5,634
|
|
|
|
5,551
|
|
|
|
1
|
%
|
|
|
11,448
|
|
|
|
11,523
|
|
|
|
(1
|
)%
|
Radio
|
|
|
4,396
|
|
|
|
4,502
|
|
|
|
(2
|
)%
|
|
|
9,171
|
|
|
|
9,108
|
|
|
|
1
|
%
|
Digital
|
|
|
3,515
|
|
|
|
2,620
|
|
|
|
34
|
%
|
|
|
6,740
|
|
|
|
5,336
|
|
|
|
26
|
%
|
Consolidated
|
|
|
13,545
|
|
|
|
12,673
|
|
|
|
7
|
%
|
|
|
27,359
|
|
|
|
25,967
|
|
|
|
5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Television
|
|
|
2,562
|
|
|
|
2,277
|
|
|
|
13
|
%
|
|
|
4,822
|
|
|
|
4,481
|
|
|
|
8
|
%
|
Radio
|
|
|
571
|
|
|
|
621
|
|
|
|
(8
|
)%
|
|
|
903
|
|
|
|
1,240
|
|
|
|
(27
|
)%
|
Digital
|
|
|
1,173
|
|
|
|
1,121
|
|
|
|
5
|
%
|
|
|
2,497
|
|
|
|
2,237
|
|
|
|
12
|
%
|
Consolidated
|
|
|
4,306
|
|
|
|
4,019
|
|
|
|
7
|
%
|
|
|
8,222
|
|
|
|
7,958
|
|
|
|
3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment operating profit (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Television
|
|
|
14,718
|
|
|
|
13,665
|
|
|
|
8
|
%
|
|
|
29,970
|
|
|
|
24,430
|
|
|
|
23
|
%
|
Radio
|
|
|
(129
|
)
|
|
|
1,182
|
|
|
*
|
|
|
|
(2,789
|
)
|
|
|
(614
|
)
|
|
|
354
|
%
|
Digital
|
|
|
(1,713
|
)
|
|
|
289
|
|
|
*
|
|
|
|
(3,927
|
)
|
|
|
(733
|
)
|
|
|
436
|
%
|
Consolidated
|
|
|
12,876
|
|
|
|
15,136
|
|
|
|
(15
|
)%
|
|
|
23,254
|
|
|
|
23,083
|
|
|
|
1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate expenses
|
|
|
6,501
|
|
|
|
6,266
|
|
|
|
4
|
%
|
|
|
13,395
|
|
|
|
12,241
|
|
|
|
9
|
%
|
Change in fair value contingent consideration
|
|
|
(2,735
|
)
|
|
|
(913
|
)
|
|
|
200
|
%
|
|
|
(2,376
|
)
|
|
|
1,187
|
|
|
*
|
|
Impairment charge
|
|
|
22,368
|
|
|
|
-
|
|
|
*
|
|
|
|
22,368
|
|
|
|
-
|
|
|
*
|
|
Foreign currency (gain) loss
|
|
|
(82
|
)
|
|
|
(17
|
)
|
|
|
382
|
%
|
|
|
50
|
|
|
|
196
|
|
|
|
(74
|
)%
|
Other operating (gain) loss
|
|
|
(1,597
|
)
|
|
|
(273
|
)
|
|
|
485
|
%
|
|
|
(3,593
|
)
|
|
|
(295
|
)
|
|
|
1,118
|
%
|
Operating income (loss)
|
|
|
(11,579
|
)
|
|
|
10,073
|
|
|
*
|
|
|
|
(6,590
|
)
|
|
|
9,754
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
$
|
(3,554
|
)
|
|
$
|
(4,001
|
)
|
|
|
(11
|
)%
|
|
$
|
(7,044
|
)
|
|
$
|
(7,399
|
)
|
|
|
(5
|
)%
|
Interest income
|
|
|
857
|
|
|
|
1,039
|
|
|
|
(18
|
)%
|
|
|
1,776
|
|
|
|
1,952
|
|
|
|
(9
|
)%
|
Dividend income
|
|
|
251
|
|
|
|
417
|
|
|
|
(40
|
)%
|
|
|
506
|
|
|
|
545
|
|
|
|
(7
|
)%
|
Income (loss) before income taxes
|
|
|
(14,025
|
)
|
|
|
7,528
|
|
|
*
|
|
|
|
(11,352
|
)
|
|
|
4,852
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Television
|
|
$
|
7,661
|
|
|
$
|
1,942
|
|
|
|
|
|
|
$
|
14,002
|
|
|
$
|
4,023
|
|
|
|
|
|
Radio
|
|
|
199
|
|
|
|
81
|
|
|
|
|
|
|
|
581
|
|
|
|
162
|
|
|
|
|
|
Digital
|
|
|
121
|
|
|
|
181
|
|
|
|
|
|
|
|
240
|
|
|
|
247
|
|
|
|
|
|
Consolidated
|
|
$
|
7,981
|
|
|
$
|
2,204
|
|
|
|
|
|
|
$
|
14,823
|
|
|
$
|
4,432
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
2019
|
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Television
|
|
|
506,267
|
|
|
|
487,929
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Radio
|
|
|
138,577
|
|
|
|
121,020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Digital
|
|
|
54,735
|
|
|
|
81,460
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
699,579
|
|
|
$
|
690,409
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
Percentage not meaningful.
|
24
6.
COMMITMENTS AND CONTINGENCIES
The Company is 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 of the Company that may arise out of or with respect to these matters will not materially adversely affect the financial position, results of operations or cash flows of the Company.
7. SUBSEQUENT EVENT
Acquisition of Television Station KMBH-TV
On July 31, 2019, the Company entered into an agreement with MBTV Texas Valley LLC to acquire television station KMBH-TV, serving the McAllen, Texas area, for $2.9 million. The transaction, which is subject to customary closing conditions, including the prior consent of the FCC, is currently expected to close in the second half of 2019.
25