What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-08-08 compared with 2024-05-02 · 165 added, 161 removed, 105 unchanged (76% of the section changed)

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

We are a leading global advertising solutions, media and technology company.

Our operations encompass integrated, end-to-end advertising solutions across multiple media, comprised of digital, television and audio properties.

For financial reporting purposes, we report in three segments based upon the type of advertising medium:

digital, television and audio.

Our digital segment, whose operations are primarily located in Europe, Latin America, Asia, the United States and Africa, reaches a global market, with a focus on advertisers that wish to advertise on digital platforms owned and operated primarily by global media companies.

We have commercial partnerships with Meta, ByteDance Ltd., or ByteDance, which owns the TikTok platform, X Corp., or X (formerly known as Twitter), Spotify AB, or Spotify, Snap Inc., or Snap, and Pinterest, Inc., or Pinterest.

Additionally, marketers can use our Smadex programmatic ad purchasing platform to deliver targeted advertising to audiences around the globe.

Our digital operations are comprised of three business units:

• Entravision Global Partners, our digital commercial partnerships business;

• Smadex, our programmatic ad purchasing platform;

• Adwake, our mobile growth solutions business.

On March 4, 2024, we received a communication from Meta that it intends to wind down its authorized sales partner, or ASP, program globally and end its relationship with all of its ASPs, including us, by July 1, 2024.

We expect that the termination of this program will have a material effect on our digital operations and results of operations and that our consolidated and digital segment revenue and cash flow from operations will be materially and adversely affected in future periods.

As a result, we have initiated a thorough review of our current digital strategy, operations and cost structure, which may include, among other things, the nature and extent to which we remain involved in this business and the timing thereof.

The discussion regarding our digital operations throughout this report, including all references to our commercial relationship as an ASP with Meta, and the impact that the termination by Meta of the ASP program is expected have on our business, including our results of operations, consolidated and digital segment revenue and cash flow from operations, should be read in consideration of this development.

With the sale of our EGP business during the second quarter of 2024, as discussed in more detail under “Highlights and Recent Developments” below and in Note 8 to Notes to Condensed Consolidated Financial Statements, we identify ourselves as a media and advertising technology company.

Our television and audio operations reach and engage U.S.

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Hispanic markets.

Our net revenue for the three-month period ended March 31, 2024 was $277.4 million.

Our advertising technology operations consist of:

• Smadex, our programmatic ad purchasing platform, that enables customers, primarily mobile app developers, to purchase advertising electronically and manage data-driven targeted advertising campaigns to audiences around the globe;

• Adwake, our mobile growth solutions business, which provides managed services similar to Smadex, except our sales teams use third-party programmatic platforms.

For financial reporting purposes, we currently report in three segments based upon the type of advertising medium:

digital, television and audio.

Our net revenue for the three-month period ended June 30, 2024 was $82.7 million.

Of this amount, revenue generated by our digital segment accounted for approximately 50%, revenue generated by our television segment accounted for approximately 34%, and revenue generated by our audio segment accounted for approximately 16% of total revenue.

• On March 4, 2024, we received a communication from Meta that it intends to wind down its authorized sales partner, or ASP, program globally and end its relationship with all of its ASPs, including us, by July 1, 2024.

• We prepaid $10 million of our 2023 Credit Facility in March 2024.

Prior to the sale of our EGP business during the second quarter of 2024, our digital segment accounted for the majority of our revenue.

With the sale of our EGP business, we anticipate that net revenue will be significantly lower in future periods, at least for the foreseeable future, the percentage of revenue contributed by our remaining digital operations will be significantly lower in future periods and, correspondingly, the percentage of revenue contributed by our media operations will be significantly higher in future periods.

As a result, cash flow from operations will be materially and adversely affected in future periods.

Highlights and Recent Developments

As a result of the communication from Meta on March 4, 2024, that it intended to wind down its ASP program globally and end its relationship with all of its ASPs, including us, by July 1, 2024, we conducted a thorough review of our digital strategy, operations and cost structure, and during the second quarter of 2024 made the decision to dispose of the operations of EGP, our digital commercial partnerships business.

In furtherance of this decision, during the second quarter of 2024, we:

• sold our 51% equity interest in Adsmurai back to its founders, terminated loans we had made previously to them in the principal amount of €12.3 million and terminated certain other agreements involving Adsmurai, for total consideration of €15.0 million (approximately $16.2 million on the date of the closing), of which amount €10.0 was paid at closing and €5.0 million will be paid within six months following the closing;

• sold 100% of the issued and outstanding shares of stock of Jack of Digital back to its founder, for cash consideration of $0.1 million;

• sold substantially all of the rest of our EGP business to IMS, for cash consideration of $16.4 million.

We used some of the net proceeds of these dispositions to satisfy a remaining contingent liability owed to the founders of MediaDonuts in the amount of $6.5 million and made a mandatory prepayment in the amount of $4.9 million under the terms of our 2023 Credit Facility.

We made certain additional prepayments in the aggregate amount of $5.1 million during the second quarter of 2024 under the terms of our 2023 Credit Facility.

We believe that the disposition of our digital commercial partnerships business will allow us to enhance our strategic focus on our media business and our advertising technology business.

We intend to continue to monitor our business operations and may make further adjustments if we believe that is appropriate, although we can provide no assurance that we will be successful in any such endeavors.

Relationship with TelevisaUnivision

Our network affiliation agreement with TelevisaUnivision provides certain of our owned stations the exclusive right to broadcast TelevisaUnivision’s primary Univision network and UniMás network programming in their respective markets.

We also generate revenue under a marketing and sales agreement with TelevisaUnivision, which give us the right to manage the marketing and sales operations of TelevisaUnivision-owned Univision affiliates in three markets – Albuquerque, Boston and Denver.

We also generate revenue under a marketing and sales agreement with TelevisaUnivision, which give us the right to manage the marketing and

sales operations of TelevisaUnivision-owned Univision affiliates in three markets – Albuquerque, Boston and Denver.

Under our proxy agreement with TelevisaUnivision, we grant TelevisaUnivision the right to negotiate the terms of retransmission consent agreements with multichannel video programming distributors, or MVPDs, for our Univision- and UniMás-affiliated television station signals.

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The term of each of these current agreements expires on December 31, 2026 for all of our Univision and UniMás network affiliate stations.

TelevisaUnivision

also owns approximately 10% of our common stock on a fully-converted basis.

TelevisaUnivision also owns approximately 10% of our common stock on a fully-converted basis.

For more information regarding these agreements and the stock that TelevisaUnivision owns, see Note 2 to Notes to Condensed Consolidated Financial Statements.

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For further information on recently issued accounting pronouncements, see Note 2 to Notes to Condensed Consolidated Financial Statements.

Three-Month Periods Ended March 31, 2024 and 2023

The following table sets forth selected data from our operating results for the three-month periods ended March 31, 2024 and 2023 (in thousands):

Three- and Six-Month Periods Ended June 30, 2024 and 2023

The following table sets forth selected data from our operating results for the three- and six-month periods ended June 30, 2024 and 2023 (in thousands):

Three-Month Period

Ended March 31,

Six-Month Period

Ended June 30,

Statements of Operations Data:

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Change in fair value of contingent consideration

Impairment charge

Foreign currency (gain) loss

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Income tax benefit (expense)

Net income (loss)

Net (income) loss attributable to redeemable noncontrolling interest

Net (income) loss attributable to noncontrolling interest

Net income (loss) from continuing operations

Net income (loss) from discontinued operations, net of tax

Net income (loss) attributable to common stockholders

Capital expenditures

Consolidated EBITDA (1)

Net cash provided by operating activities

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Net cash provided by (used in) financing activities

(1) Consolidated EBITDA means net income (loss) plus gain (loss) on sale of assets, depreciation and amortization, non-cash impairment charge, non-cash stock-based compensation included in operating and corporate expenses, net interest expense, other operating gain (loss), gain (loss) on debt extinguishment, income tax (expense) benefit, equity in net income (loss) of nonconsolidated affiliate, non-cash losses, syndication programming amortization less syndication programming payments, revenue from the Federal Communications Commission, or FCC, spectrum incentive auction less related expenses, expenses associated with investments, EBITDA attributable to redeemable noncontrolling interest, acquisitions and dispositions and

certain pro-forma cost savings.

We use the term consolidated EBITDA because that measure is defined in both the 2017 Credit Agreement and the 2023 Credit Agreement, and does not include gain (loss) on sale of assets, depreciation and amortization, non-cash impairment charge, non-cash stock-based compensation, net interest expense, other income (loss), gain (loss) on debt extinguishment, income tax (expense) benefit, equity in net income (loss) of nonconsolidated affiliate, non-cash losses, syndication programming amortization less syndication programming payments, revenue from FCC spectrum incentive auction less related expenses, expenses associated with investments, EBITDA attributable to redeemable noncontrolling interest, acquisitions and dispositions and certain pro-forma cost savings.

Because consolidated EBITDA is a measure governing several critical aspects of our 2023 Credit Facility, and since our ability to borrow under our Revolving Credit Facility is subject to compliance with a consolidated EBITDA financial covenant, we believe that it is important to disclose consolidated EBITDA to our investors.

Our 2023 Credit Facility contains a total net leverage ratio financial covenant.

The total net leverage ratio, or the ratio of consolidated total debt (net of up to $50.0 million of unrestricted cash) to trailing-twelve-month consolidated EBITDA, affects both our ability to borrow from our Revolving Credit Facility and our applicable margin for the interest rate calculation.

Under our 2023 Credit Agreement, our maximum total leverage ratio may not to exceed 3.25 to 1.00.

In addition, our 2023 Credit Agreement contains interest coverage ratio financial covenant (calculated as set forth in the 2023 Credit Agreement), with a minimum permitted ratio of 3.00 to 1.00.

While many in the financial community and we consider consolidated EBITDA to be important, it should be considered in addition to, but not as a substitute for or superior to, other measures of liquidity and financial performance prepared in accordance with accounting principles generally accepted in the United States of America, such as cash flows from operating activities, operating income (loss) and net income (loss).

Consolidated EBITDA has certain limitations because it excludes and includes several important financial line items as noted above.

Therefore, we consider both non-GAAP and GAAP measures when evaluating our business.

Consolidated EBITDA is also used to make executive compensation decisions.

Consolidated EBITDA is a non-GAAP measure.

The most directly comparable GAAP financial measure to consolidated EBITDA is cash flows from operating activities.

A reconciliation of this non-GAAP measure to cash flows from operating activities follows (in thousands):

Three-Month Period

Ended March 31,

Consolidated EBITDA

EBITDA attributable to redeemable noncontrolling interest

EBITDA attributable to noncontrolling interest

Interest expense

Interest income

Dividend income

Realized gain (loss) on marketable securities

Income tax expense

Amortization of syndication contracts

Payments on syndication contracts

Non-cash stock-based compensation included in direct operating expenses

Non-cash stock-based compensation included in corporate expenses

Depreciation and amortization

Change in fair value of contingent consideration

Impairment charge

Non-recurring cash severance charge

Gain (loss) on debt extinguishment

Net (income) loss attributable to redeemable noncontrolling interest

Net (income) loss attributable to noncontrolling interest

Net income (loss) attributable to common stockholders

Depreciation and amortization

Impairment charge

Deferred income taxes

Non-cash interest

Amortization of syndication contracts

Payments on syndication contracts

Non-cash stock-based compensation

Realized (gain) loss on marketable securities

(Gain) loss on debt extinguishment

(Gain) loss on disposal of property and equipment

Change in fair value of contingent consideration

Net income (loss) attributable to redeemable noncontrolling interest

Net income (loss) attributable to noncontrolling interest

Changes in assets and liabilities:

(Increase) decrease in accounts receivable

(Increase) decrease in prepaid expenses and other current assets, operating leases right of use asset and other assets

Increase (decrease) in accounts payable, accrued expenses and other liabilities

Cash flows from operating activities

Consolidated Operations

Net revenue increased to $277.4 million for the three-month period ended March 31, 2024 from $239.0 million for the three-month period ended March 31, 2023.

This increase was primarily attributable to increases in advertising revenue from our digital business units in our digital segment, and political advertising revenue in our television and audio segments, partially offset by decreases in national advertising revenue, spectrum usage rights revenue and retransmission consent revenue in our television segment, and decreases in local and national advertising revenue in our audio segment.

Net revenue increased to $82.7 million for the three-month period ended June 30, 2024 from $73.7 million for the three-month period ended June 30, 2023.

This increase was primarily attributable to an increase of $10.8 million in advertising revenue from our digital segment, partially offset by decreases of $1.4 million and $0.5 million in advertising revenue from our television and audio segments, respectively.

Net revenue increased to $160.8 million for the six-month period ended June 30, 2024 from $141.4 million for the six-month period ended June 30, 2023.

This increase was primarily attributable to an increase of $23.9 million in advertising revenue from our digital segment, partially offset by decreases of $3.1 million and $1.3 million in advertising revenue from our television and audio segments, respectively.

Cost of revenue-Digital.

Cost of revenue in our digital segment increased to $203.2 million for the three-month period ended March 31, 2024 from $167.8 million for the three-month period ended March 31, 2023, primarily due to the increase in digital advertising revenue.

Cost of revenue in our digital segment increased to $24.4 million for the three-month period ended June 30, 2024 from $19.6 million for the three-month period ended June 30, 2023, primarily due to the increase in digital advertising revenue.

Cost of revenue in our digital segment increased to $47.1 million for the six-month period ended June 30, 2024 from $36.5 million for the six-month period ended June 30, 2023, primarily due to the increase in digital advertising revenue.

Direct Operating Expenses.

Direct operating expenses increased to $35.6 million for the three-month period ended March 31, 2024 from $29.9 million for the three-month period ended March 31, 2023.

This increase was primarily attributable to an increase in expenses associated with the increase in advertising revenue, and an increase in salaries.

Direct operating expenses increased to $31.8 million for the three-month period ended June 30, 2024, from $28.9 million for the three-month period ended June 30, 2023.

This increase was primarily attributable to an increase of $1.4 million in direct operating expenses in our digital segment and $1.9 million in direct operating expenses in our television segment, partially offset by a decrease of $0.4 million in direct operating expenses in our audio segment.

Direct operating expenses increased to $63.6 million for the six-month period ended June 30, 2024, from $55.5 million for the six-month period ended June 30, 2023.

This increase was primarily attributable to an increase of $3.6 million in direct operating expenses in our digital segment, $4.1 million in direct operating expenses in our television segment, and $0.4 million in direct operating expenses in our audio segment.

Selling, General and Administrative Expenses.

Selling, general and administrative expenses increased to $26.7 million for the three-month period ended March 31, 2024 from $22.8 million for the three-month period ended March 31, 2023.

This increase was primarily attributable to our digital segment, primarily due to an increase in salaries, partially offset by a decrease in rent expense.

Selling, general and administrative expenses increased to $14.4 million for the three-month period ended June 30, 2024 from $12.6 million for the three-month period ended June 30, 2023.

This increase was primarily attributable to an increase of $1.5 million in selling, general and administrative expenses in our digital segment and $0.8 million in selling, general and administrative expenses in our television segment, partially offset by a decrease of $0.6 million in selling, general and administrative expenses in our audio segment.

Selling, general and administrative expenses increased to $28.7 million for the six-month period ended June 30, 2024 from $25.4 million for the six-month period ended June 30, 2023.

This increase was primarily attributable to an increase of $3.0 million in selling, general and administrative expenses in our digital segment and $1.5 million in selling, general and administrative expenses in our television segment, partially offset by a decrease of $1.2 million in selling, general and administrative expenses in our audio segment.

Corporate Expenses.

Corporate expenses increased to $12.2 million for the three-month period ended March 31, 2024 from $10.5 million for the three-month period ended March 31, 2023.

This increase was primarily due to an increase in non-cash stock-based compensation and an increase in salaries, partially offset by a decrease in audit fees.

Depreciation and amortization increased to $7.1 million for the three-month period ended March 31, 2024 compared to $6.5 million for the three-month period ended March 31, 2023.

This increase was primarily attributable to the acquisition of BCNMonetize, which did not contribute to our financial results in the comparable prior period.

Corporate expenses decreased to $10.8 million for the three-month period ended June 30, 2024 from $12.0 million for the three-month period ended June 30, 2023.

This decrease was primarily due to a decrease of $1.9 million in professional services expense, and a decrease of $0.5 million in non-cash stock-based compensation, partially offset by an increase of $1.1 million in severance expense.

Corporate expenses increased to $23.1 million for the six-month period ended June 30, 2024 from $22.5 million for the six-month period ended June 30, 2023.

This increase was primarily due to an increase of $1.1 million in severance expense, an increase of $1.0 million in non-cash stock-based compensation, and an increase of $0.7 million in salaries, partially offset by a decrease of $2.2 million in professional services expense.

Depreciation and amortization increased to $4.4 million for the three-month period ended June 30, 2024 compared to $3.7 million for the three-month period ended June 30, 2023.

Of this increase, $0.3 million was attributable to the acquisition of BCNMonetize, which did not fully contribute to our financial results in the comparable prior period, and $0.4 million was attributable to depreciation expense related to our new corporate headquarters.

Depreciation and amortization increased to $9.2 million for the six-month period ended June 30, 2024 compared to $7.2 million for the six-month period ended June 30, 2023.

Of this increase, $1.0 million was attributable to the acquisition of BCNMonetize, which did not fully contribute to our financial results in the comparable prior period, and $0.9 million was attributable to depreciation expense related to our new corporate headquarters.

Change in fair value of contingent consideration.

As a result of the change in fair value of the contingent consideration related to our various acquisitions, we recognized income of $1.4 million and $4.1 million for the three-month periods ended March 31, 2024 and 2023, respectively.

We incurred a goodwill impairment charge of $35.4 million and intangible assets subject to amortization impairment of $14.0 million for the three-month period ended March 31, 2024, in our digital segment, related to the impending termination by Meta of its ASP program.

See Note 2 to Notes to Condensed Consolidated Financial Statements.

As a result of the change in fair value of the contingent consideration related to the acquisition of BCNMonetize, we recognized an expense of $0.2 million and a de minimis amount for the three-month periods ended June 30, 2024 and 2023, respectively.

As a result of the change in fair value of the contingent consideration, we recognized a de minimis amount related to the acquisition of BCNMonetize for the six-month period ended June 30, 2024, and we recognized an expense of $0.7 million related to a previous acquisition for the six-month period ended June 30, 2023.

Foreign currency (gain) loss.

We had a foreign currency loss of $0.4 million for the three-month period ended March 31, 2024 compared to a foreign currency gain of $1.0 million for the three-month period ended March 31, 2023.

We had a de minimis amount of foreign currency gain for the three-month period ended June 30, 2024 compared to a foreign currency loss of $0.8 million for the three-month period ended June 30, 2023.

Foreign currency gains and losses are primarily due to currency fluctuations that affect our digital segment operations located outside the United States.

We had a foreign currency loss of $0.2 million for the six-month period ended June 30, 2024 compared to a foreign currency loss of $1.0 million for the six-month period ended June 30, 2023.

Foreign currency gains and losses are primarily due to currency fluctuations that affect our digital segment operations located outside the United States.

Interest Expense, net.

Interest expense, net increased to $3.4 million for the three-month period ended March 31, 2024 from $3.2 million for the three-month period ended March 31, 2023.

This increase was primarily due to a higher interest rate on our debt, partially offset by higher interest income.

Interest expense, net remained constant at $3.5 million for each of the three-month periods ended June 30, 2024 and 2023.

Interest expense, net increased to $7.4 million for the six-month period ended June 30, 2024 from $6.8 million for the six-month period ended June 30, 2023.

This increase was primarily due to a higher interest rate on our debt and a lower interest income.

Gain (loss) on debt extinguishment.

We recorded a de minimis loss on debt extinguishment for the three-month period ended March 31, 2024 due to prepayment of $10.0 million of our 2023 Credit Facility.

We recorded a loss on debt extinguishment of $1.6 million for the three-month period ended March 31, 2023 due to the refinancing of our previous credit facility with our 2023 Credit Facility.

We recorded a loss on debt extinguishment of $0.1 million for the three-month period ended June 30, 2024 due to a prepayment of $10.0 million of our 2023 Credit Facility.

We recorded a loss on debt extinguishment of $0.1 million for the six-month period ended June 30, 2024 due to prepayments totaling $20.0 million of our 2023 Credit Facility.

We recorded a loss on debt extinguishment of $1.6 million for the six-month period ended June 30, 2023 due to the refinancing of our previous credit facility with our 2023 Credit Facility.

Realized gain (loss) on marketable securities.

For the three-month period ended March 31, 2024 we recorded $0.1 million of realized loss, related to our available for sale securities.

For the three-month period ended March 31, 2023 we recorded a de minimis amount of realized loss, related to our available for sale securities.

For each of the three-month periods ended June 30, 2024 and 2023 we recorded a de minimis amount of realized gain and loss, respectively, related to our available for sale securities.

For each of the six-month periods ended June 30, 2024 and 2023 we recorded $0.1 million of realized loss, related to our available for sale securities.

Income Tax Expense or Benefit.

Income tax benefit for the three-month period ended March 31, 2024 was $7.8 million.

The effective tax rate for the three-month period ended March 31, 2024 was different from our statutory rate due to foreign and state taxes, changes in valuation allowances on deferred tax assets, non deductible executive compensation, changes in the fair value of the contingent consideration liability, goodwill impairment, and non-taxable non-territorial income.

Income tax expense for the three-month period ended March 31, 2023 was $0.2 million, or 12% of our pre-tax income.

The effective tax rate for the three-month period ended March 31, 2023 was different from our statutory rate due to foreign and state taxes, changes in valuation allowances on deferred tax assets, non deductible executive compensation, changes in the fair value of the contingent consideration liability, and non-taxable non-territorial income.

Income tax benefit for the three-month period ended June 30, 2024 was $10.7 million.

The effective tax rate for the three-month period ended June 30, 2024 was different from our statutory rate due to foreign and state taxes, changes in valuation allowances on deferred tax assets, non-deductible executive compensation, changes in the fair value of the contingent consideration liability, goodwill impairment, and non-taxable non-territorial income.

Income tax benefit for the three-month period ended June 30, 2023 was $1.6 million.

The effective tax rate for the three-month period ended June 30, 2023 was different from our statutory rate due to foreign and state taxes, changes in valuation allowances on deferred tax assets, non-deductible executive compensation, changes in the fair value of the contingent consideration liability, and non-taxable non-territorial income.

Income tax benefit for the six-month period ended June 30, 2024 was $14.8 million.

The effective tax rate for the six-month period ended June 30, 2024 was different from our statutory rate due to foreign and state taxes, changes in valuation allowances on deferred tax assets, non-deductible executive compensation, changes in the fair value of the contingent consideration liability, goodwill impairment, and non-taxable non-territorial income.

Income tax benefit for the six-month period ended June 30, 2023 was $2.0 million.

The effective tax rate for the six-month period ended June 30, 2023 was different from our statutory rate due to foreign and state taxes, changes in valuation allowances on deferred tax assets, non-deductible executive compensation, changes in the fair value of the contingent consideration liability, and non-taxable non-territorial income.

Our management periodically evaluates the realizability of the deferred tax assets and, if it is determined that it is more likely than not that the deferred tax assets are, or are not, realizable, adjusts the valuation allowance accordingly.

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Foreign Tax Credit carryovers.

As a result of historical losses from our digital operations primarily in Spain, Uruguay, Mexico and Argentina and certain U.S.

Foreign Tax Credit carryovers, management has determined that it is more likely than not that deferred tax assets of $6.3 million at March 31, 2024 will not be realized and therefore we have established a valuation allowance in that amount on those assets .

As a result of historical losses from our digital operations primarily in Spain, Uruguay, Mexico and Argentina, certain U.S.

Foreign Tax Credit carryovers and capital losses due to sale of subsidiaries management has determined that it is more likely than not that deferred tax assets of $31.3 million at June 30, 2024 will not be realized and therefore we have established a valuation allowance in that amount on those assets.

The Organization for Economic Co-operation and Development (“OECD”) Pillar 2 guidelines address the increasing digitalization of the global economy, re-allocating taxing rights among countries.

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Segment Operations

Net revenue in our digital segment increased to $237.5 million for the three-month period ended March 31, 2024 from $196.5 million for the three-month period ended March 31, 2023.

The increase was primarily due to increases in advertising revenue from our various digital business units, and due to the acquisition of BCNMonetize, which did not contribute to our financial results in our digital segment in the comparable prior period.

Net revenue in our digital segment increased to $41.1 million for the three-month period ended June 30, 2024 from $30.2 million for the three-month period ended June 30, 2023.

The increase was primarily due to increases in advertising revenue from Smadex.

Net revenue in our digital segment increased to $79.3 million for the six-month period ended June 30, 2024 from $55.4 million for the six-month period ended June 30, 2023.

The increase was primarily due to increases in advertising revenue from Smadex.

Cost of revenue .

We have previously noted a trend in our digital operations globally whereby revenue is shifting more to programmatic revenue.

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In response to this trend, we have been offering our programmatic purchasing platform, Smadex, to advertisers.

We are also experiencing lower margins related to revenue generated from our Entravision Global Partners business, as a result of relative negotiating strength and industry trends generally.

We expect these trends will continue in future periods, likely further resulting in a more pronounced lower margin business in our digital segment.

For example, beginning in the second half of 2023, we have begun receiving a lower rate of payment on our sales made on behalf of Meta, resulting in further lower margins.

The digital advertising industry remains dynamic and is continuing to undergo rapid changes in technology, customer expectation and competition.

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No assurances can be given that such strategies will be successful.

We expect that the termination of Meta’s ASP program will have a material effect on our digital operations and results of operations and that our consolidated and digital segment revenue and cash flow from operations will be materially and adversely affected in future periods.

Direct operating expenses .

Direct operating expenses in our digital segment increased to $10.7 million for the three-month period ended March 31, 2024 from $8.0 million for the three-month period ended March 31, 2023, primarily due to an increase in expenses associated with the increase in digital advertising revenue.

Direct operating expenses in our digital segment increased to $7.4 million for the three-month period ended June 30, 2024 from $6.1 million for the three-month period ended June 30, 2023, primarily due to an increase in cloud infrastructure expenses associated with the increase in digital advertising revenue.

Direct operating expenses in our digital segment increased to $14.4 million for the six-month period ended June 30, 2024 from $10.8 million for the six-month period ended June 30, 2023, primarily due to an increase of $2.6 million in cloud infrastructure expenses and an increase of $1.0 million in salaries associated with the increase in digital advertising revenue.

Selling, general and administrative expenses .

Selling, general and administrative expenses in our digital segment increased to $17.3 million for the three-month period ended March 31, 2024, from $13.5 million for the three-month period ended March 31, 2023, primarily due to an increase in salary expense.

Net revenue in our television segment decreased to $28.5 million in the three-month period ended March 31, 2024, from $30.3 million in the three-month period ended March 31, 2023, primarily due to decreases in national advertising revenue, spectrum usage rights revenue and retransmission consent revenue, partially offset by an increase in political advertising revenue.

Selling, general and administrative expenses in our digital segment increased to $5.4 million for the three-month period ended June 30, 2024, from $3.8 million for the three-month period ended June 30, 2023, primarily due to an increase in salaries.

Selling, general and administrative expenses in our digital segment increased to $10.3 million for the six-month period ended June 30, 2024, from $7.4 million for the six-month period ended June 30, 2023, primarily due to an increase in salaries.

Net revenue in our television segment decreased to $28.6 million for the three-month period ended June 30, 2024 from $29.9 million for the three-month period ended June 30, 2023.

This decrease was primarily due to a decrease of $1.5 million in advertising revenue, a decrease of $0.5 million in spectrum usage rights revenue and a decrease of $0.5 million in retransmission consent revenue, partially offset by an increase of $1.2 million in political advertising revenue.

Net revenue in our television segment decreased to $57.1 million for the six-month period ended June 30, 2024 from $60.3 million for the six-month period ended June 30, 2023.

This decrease was primarily due to a decrease of $2.8 million in advertising revenue, a decrease of $0.8 million in spectrum usage rights revenue and a decrease of $1.0 million in retransmission consent revenue, partially offset by an increase of $1.4 million in political advertising revenue.

In general, our television segment faces declining audiences, which we believe is present across the industry, competitive factors with the other major Spanish-language broadcasters, and changing demographics and preferences of audiences, particularly younger audiences, in terms of the media they prefer to view, including streaming and social media.

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Direct Operating Expenses.

Direct operating expenses in our television segment increased to $16.9 million for the three-month period ended March 31, 2024 from $14.8 million for the three-month period ended March 31, 2023, primarily due to an increase in salaries as a result of expanding our local news operations.

Direct operating expenses in our television segment increased to $17.0 million for the three-month period ended June 30, 2024 from $15.0 million for the three-month period ended June 30, 2023, primarily due to an increase in salaries, primarily associated with the expansion of our news programming in anticipation of this year's election cycle.

Direct operating expenses in our television segment increased to $33.9 million for the six-month period ended June 30, 2024 from $29.8 million for the six-month period ended June 30, 2023, primarily due to an increase of $3.6 million in salaries, primarily associated with the expansion of our news programming in anticipation of this year's election cycle, and $0.2 million in programming fees.

Selling, General and Administrative Expenses.

Selling, general and administrative expenses in our television segment increased to $6.0 million for the three-month period ended March 31, 2024 from $5.3 million for the three-month period ended March 31, 2023, primarily due to an increase in salaries.

Selling, general and administrative expenses in our television segment increased to $5.7 million for the three-month period ended June 30, 2024 from $4.8 million for the three-month period ended June 30, 2023, primarily due to an increase in salaries and other employee benefits.

Selling, general and administrative expenses in our television segment decreased to $11.7 million for the six-month period ended June 30, 2024 from $10.2 million for the three-month period ended June 30, 2023, primarily due to an increase in salaries and other employee benefits.

Net Revenue .

Net revenue in our audio segment decreased to $11.4 million in the three-month period ended March 31, 2024, from $12.2 million in the three-month period ended March 31, 2023, primarily due to decreases in local and national advertising revenue, partially offset by an increase in political advertising revenue.

Net revenue in our audio segment decreased to $13.0 million for the three-month period ended June 30, 2024 from $13.5 million for the three-month period ended June 30, 2023.

This decrease was primarily due to a decrease of $0.8 million in advertising revenue, partially offset by an increase of $0.3 million in political advertising revenue.

Net revenue in our audio segment decreased to $24.4 million for the six-month period ended June 30, 2024 from $25.8 million for the six-month period ended June 30, 2023.

This decrease was primarily due to a decrease of $1.9 million in advertising revenue, partially offset by an increase of $0.5 million in political advertising revenue.

In general, our audio segment faces declining audiences, which we believe is present across the industry, competitive factors with other major Spanish-language broadcasters, and changing demographics and preferences of listening audiences, particularly younger audiences, including podcasts and other streaming services.

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Direct Operating Expenses.

Direct operating expenses in our audio segment increased to $7.9 million for the three-month period ended March 31, 2024 from $7.1 million for the three-month period ended March 31, 2023, primarily due to increases in salaries.

Direct operating expenses in our audio segment decreased to $7.4 million for the three-month period ended June 30, 2024 from $7.8 million for the three-month period ended June 30, 2023, primarily due to a decrease of $0.7 million in expenses associated with the decrease in advertising revenue, partially offset by an increase of $0.2 million in ratings services expense.

Direct operating expenses in our audio segment increased to $15.3 million for the six-month period ended June 30, 2024 from $14.9 million for the six-month period ended June 30, 2023, primarily due to an increase of $0.4 million in salaries expense and $0.4 million in ratings services expense, partially offset by a decrease of $0.5 million in expenses associated with the decrease in advertising revenue.

Selling, General and Administrative Expenses.

Selling, general and administrative expenses in our audio segment decreased to $3.3 million for the three-month period ended March 31, 2024 from $3.9 million for the three-month period ended March 31, 2023, primarily due to a decrease in rent expense.

Selling, general and administrative expenses in our audio segment decreased to $3.3 million for the three-month period ended June 30, 2024 from $4.0 million for the three-month period ended June 30, 2023, primarily due to a decrease in rent expense.

Selling, general and administrative expenses in our audio segment decreased to $6.7 million for the six-month period ended June 30, 2024 from $7.9 million for the six-month period ended June 30, 2023, primarily due to a decrease in rent expense.

Liquidity and Capital Resources

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We had positive cash flow from operations of $75.2 million, $78.9 million and $65.3 million for the years ended December 31, 2023, 2022 and 2021, respectively.

We had positive cash flow from operations of $33.4 million for the three-month period ended March 31, 2024.

We had positive cash flow from operations of $51.1 million for the six-month period ended June 30, 2024.

For at least the next twelve months, we expect to fund our working capital requirements, capital expenditures and payments of principal and interest on outstanding indebtedness, with cash on hand and cash flows from operations.

We currently believe that our cash position is capable of meeting our operating and capital expenses and debt service requirements for at least the next twelve months from the issuance of this report.

We believe that our position is strengthened by cash and cash equivalents on hand, in the amount of $128.4 million, and available for sale marketable securities in the additional amount of $4.3 million, as of March 31, 2024.

To the extent that our then current liquidity is insufficient to fund business activities or if we do not remain in compliance with our financial covenants under the 2023 Credit Agreement, whether as a result of the termination of the Meta ASP program or otherwise, we may be required to seek additional equity or debt financing in the future to satisfy capital requirements.

We believe that our position is strengthened by cash and cash equivalents on hand, in the amount of $85.1 million, and available for sale marketable securities in the additional amount of $3.2 million, as of June 30, 2024.

Our liquidity is not materially affected by the amounts held in accounts outside the United States.

On March 4, 2024, we received a communication from Meta that it intended to wind down its authorized sales partner, or ASP, program globally and end its relationship with all of its ASPs, including us, by July 1, 2024.

As a result, we conducted a thorough review of our digital strategy, operations and cost structure, and during the second quarter of 2024 made the decision to dispose of the operations of EGP, our digital commercial partnerships business, which was completed during the second quarter of 2024.

We expect that the disposition of our EGP business, the largest business unit of our digital segment, will have a material effect on our results of operations in that total revenue from our digital segment is expected to be significantly lower than it was prior to the disposition of our EGP business.

Additionally, cash flow from operations will be materially and adversely affected in future periods, which could also adversely affect our liquidity.

To the extent that our then current liquidity is insufficient to fund our business activities or if we do not remain in compliance with our financial covenants under the 2023 Credit Agreement, whether as a direct or indirect result of the disposition of our EGP business or otherwise, we may be required to seek additional equity or debt financing in the future to satisfy capital requirements.

There is no guarantee that any such capital would be available to us on favorable terms, or at all.

The failure to obtain any required capital could have a material adverse effect on our operations and financial condition.

Our liquidity is not materially affected by the amounts held in accounts outside the United States.

The majority of our cash and cash equivalents is held outside the United States, primarily in Uruguay, Spain and Singapore, none of which countries have foreign currency controls.

We hold smaller amounts of cash in certain countries that do have foreign currency controls, including Argentina, Brazil, India and Pakistan, which could impact our ability to freely repatriate such funds from those countries to the United States

Credit Facility

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In March 2024, we made a prepayment of $10.0 million, of which $8.75 million was applied to the upcoming quarterly principal payments in 2024 under the Term A Facility, and $1.25 million was applied to the Revolving Credit Facility.

In June 2024, we made an additional prepayment of $10.0 million, of which $4.9 million was a mandatory prepayment as a result of the EGP disposition.

The prepayment was applied to the quarterly principal payments in 2025 under the Term A Facility.

Consolidated EBITDA

Consolidated EBITDA decreased to $4.5 million for the three-month period ended March 31, 2024 compared to $13.0 million for the three-month period ended March 31, 2023.

As a percentage of net revenue, consolidated EBITDA decreased to 2% for the three-month period ended March 31, 2024 from 5% for the three-month period ended March 31, 2023.

Consolidated EBITDA, which is defined in the 2023 Credit Agreement, is a non-GAAP measure.

For a reconciliation of consolidated EBITDA to cash flows from operating activities, its most directly comparable GAAP financial measure, please see page 30.

Net cash flow provided by operating activities was $33.4 million for the three-month period ended March 31, 2024, compared to net cash flow provided by operating activities of $36.7 million for the three-month period ended March 31, 2023.

We had net loss of $51.7 million for the three-month period ended March 31, 2024, which included non-cash items such as deferred income taxes of $4.2 million, depreciation and amortization expense of $7.1 million, non-cash stock-based compensation expense of $5.4 million, change in fair value of contingent consideration of $1.4 million, and impairment charge of $49.4 million.

We had net income of $1.7 million for the three-month period ended March 31, 2023, which included non-cash items such as deferred income taxes of $0.2 million, depreciation and amortization expense of $6.5 million, change in fair value of contingent consideration of $4.1 million, non-cash stock-based compensation of $4.1 million, and loss on debt extinguishment of $1.6 million.

Consolidated EBITDA is a non-GAAP measure.

The most directly comparable GAAP financial measure to consolidated EBITDA is net income (loss) attributable to common stockholders.

We use the term “consolidated EBITDA” because that term is defined in our 2023 Credit Agreement.

Under the terms of our 2023 Credit Agreement, consolidated EBITDA is a measure that governs several critical aspects of our 2023 Credit Facility, including, among other things, financial covenants with which we must comply and financial ratios which we must maintain in order to borrow funds needed for the operation of our business and with respect to the interest rates that we pay on our 2023 Credit Facility.

For example, our 2023 Credit Agreement contains a total net leverage ratio financial covenant.

Under our 2023 Credit Agreement, our maximum total leverage ratio may not exceed 3.25 to 1.00.

In addition, our 2023 Credit Agreement contains an interest coverage ratio financial covenant (calculated as set forth in the 2023 Credit Agreement), with a minimum permitted ratio of 3.00 to 1.00.

Therefore, we believe that it is important to disclose consolidated EBITDA to our investors to understand our compliance with these, and certain other, terms of our 2023 Credit Agreement.

While many in the financial community and we consider consolidated EBITDA to be important, it should be considered in addition to, but not as a substitute for or superior to, other measures of financial performance and liquidity prepared in accordance with accounting principles generally accepted in the United States of America, such as operating income (loss), net income (loss) and cash flows from operating activities.

Consolidated EBITDA has certain limitations because it excludes and includes several important financial line items as noted above.

Therefore, we consider both non-GAAP and GAAP measures when evaluating our business.

Consolidated EBITDA is also used to make executive compensation decisions.

A reconciliation of this non-GAAP measure to its most directly comparable GAAP financial measure follows (in thousands):

Six-Month Period

Ended June 30,

Net income (loss) attributable to common stockholders

Net income (loss) attributable to redeemable noncontrolling interest - discontinued operations

Net income (loss) attributable to noncontrolling interest - discontinued operations

Interest expense

Interest expense - discontinued operations

Interest income

Interest income - discontinued operations

Dividend income

Realized gain (loss) on marketable securities

(Gain) loss on debt extinguishment

Income tax expense

Income tax expense - discontinued operations

Amortization of syndication contracts

Payments on syndication contracts

Non-cash stock-based compensation

Depreciation and amortization

Depreciation and amortization - discontinued operations

Change in fair value of contingent consideration

Change in fair value of contingent consideration - discontinued operations

Impairment charge - discontinued operations

Non-recurring cash severance and restructuring charge

Other operating (gain) loss - discontinued operations

EBITDA attributable to redeemable noncontrolling interest - discontinued operations

EBITDA attributable to noncontrolling interest - discontinued operations

Consolidated EBITDA (1)

(1) Consolidated EBITDA is presented in accordance with the definition provided in our 2023 Credit Facility.

Net cash flow provided by operating activities was $51.1 million for the six-month period ended June 30, 2024, compared to $47.1 million for the three-month period ended June 30, 2023.

The increase in cash flow from operating activities was primarily due to net changes in our working capital of $29.9 million for the six-months periods ended June 30, 2024 compared to $25.7 million for the six-months periods ended June 30, 2023.

The net changes in working were primarily due to the timing of cash payments to publishers in the EGP business and timing of collections in the EGP business.

The increase in cash flow provided by operating activities was partially offset by a decrease in net income after adjusting for non-cash items.

Significant non-cash items in the six-month period ended June 30, 2024 included the loss on sale related to the EGP business of $45.0 million, impairment charges of $49.4 million, depreciation and amortization expense of $13.1 million, non-cash stock based compensation of $8.7 million, and income related to the change in fair value of contingent consideration of $12.5 million.

Significant non-cash items in the six-month period ended June 30, 2023 included depreciation and amortization expense of $13.0 million, non-cash stock based compensation of $10.0 million, and income related to the change in fair value of contingent consideration of $2.9 million.

We expect to have positive cash flow from operating activities for the 2024 year.

Net cash flow provided by investing activities was $6.1 million for the three-month period ended March 31, 2024, compared to net cash flow used in investing activities of $0.6 million for the three-month period ended March 31, 2023.

During the three-month period ended March 31, 2024, we spent $2.7 million in net capital expenditures, and received $8.8 million from the sale of marketable securities.

During the three-month period ended March 31, 2023, we spent $9.4 million on purchases of marketable securities, spent $6.8 million in net capital expenditures, and received $15.7 million from the sale of marketable securities.

Net cash flow used in investing activities was $26.9 million for the six-month period ended June 30, 2024, compared to $12.1 million for the six-month period ended June 30, 2023.

The increase in cash flow used in investing activities was primarily due to net cash divested in the sale of the EGP business of $43.0 million for the six-month period ended June 30, 2024 compared to $6.9 million spent on the purchase of businesses for the six-month period ended June 30, 2023, and a reduction in proceeds from the sale of marketable securities to $10.0 million for the six-month period ended June 30, 2024 compared to $28.1 million for the six-month period ended June 30, 2023.

The increase in cash flow used in operating activities was partially offset by a reduction in capital expenditures to $4.7 million for the six-month period ended June 30, 2024 compared to $14.9 million for the six-month period ended June 30, 2023 as a result of the build out of our corporate headquarters in the prior year period, no spend on purchases of marketable securities for the six-month period ended June 30, 2024 compared to $10.2 million for the six-month period ended June 30, 2023, and proceeds from a loan receivable associated with the sale of the EGP business of $10.7 million for the six-month period ended June 30, 2024 compared to the issuance of a loan receivable of $8.1 million for the six-month period ended June 30, 2023.

We anticipate that our capital expenditures will be approximately $7.0 million during the full year 2024.

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We expect to fund capital expenditures with cash on hand and net cash flow from operations.

Net cash flow used in financing activities was $16.8 million for the three-month period ended March 31, 2024, compared to net cash flow used in financing activities of $5.4 million for the three-month period ended March 31, 2023.

During the three-month period ended March 31, 2024, we made debt payments of $10.3 million, dividend payments of $4.5 million, distributions to noncontrolling interest of $1.1 million, and payments of contingent consideration of $0.9 million.

During the three-month period ended March 31, 2023, we made debt payments of $211.7 million, dividend payments of $4.9 million, payments of $1.3 million of debt issuance costs, payments for taxes related to shares withheld for share-based compensation plans of $0.1 million, and received $212.4 million proceeds from borrowings on debt and $0.3 million related to the issuance of common stock upon the exercise of stock options.

We have credit risk in our digital segment insofar as we are required to pay the media companies for which we act as commercial partner for all inventory purchased regardless of whether we are able to collect on a transaction from the local advertiser.

We believe that we manage this credit risk effectively, in part by analyzing the creditworthiness of these customers;

however, we can give no assurance that this will continue to be the case in future periods.

Nonetheless, we face some credit risk in connection with the termination by Meta of its ASP program, which will occur on or before July 1, 2024.

Whenever that actually occurs, we will have accounts receivable from certain advertisers who used our services while we were still an ASP of Meta, but with whom we will not have ongoing business after we cease being an ASP of Meta.

We are in the process of assessing the nature and extent of this risk but we cannot quantify any such risk at this time.

Additionally, we have been dependent upon one single global media company, Meta, for the majority of our consolidated revenue, which amounted to approximately 53% and 51% of our consolidated revenue for the three-month periods ended March 31, 2024 and 2023, respectively.

On March 4, 2024, we received a communication from Meta that it intends to wind down its ASP program globally and end its relationship with all of its ASPs, including us, by July 1, 2024.

The loss of all or a substantial part of this revenue will have a significant adverse effect on our cash flow and liquidity.

Net cash flow used in financing activities was $44.7 million for the six-month period ended June 30, 2024, compared to $46.1 million for the six-month period ended June 30, 2023.

The decrease in cash flow used in financing activities was primarily due to payments of contingent consideration of $14.3 million for the six-month period ended June 30, 2024 compared to $31.7 million for the six-month period ended June 30, 2023, distributions to noncontrolling interest of $1.1 million for the six-month period ended June 30, 2024 compared to $3.4 million for the six-month period ended June 30, 2023, and payments of $1.8 million of debt issuance costs for the six-month period ended June 30, 2023 as a result of the refinancing of our credit facility.

The decrease in cash flow used in financing activities was partially offset by $20.0 million of debt prepayments during the six-month period ended June 30, 2024.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis