ENTRAVISION COMMUNICATIONS CORP MANAGEMENT REPORT OF FINANCIAL POSITION AND RESULTS OF OPERATIONS (Form 10-Q)


Insight

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. Our
digital segment, whose operations are primarily located in Latin America,
Europe, the United States, Asia and Africa, reaches a global market, with a
focus on advertisers in emerging economies that wish to advertise on digital
platforms owned and operated primarily by global media companies. Our television
and audio operations reach and engage U.S. Hispanics in the United States. For
financial reporting purposes, we report in three segments based upon the type of
advertising medium: digital, television and audio. Our net revenue for the
three-month period ended September 30, 2022 was $241.0 million. Of that amount,
revenue attributed to our digital segment accounted for approximately 78%,
revenue attributed to our television segment accounted for approximately 15% and
revenue attributed to our audio segment accounted for approximately 7%. Our
digital segment now accounts for the majority of our revenues and we expect this
to continue in future periods.

We provide digital end-to-end advertising solutions that allow advertisers to
reach online users worldwide. These solutions are comprised of four separate
business units:


•

our digital business partnerships business;

Smadex, our programmatic advertising buying platform;

our branding and mobile performance solutions business; and

our digital audio business.

Through our digital commercial partnerships business - the largest of our
digital business units - we act as an intermediary between primarily global
media companies and advertising customers or their ad agencies. The global media
companies we represent include Meta Platforms, or Meta (formerly known as
Facebook Inc.), Twitter, Inc., or Twitter, ByteDance Ltd., also known as TikTok,
and Spotify AB, or Spotify, as well as other media companies, in more than 30
countries throughout the world. Our dedicated local sales teams sell advertising
space on these and other media companies' digital platforms to our advertising
customers or their ad agencies for the placement of ads directed to online users
of a wide range of Internet-connected devices. We also provide some of our
advertising customers billing, technological and other support, including
strategic marketing and training, which we refer to as managed services.

Smadex is our proprietary automated purchasing platform, on which advertisers
can purchase ad inventory. This practice - the purchase and sale of advertising
inventory electronically - is referred to in our industry as programmatic
advertising. Smadex is also a "demand-side" platform, which allows advertisers
to purchase space from online marketplaces on which media companies list their
advertising inventory. Most advertisements acquired through Smadex are placed on
mobile devices, but they may also be placed on computers and Internet-connected
televisions. We also provide managed services to some of our advertising
customers in connection with their use of our Smadex platform.

We also offer a mobile performance and branding solutions business, which provides managed services to advertisers looking to connect with consumers, primarily on mobile devices. Our digital audio business provides digital audio advertising solutions to advertisers across the Americas.

We have a diversified media portfolio that targets Hispanic audiences. We own
and/or operate 49 primary television stations located primarily in California,
Colorado, Connecticut, Florida, Kansas, Massachusetts, Nevada, New Mexico, Texas
and Washington, D.C. Our television operations comprise the largest affiliate
group of both the top-ranked primary Univision television network of
TelevisaUnivision Inc., or TelevisaUnivision, and TelevisaUnivision's UniMás
network. We own and operate 45 radio stations in 14 U.S. markets. Our radio
stations consist of 37 FM and 8 AM stations located in Arizona, California,
Colorado, Florida, Nevada, New Mexico and Texas. We also sell advertisements and
syndicate radio programming to more than 100 markets across the United States.

In our digital segment, we generate revenue primarily from sales of advertising
that are placed by our advertising customers or their ad agencies on the digital
platforms of third-party media companies for which we act as commercial partner
or placed directly with online digital marketplaces through our Smadex platform.
In our television and audio segments, we generate revenue primarily from sales
of national and local advertising time on television stations and radio
stations, retransmission consent agreements that are entered into with MVPDs,
and agreements associated with our television stations' spectrum usage rights.
Advertising rates are, in large part, based on each medium's ability to attract
audiences in demographic groups targeted by advertisers.

In our digital segment, we recognize advertising revenue when display or other
digital advertisements record impressions on the websites and mobile and
Internet-connected television apps of media companies on whose digital platforms
the advertisements are placed or as the advertiser's previously agreed-upon
performance criteria are satisfied. In our television and audio segments, we
recognize advertising revenue when commercials are broadcast. We do not obtain
long-term commitments from our advertisers across any of our operations and,
consequently, they may cancel, reduce or postpone orders without penalties. In
our television and audio

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segments, we pay commissions to agencies for local and national advertising. For
contracts we have entered into directly with agencies, we record net revenue
from these agencies.

We refer to the revenue generated by agreements with MVPDs as retransmission
consent revenue, which represents payments from MVPDs for access to our
television station signals so that they may rebroadcast our signals and charge
their subscribers for this programming. We recognize retransmission consent
revenue earned as the television signal is delivered to an MVPD.

Our FCC licenses grant us spectrum usage rights within each of the television
markets in which we operate. These spectrum usage rights give us the authority
to broadcast our stations' over-the-air television signals to our viewers. We
regard these rights as a valuable asset. With the proliferation of mobile
devices and advances in technology that have freed up spectrum capacity, the
monetization of our spectrum usage rights has become a significant source of
revenue in recent years. We generate revenue from agreements associated with
these television stations' spectrum usage rights from a variety of sources,
including but not limited to agreements with third parties to utilize 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 our broadcasting operations; and modifying and/or
relinquishing spectrum usage rights while continuing to broadcast through
channel sharing or other arrangements. Revenue generated by such agreements is
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. In
addition, subject to certain restrictions contained in our 2017 Credit
Agreement, we will consider strategic acquisitions of television stations to
further this strategy from time to time, as well as additional monetization
opportunities expected to arise as the television broadcast industry implements
the standards contained in ATSC 3.0.

In our digital segment, our primary expense is cost of revenue which consists
primarily of the costs of online media acquired from the media companies for
which we act as commercial partner or purchased directly from online digital
marketplaces through our Smadex platform, as well as third party server costs.
Our primary expenses in our television and audio segments, and a secondary
expense in our digital segment, is employee compensation, including commissions
paid to our sales staff and amounts paid to our national sales representative
firms, as well as expenses for general and administrative functions, promotion
and selling, engineering, marketing, and local programming.

Strong points

During the third quarter of 2022, our consolidated revenue increased to $241.0
million from $199.0 million in the prior year period, primarily due to an
increase in advertising revenue in our digital segment, an increase in political
advertising revenue in our television and radio segments, and an increase in
spectrum usage rights revenue in our television segment, partially offset by a
decrease in local and national advertising revenue in our television segment, a
decrease in national advertising revenue in our radio segment, and a decrease in
retransmission consent revenue in our television segment.

Net revenue in our digital segment increased to $188.9 million for the
three-month period ended September 30, 2022 from $146.1 million for the
three-month period ended September 30, 2021. This increase of approximately
$42.8 million, or 29%, in net revenue was primarily due to advertising revenue
growth from our digital commercial partnerships business. Additionally, the
increase in net revenue was attributable to our investment in Adsmurai during
the third quarter of 2022 and our acquisition of 365 Digital during the fourth
quarter of 2021, neither of which contributed to net revenue in the comparable
period ended September 30, 2021.

Net revenue in our television segment decreased to $35.7 million for the
three-month period ended September 30, 2022 from $36.5 million for the
three-month period ended September 30, 2021. This decrease of approximately $0.8
million, or 2%, in net revenue was primarily due to decreases in local and
national advertising revenue, and a decrease in retransmission consent revenue.
These decreases were mainly attributed to the expiration of our Univision and
UniMás network affiliation agreements in Orlando, Tampa and Washington, D.C. on
December 31, 2021. The decrease was partially offset by increases in political
advertising revenue and spectrum usage rights revenue.

Net revenue in our audio segment increased to $16.5 million for the three-month
period ended September 30, 2022 from $16.4 million for the three-month period
ended September 30, 2021. This increase of approximately $0.1 million in net
revenue was primarily due to increases in political advertising revenue and
local advertising revenue, partially offset by a decrease in national
advertising revenue.

The impact of the COVID-19 pandemic on our business

This section of this report should be read in conjunction with the rest of this
item, "Forward-Looking Statements" and Notes to Consolidated Financial
Statements appearing herein, for a more complete understanding of the impact of
the COVID-19 pandemic on our business.

The COVID-19 pandemic had a minimal impact on our business during the quarter ended September 30, 2022. Subject to the magnitude and duration of possible resurgences of the pandemic from time to time and the continued uncertain economic environment that has resulted, in part, from the pandemic, we expect the pandemic to continue to have little impact. effect on our business,

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both operationally and financially in future periods. Nevertheless, we remain cautious due to the unpredictable nature of the pandemic and its effects. We also cannot guarantee that a resurgence or more prolonged impact of the pandemic in any location where our operations have employees or operate would not adversely affect our operations.

We have elected to defer the employer portion of the social security payroll tax
(6.2%) as provided in the Coronavirus Aid, Relief and Economic Security Act of
2020, commonly known as the CARES Act. The deferral was effective from March 27,
2020 through December 31, 2020. The deferred amount is considered to be timely
paid if 50% is paid by December 31, 2021 and the remainder is paid by December
31, 2022. During the year ended December 31, 2021, we paid 50% of the deferred
amount. We intend to pay the remainder of the deferred amount on or before
December 31, 2022.

Because of unprecedented uncertainties regarding the extent and duration of the
pandemic and the continuing economic disruption that has resulted from the
pandemic, our results of operations for the quarter ended September 30, 2022 may
not be indicative of our results of operations for any future period. We do not
know how soon the global, U.S. and local economies will fully recover to
pre-pandemic levels, and they may do so at different rates. Any resurgence of
the pandemic; reimposition of lockdown, shelter-in-place, stay-at-home and
similar orders; prolongation of the continuing economic disruption that has
resulted from the pandemic; or permanent changes in consumer behavior, could
adversely affect our business, results of operations and financial condition in
future periods during the course of the pandemic, or beyond.

We continue to closely monitor the situation across all fronts and will need to
continue to remain flexible in order to respond to developments as and if they
occur. However, we cannot give any assurance if, or the extent to which, we will
be successful in any such efforts.

Relationship with Televisa Univision

Substantially all of our television stations are Univision- or UniMás-affiliated
television stations. 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. Under the network affiliation agreement, we retain the
right to sell no less than four minutes per hour of the available advertising
time on stations that broadcast Univision network programming, and the right to
sell approximately four and a half minutes per hour of the available advertising
time on stations that broadcast UniMás network programming, subject to
adjustment from time to time by TelevisaUnivision.

Under the network affiliation agreement, TelevisaUnivision acts as our exclusive
third-party sales representative for the sale of certain national advertising on
our Univision- and UniMás-affiliate television stations, and we pay certain
sales representation fees to TelevisaUnivision relating to sales of all
advertising for broadcast on our Univision- and UniMás-affiliate television
stations. During the three-month periods ended September 30, 2022 and 2021, the
amount we paid TelevisaUnivision in this capacity was $2.0 million and $2.1
million, respectively. During the nine-month periods ended September 30, 2022
and 2021, the amount we paid TelevisaUnivision in this capacity was $5.4 million
and $6.0 million, respectively. These amounts were included in Direct Operating
Expenses in our Condensed Consolidated Statements of Operations.

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 for our
Univision- and UniMás-affiliated television station signals. Among other things,
the proxy agreement provides terms relating to compensation to be paid to us by
TelevisaUnivision with respect to retransmission consent agreements entered into
with MVPDs. During the three-month periods ended September 30, 2022 and 2021,
retransmission consent revenue accounted for $8.9 million and $9.1 million,
respectively, of which $6.2 million and $6.4 million, respectively, relate to
the TelevisaUnivision proxy agreement. During the nine-month periods ended
September 30, 2022 and 2021, retransmission consent revenue accounted for $27.2
million and $28.1 million, respectively, of which $18.7 million and $19.7
million, respectively, relate to the TelevisaUnivision 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. 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.

TelevisaUnivision currently owns approximately 11% of our common stock on a
fully-converted basis. Our Class U common stock, all of which is held by
TelevisaUnivision, has limited voting rights and does not include the right to
elect directors. 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 of such shares of
Class U common stock to a third party that is not an affiliate of
TelevisaUnivision. In addition, as the holder of all of our issued and
outstanding Class U common stock, so long as TelevisaUnivision holds a certain
number of shares of Class U common stock, we may not, without the consent of
TelevisaUnivision,

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merge, consolidate or enter into a business combination, dissolve or liquidate our company or dispose of any interest in any FCC license with respect to television stations affiliated with TelevisaUnivision, among others.

Critical accounting policies

For a description of our critical accounting policies, please refer to
"Application of Critical Accounting Policies and Accounting Estimates" in Part
II, Item 7, "Management's Discussion and Analysis of Financial Condition and
Results of Operations" of our 2021 10-K.

Recent accounting pronouncements

For further information on recently issued accounting pronouncements, see Note
2, "The Company and Significant Accounting Policies" in the accompanying Notes
to Condensed Consolidated Financial Statements.

Three and nine month periods ended September 30, 2022 and 2021

The following table sets forth selected data from our operating results for the
three- and nine-month periods ended September 30, 2022 and 2021 (in thousands):

                                     Three-Month Period                          Nine-Month Period
                                    Ended September 30,            %            Ended September 30,            %
                                     2022          2021         Change           2022          2021         Change
Statements of Operations Data:
Net Revenue                       $  241,014     $ 199,008            21 %    $  659,881     $ 526,298            25 %

Cost of revenue - digital            157,095       124,332            26 %       431,951       318,118            36 %
Direct operating expenses             30,086        28,583             5 %        87,505        83,480             5 %
Selling, general and
administrative expenses               19,208        14,530            32 %        53,022        41,489            28 %
Corporate expenses                     9,525         7,253            31 %        26,769        21,756            23 %
Depreciation and amortization          6,554         5,901            11 %        19,212        16,159            19 %
Change in fair value of
contingent consideration                 734             -             *           6,810             -             *
Impairment charge                          -           166          (100 )%            -         1,604          (100 )%
Foreign currency (gain) loss           1,966           177             *           2,112           454           365 %
Other operating (gain) loss              (58 )      (2,431 )         (98 )% 

(1,011) (4,867) (79)%

                                     225,110       178,511            26 %       626,370       478,193            31 %
Operating income (loss)               15,904        20,497           (22 )%       33,511        48,105           (30 )%
Interest expense                      (3,055 )      (1,714 )          78 %        (7,225 )      (5,287 )          37 %
Interest income                          788            12             *           1,916           235           715 %
Dividend income                            6           207           (97 )%           20           211           (91 )%
Realized gain (loss) on
marketable securities                   (473 )           -             *            (473 )           -             *
Income before income (loss)
taxes                                 13,170        19,002           (31 )%       27,749        43,264           (36 )%

Income tax income (expense) (4,080 ) (5,118 ) (20 )%

       (8,305 )     (11,902 )         (30 )%
Net income (loss)                      9,090        13,884           (35 )%       19,444        31,362           (38 )%
Net (income) loss attributable
to redeemable noncontrolling
interest                                   -        (1,753 )        (100 )%            -        (5,938 )        (100 )%
Net (income) loss attributable
to noncontrolling interest               303             -             *             303             -             *
Net income (loss) attributable
to common stockholders            $    9,393     $  12,131           (23 )%   $   19,747     $  25,424           (22 )%

Other Data:
Capital expenditures                   4,221         1,321                         7,629         3,949
Consolidated adjusted EBITDA
(1)                                                                               66,566        55,177
Net cash provided by operating
activities                                                                        78,142        53,780
Net cash provided by (used in)
investing activities                                                             (55,987 )      19,315
Net cash used in financing
activities                                                                       (85,657 )      (9,363 )




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(1)

Consolidated adjusted 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 adjusted EBITDA because that measure is defined in our
2017 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 adjusted EBITDA is a measure governing several critical
aspects of our 2017 Credit Facility, we believe that it is important to disclose
consolidated adjusted EBITDA to our investors. We may increase the aggregate
principal amount outstanding by an additional amount equal to $100.0 million
plus the amount that would result in our total net leverage ratio, or the ratio
of consolidated total senior debt (net of up to $75.0 million of unrestricted
cash) to trailing-twelve-month consolidated adjusted EBITDA, not exceeding 4.0.
In addition, beginning December 31, 2018, at the end of every calendar year, in
the event our total net leverage ratio is within certain ranges, we must make a
debt prepayment equal to a certain percentage of our Excess Cash Flow, which is
defined as consolidated adjusted EBITDA, less consolidated interest expense,
less debt principal payments, less taxes paid, less other amounts set forth in
the definition of Excess Cash Flow in the 2017 Credit Agreement. The total
leverage ratio was as follows (in each case as of September 30): 2022, 1.4 to 1;
2021, 1.6 to 1.

While many in the financial community and we consider consolidated adjusted
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). As consolidated adjusted EBITDA
excludes non-cash gain (loss) on sale of assets, non-cash depreciation and
amortization, non-cash impairment charge, non-cash stock-based compensation
expense, net interest expense, other income (loss), non-recurring cash expenses,
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, consolidated
adjusted EBITDA has certain limitations because it excludes and includes several
important financial line items. Therefore, we consider both non-GAAP and GAAP
measures when evaluating our business. Consolidated adjusted EBITDA is also used
to make executive compensation decisions.

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Consolidated adjusted EBITDA is a non-GAAP measure. The most directly comparable
GAAP financial measure to consolidated adjusted EBITDA is cash flows from
operating activities. A reconciliation of this non-GAAP measure to cash flows
from operating activities follows (in thousands):

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