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, Asiaand 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, 2022was $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
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, Texasand 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 AMstations located in Arizona, California, Colorado, Florida, Nevada, New Mexicoand 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 33 -------------------------------------------------------------------------------- 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 FCClicenses 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.
During the third quarter of 2022, our consolidated revenue increased to
$241.0 millionfrom $199.0 millionin 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 millionfor the three-month period ended September 30, 2022from $146.1 millionfor 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 millionfor the three-month period ended September 30, 2022from $36.5 millionfor 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, Tampaand 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 millionfor the three-month period ended September 30, 2022from $16.4 millionfor the three-month period ended September 30, 2021. This increase of approximately $0.1 millionin 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
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, 2020through December 31, 2020. The deferred amount is considered to be timely paid if 50% is paid by December 31, 2021and 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, 2022may 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, 2022and 2021, the amount we paid TelevisaUnivision in this capacity was $2.0 millionand $2.1 million, respectively. During the nine-month periods ended September 30, 2022and 2021, the amount we paid TelevisaUnivision in this capacity was $5.4 millionand $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, Bostonand 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, 2022and 2021, retransmission consent revenue accounted for $8.9 millionand $9.1 million, respectively, of which $6.2 millionand $6.4 million, respectively, relate to the TelevisaUnivision proxy agreement. During the nine-month periods ended September 30, 2022and 2021, retransmission consent revenue accounted for $27.2 millionand $28.1 million, respectively, of which $18.7 millionand $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, 35 --------------------------------------------------------------------------------
merge, consolidate or enter into a business combination, dissolve or liquidate our company or dispose of any interest in any
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
The following table sets forth selected data from our operating results for the three- and nine-month periods ended
September 30, 2022and 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 $ 199,00821 % $ 659,881 $ 526,29825 % 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 ) 36
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 FCCspectrum 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 millionplus 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 millionof 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 FCCspectrum 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. 37
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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