Entravision Communications Corp (EVC) 2009 Q1 法說會逐字稿

Welcome to the Entravision Communications Corporation first quarter 2009 earnings conference call. As a reminder, all participants will be in a listen-only mode and there will be an opportunity for you to ask questions at the end of today's presentation. (Operator Instructions) For your information today's conference call is being recorded, and at this time I would like to turn the conference call over to Walter Ulloa, Chairman and Chief Executive Officer. Mr. Ulloa, you may begin.

Thank you, James. Good afternoon, everyone, and welcome to Entravision's first quarter 2009 earnings conference call. Joining me today is: Chris Young, our Executive Vice President and Chief Financial Officer, and Philip Wilkinson, our President and Chief Operating Officer. Before we begin I must inform you that this conference call will contain forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ. Please refer to our SEC filings for a list of risks and uncertainties that could impact actual results. In addition this call is the property of Entravision Communications Corporation. Any redistribution, retransmission or rebroadcast of this call in any form without the express written consent of the Entravision Communications Corporation is strictly prohibited. Also this call will include certain nonGAAP financial measures. The company has provided a reconciliation of these nonGAAP financial measures to their most directly comparable GAAP measures in today's press release.

The press release is available on the company's website and was filed with the SEC and a form 8K. In addition with the announced sales of the company's outdoor division at March 31, 2008, outdoor was classified as a discontinued operation and the results of operations are separately reported for all periods presented. Our results in the quarter reflect the continued economic recession and the challenging environment for advertising supported businesses. Our focus remains on the factors within our control and we are aggressively managing our costs to ensure we are maximizing our cash flows and reducing debt. We continue to take a prudent approach to managing our expenses. We have implement add number of cost initiatives which are expected to generate approximately $20 million in savings in 2009 versus 2008. These cost savings include an additional $9 million of expense reduction that we have made since our last investor conference call in February.

We will continue to review additional measures that will lead to increased efficiencies across our operations. At the same time we are ensuring our assets have the proper support with regard to delivering quality contents and driving audience shares. Our television and radio properties remain [in position] with strong ratings in the Nations's most dynamic Latino markets. We are aggressively pursuing new business in nontraditional opportunities such as distribution and interactive platform revenues both of which are expected to show growth this year.

Turning to our financial results for the quarter, our consolidated first quarter revenue fell 25% versus the same period in 2008 to $41.7 million. Consolidated adjusted EBITDA decreased 60% to $6.7 million versus last year, while free cash flow per share decreased 120%. The first quarter of 2008 benefited from $1.7 million of political revenue versus $10,000 of political revenue in the first quarter of 2009. Turning to our television division, excluding retransmission fees, revenue decreased 27% in the first quarter versus the prior year period. The local and national revenue fell 24% and 30% respectively much. The decrease was primarily due to continued softness in automotive and retail categories, as well as $1.5 million in nonreturning political television revenue. Auto was off 64% in the first quarter with weaknesses from all major brands, partially offsetting these were increases in the services, telecommunications and healthcare categories which grew by 4%, 2% and 18% respectively. Top advertisers for Entravision television in the quarter was McDonald's, Verizon, Cricket Communications, Ford and AT&T Mobility.

On a positive note the auto category stabilized in the second half of the quarter then trends continued through April, one important factor for Entravision is that Nissan regional has added our Univision affiliate in Denver to its list of priority markets in its new fiscal plans which started April 1st. In addition Ford and General Motors have extended their advantage in total confidence campaign in several key Entravision markets.

And finally several manufacturers are offering generous new co-op advertising incentive to local dealers to promote their parts and service departments which our Entravision sales force are actively pursuing. Our sales and marketing teams have adapt to do selling in a new environment where creativity and results determine success. Our coordinated sales efforts are focused on today's fastest growing advertising categories including: trade schools, recruitment, loan modification, attorney groups and insurance. These focused efforts resulted in the addition of 37 new advertisers within our TV division over $10,000 -- investing over $10,000 in the quarter.

On another positive note our television division generated about $1.8 million in retransmission revenue in the first quarter as a result of our aligns with Univision and pursuit of retransmission revenue from the cable and satellite providers. Univision and Entravision have now executed multi-year regional transmission agreements with Comcast, DirecTV, Time Warner, Dish, AT&T and several other digital distributors in Entravision markets. All of these retransmission agreements pride that the ensuing revenue is retroactive to January 1st, 2009, this is new incremental revenue for Entravision and this revenue increases significantly in the early years of the contract. Turning to our recent ratings performance, at a time when English language television broadcast networks and their affiliates continue to experience audience erosion to new media and cable networks Univision television continues a trend in audience growth and expansion.

For the most popular entertainment special to air on Univision Premio Lo Nuestro aired in the March survey and our Univision affiliates experience a 7% gain over last year's adults 18 to 34 for this annual music awards show. Most importantly in two of our metered markets, Tampa and Denver, Premio Lo Nuestro beat American idol head to head among all adults 18 to 34. In addition, among adults 18 to 34 our prime time novella block produced some of our strongest ratings with double and triple digit percentage increases in several Entravision markets including Washington DC, Orlando, Tampa, El Paso, Monterey/Salinas and Yuma/El Centro. Our early local newscasts were rated number one regardless of language in 11 markets among adults 18 to 34 in the March survey. Our local news efforts added three of our Univision affiliates to the number one spot in this early news time period. And the Univision early national newscast was also number one regardless of language in 11 Entravision markets among adults 18 to 34 also in the March survey.

At our radio division revenues decreased 31% in the first quarter. National revenue was off 35%, while local revenue decline 30%. We saw growth in two of our top 10 categories, healthcare increased 2% and grocery was up 1%. However, we experienced decreased spending in each of our top five categories compared to first quarter of 2008 including: travel and leisure, fast food, telecommunications and automotive. Automotive declined 68% in the quarter. However, despite a difficult quarter we saw increased in seven of our top 10 advertisers in the quarter, the largest increase came from AT&T, that was up about 166%, followed by Taco Bell that increased its spending by 90%. The other advertisers in the top 10 that we saw increases were: McDonald's, Burger King, Cricket, JCPenney, Adriana's Insurance and Beverly Hill Physicians and Safeway. In the quarter we added 20 new advertisers who spent more than $10,000 with our radio division. Our stations continue to do solid ratings performance in the quarter. Overall with ratings that have been released as of May 1st in our key demo, adults 18 though 34, we have seen an increase of 5% year over year and we saw increase of 15% in 12-plus. We generated ratings growth in a number of markets.

In Los Angeles on January 16th, we converted Indie103.1 to be our exclusive first our first exclusive online radio station. This change allowed to us convert our 103.1 frequency to a new format that we developed. We call the format El Gato, and it is a contemporary Mexican regional hit station that features popular on-air show [El Razno y Chocolate]. Since the switch our key audience since adults 18 to 34 has more than tripled from the same period last year. When we look at average quarter share we increased 138% to a two share from a .6 share for the same period last year. The switch to the El Gato format on the 103.1 frequency helped take the total average quarter share of Entravision radio cluster in Los Angeles up 29% year to year from a 4.5 to a 5.8 share. At the beginning of the first quarter we converted almost all of our [super stray] and network stations to our popular Jose format with the exception of El Paso with converted the station to the El Gato format. The launch of the Jose format resulted in an increase of audience share in almost every market that has been release to do date compared to the same period last year in adults 18 to 34. Denver saw an increase of 54%, Phoenix experience a 60% increase, Sacramento was up 27% and KSES in Monterey/Salinas increased 24%. Our Los Angeles Jose station that debuted on May 5th of last year grew to a 1.9 share from a .8 share. This represents 138% increase year over year.

I will now move to our interactive -- to our digital initiative, Entravision interactive which includes television and radio .com websites as well as Entravision mobile platform. Interactive is an important part of our long-term growth strategy. We continue leveraging the mass reach of our broadcast television and radio to drive traffic to our online and mobile interactive properties. We have a total 70 websites within Entravision interactive. All our sites in a single digital content platform built by our interactive team. We offer industry standard online ad units and integrated sales opportunities for local, regional and national advertisers targeting US Hispanics. We have a sophisticated ad several serving analytical database capability for our entire platform including our mobile marketing capabilities which we launched in the first quarter.

Our interactive growth for the quarter was impressive. Traffic grew 60% over Q4 2008. We are now experiencing monthly more than one million visits and 10 million page views on combined websites. We see double-digit growth every month. We are presently streaming the majority of our radio station. During the first quarter we streamed more than three million hours of online radio programming with two million streaming sessions. This is an 88% increase over the same period in 2008 and our online streaming operation is one of the largest targeting US Hispanics.

As mentioned earlier with conversion of 103.1 signals in Los Angeles to our hugely successful El Gato format we launched first exclusive online radio station Indie103.1.com. Since the change our streaming numbers on Indie online have skyrocketed. We have seen an increase in streaming hours of 15.2% when compared to December 2008 to March 2009. This is an increase of more than 260,000 hours of listening. We saw a similar increase of 228% in unique listeners and 248% increasing connections with Indie103.1.com. Additionally at this time our interactive revenue has that we have currently have on the books has surpassed all of the revenue that we generated online in 2008.

In the quarter we also started selling our first local and national mobile campaigns as part of our integrated sales package. We now offer 360 advertising opportunities on-air, online and mobile. We believe that the mobile marketing to Latinos is going to be an important growth driver to Entravision in the future because of the young demos -- our young demo when is compared to the general market, and the fact that survey after survey finds that US Latinos over index the general market in the use of mobile handsets especially data services. In the first quarter we launched or own iPhone streaming applications. Our interactive team is developing other web-enabled mobile platforms like Blackberry and Google and (inaudible). We started developing of mobile aps and mobile customized sites for our TV stations. We are also preparing to launch on our online automotive marketplace exclusively targeting US Latinos.

This marketplace will help us grow our automotive revenue by providing greater support and better qualified leads to our local dealers and auto category advertisers. We are planning to launch this interactive product in the third quarter. Although this is initially a local solution, we believe the ultimate potential scope of the project is complete and national coverage even beyond our TV and radio footprint. In conclusion the environment remains difficult, but we are aggressively focusing on managing our costs as evidenced by our year over year reduction in expenses of $20 million and maximizing our cash flows while reducing our debt. At the same time we are continuing to support our media properties in terms of their ability to deliver content and drive audience shares in the nation's fastest growth and most densely populated Hispanic markets. We believe we are taking the right steps to position our assets for growth once the economy begins to recover. We are delivering valuable audiences and the Hispanic market has continued to grow rapidly.

We continue to expand, improve Entravision interactive in order to provide advertisers and marketers with a broader platform in their request to build greater share for brands in the Latino community. In fact, in 2007 the Latino population was estimated at almost 46 million people, with the 2010 census estimates are that the Latino population will total over 50 million people. A 10% increase in the US Latino population and in just three years versus an estimated 1.5% growth rate for nonLatinos over that same three-year time period. So despite challenging times, we remain optimistic about our long-term growth for the company. I will now turn the call over to Chris Young for a review of our financials.

Thank you, Walter, and good afternoon, everyone. The company sold the outdoor advertising business in May 2008 to Lamar Advertising for $101.5 million including an adjustment for working capital and no longer has outdoor operations. In accordance with FAS 144, accounting for the impairment or disposal of long lived assets, the company reported the results of the outdoor operations in discontinued ops within the consolidated ops statements of operations. As the outdoor unit has been included in discontinued operations, the following results do not include the outdoor segment. As Walter has discussed net revenue for the quarter was $41.7 million down 25%. Operating expenses decreased $3.6 million to $31.8 million and consolidated adjusted EBITDA decreased 60% to $6.7 million. Free cash flow which we define as consolidated adjusted EBITDA minus CapEx, cash interest, cash taxes, plus interest income was negative $1.1 million or negative $0.01per share.

Operating expenses for the quarter decreased to $31.8 million from $35.4 million, a decrease of $3.6 million or 10%. The decrease was primarily attributable to a decrease in variable expenses associated with the decrease in revenue and a decrease in salary expense due at a reduction in personnel. Corporate expenses for the quarter decreased to $3.9 million from $4.5 million, a decrease of $0.6 million. The decrease was primarily attributable to the elimination of bonuses paid to executive officers and a decrease in employee benefits.

As Walter mentioned earlier the company continues to execute costs cutting measures to better position itself for a difficult business environment. As a result annual fixed expenses are now expected to be reduced by approximately $20 million in 2009. This is an update from the previous quarter when we announced approximately $11 million in expense cuts for the year. Budgeted CapEx for 2009 has also been reduced to approximately $5 million. We will continue to evaluate additional cost-cutting measures in 2009 as the operating environment warrants. EPS for the first quarter of 2009 applicable to common stockholders was negative $0.17 a share, compared to an EPS applicable to common shareholders of negative $0.08 per share in the first quarter of 2008.

Turning to our balance sheet, during the first quarter we made a $40 million debt pay down to our senior credit facility. Accordingly as of March 31, 2009, our total debt was $365.5 million and our trailing 12-month EBITDA as adjusted was $64.2 million. Our total debt to EBITDA as adjusted was 5.7 times versus a maximum leverage covenant as defined in our recently amended credit agreement of 6.75 times as 3/31, 2009. Cash on the books was $16.8 million at March 31, 2009. The company also announced that it repurchased 0.4 million shares of class A common stock for approximately $0.5 million in the first quarter of 2009. On January 12, 2009, the company stopped repurchasing its shares. As of May 1st, 2009, the total shares outstanding for was 84,461,010 shares across all classes of shares. This concludes our formal remarks. Walter, Philip and I would be happy to take your questions. Jamie?

(Operator Instructions) And gentlemen, our first question comes from James Dix from Wedbush. Please go ahead with your question.

Good afternoon, gentlemen. Just a couple for you. First, any color you can provide, some operators are talking a little bit about just the nature of the ad market in the second quarter versus the first and whether, I don't know, it's stabilizing or improving or declining. If you could give any just any outlook on that that would be of interest. Second, that first quarter retransmission revenue number, is that a good run rate for the rest of this year? I know, Walter, you mentioned that it's going to ramp over the period of a multiyear agreement, but is that a good run rate for the first quarter? And I have two follow-ups, but I will just stop with those.

I can address the first part as to the ad market, current status of the ad market as we see it. The run rate or the amount of revenue that we received from our retransmission negotiations in the first quarter, the run rate will be a little higher as we go through Q2, Q3 and Q4. As I said earlier, it does it ramp up significantly after that in the subsequent three, four years.

This is James?

Yes, it's James.

Good afternoon, James. It's Philip.

Good afternoon, hey, Phil.

We both feel -- we all feel here at corporate at Entravision, we think we are seeing the bottom of this thing, the first quarter was atrocious. But we saw improvements in the service category in April over our first quarter average. We saw improvement in telcom. We saw improvement , a big jump, in the healthcare category which has become very active and competitive category for us. FSR improved, and that was off double digits in the first quarter. And we saw -- it was nice to see retail improvement April. So our auto business, as Walter had mentioned, it was such a big part of our overall business, but it seemed to have flattened out in terms of the decline. And we are cautiously optimistic going into May and looking forward to June. But all that said services, healthcare, fast service restaurant retail all improved in April over Q1. It seems to be bottoming out in terms of the decline. So we are a little bit optimistic now than

So just so I understand it seems like now like the pacings for the second quarter are still down substantially, but they are not as bad as the first quarter results were.

We are down still double digits, but it's -- there is so little visibility. For example, this week we moved 10 points in May on the pace in our local business for TV, so that's a fairly significant move, but it's coming in so late that it's really, it's hard to gauge it. We are seeing a tough second quarter; if that answers your question, a tough second quarter.

Right. And do you have a sense as to how the stations are doing relative to what hearing on the network? And if there's a difference what do you think why would that be?

As you know on the up front they locked in most advertisers through second quarter. And there were penalties for cancellations on the network side, television network. So they had this going into May, June last year locked up, and now as they come into the new up front that may be a different case as you I'm sure are reading. But as far as what we try to do is gauge our properties, our stations vis-a-vis the market, the local market overall. As you may know we subscribe to [Hungerford] and Miller Kaplan and other services who will tell us how we are doing, how we are fairing relative to the markets overall, and I can tell you that we are outperforming, not only overall outperforming in TV versus the [TVB] number for the whole country, but we are outperforming in several markets. In San Diego, we are down 23%, the market was down 34%, in Las Vegas we were down mid 20%s, the market was down 36%. In Boston we actually were up and the market was down significantly double digits.

So we have some good stories and we had been, I think we told you last February we were significantly impacted in geographical areas where we operate that had the toughest economy and local economies in the country and those were Nevada, Arizona and California for the most part, but even despite that we seem to be outperforming overall industry number in those markets.

Okay. Great.

James, just want to comment, as Philip said, we are carefully cautiously optimistic. It feels like the bottom right now, but again we are just kind of slugging it out here, moving through to the midway of the quarter and hoping things start to turn.

Is the amount that you have on the books now comparable to prior quarters, or is it much lower compared to -- you talked in the past about your percentage that you book to budget.

Visibility, as Phil pointed out, is certainly -- is more difficult this year than last year, the business comes in even later than last year, and last year we were just amazed at how late it was coming in. But this year it has surprised it in that contracts are being booked even later and a lot of that has to do with technology both in the advertising agencies ability to book the contracts as well as the technology by which they measure their case lot sales.

Okay. And just one last one on TV. Any sense that we are a month from the digital transition, what the potential impact could be on your audience if any? I'm thinking in particular in the border market where the signals from Mexico can also be reached.

We converted four markets early February 17 and we haven't seen any significant changes in the ratings that we had prior to the switch as opposed to the months trailing the switch, so the information and research that we have on those markets that we did convert, we have no concerns vis-a-vis the ratings. It's hard to tell along the border. There's fewer as a percentage wired homes along the border than there are the rest of the country.

But we are doing everything possible vis-a-vis our awareness campaign among our viewers. I can honestly say that we've had such a strong effort in terms of digital awareness in this coming conversion June 12 that we think that our audience will be ready. It's kind of an interesting phenomenon. We saw in one or two markets that according to the Nelson research that there were 3%, 4% of the homes ready, then sure enough on the conversion on June 12 when we went early with the rest of the market they were 100% ready. Some may wait to the last minute to get either wired or digital set-top box or digital tuner on their set, but we are pretty confident that we will be okay vis-a-vis the ratings.

Okay. Sounds good. Thanks very much.

(Operator Instructions) And we have an additional question. This question comes from [Mark Presley] from Health and Safety Group.

Hi, good afternoon, guys, just getting in on the call and I know that I probably missed a couple key points. Just a brief question, on the debt issue that you have, I think it was the end of last year, and I don't think it was as severe as the market thought it was, and I think you guys had said something about that on the report. Could you elaborate on the debt? And are you guys, I guess, still positive in cash flow? And I don't know if you had touched on commercials, if you are going to be able to get more commercials back in the second quarter, and are you waiting mostly on the automotive to make up for the shortage on the commercials? And if you guys think you're going to be able to do better. I work in radio as well and I understand completely that the advertising has shut down a lot. And as far as that goes as well as collections that we received have not -- we haven't received everything that has been aired as well. So I understand completely what you are saying.

As far as profitability do you think there's a way that the company could get back into profit by the third or fourth quarter of the year? And as far as commercials go, are we waiting on the automotive industry to come back where you want to be? And again as far as debt and positive cash flow where you stand there. I haven't had a chance really to go over the report and that's all I have and thank you.

Mark, it's Chris. I think if I understand your question correctly on the debt issue, we amended our credit facility during the first quarter of this year to give us covenant relief basically that pushes out. We basically reset our maximum leverage covenants to 6.7 times our EBITDA and we came in at first quarter at 5.7 times. So that 6.75 applies for the balance of the year through 12/31 this year, it then steps down to 6.5 times for the first and second quarter of the following year, in 2010. So we are pretty comfortable that the newly negotiated limits are going to give us necessary head room to get through to the time period without issue. With respect to cash flow, if I understand your question correctly, in the first quarter we were not a positive free cash flow, our cash flow was actually negative $1.1 million. With respect to your question on profitability we are not in the business in giving out guidance for the balance of the year. So it's not really appropriate to talk about what we see as our prospects to turning to a net -- a positive net income scenario. I know had you a third question in there,.

I think he asked a question about the second quarter, and as you pointed out we don't give guidance. But the way the revenue comes in, Mark, is that second quarter almost is always much bigger than first quarter. So we certainly expect our revenue and EBITDA to be greater in second quarter than the first quarter, that's just the way the business comes in. And as far as automotive is concerned we continue to be challenged by automotive and all of the changes that are taking place in that industry.

We are also looking to replace that business that we've lost from automotive from other new advertisers, certainly the telecommunications industry has been advertising with the Latino market and with our Univision and radio stations now for -- that investment continues to increase. So we also are looking for other revenue streams to combat the sluggishness in automotive including our interactive revenue. So we are doing everything we can here to continue to build our business despite the downturn in automotive, and frankly we don't know when that business will return to its former highs.

And our next question comes from [Avi Steiner] from JPMorgan.

Thank you for taking the questions. Just on retrends, did you say it was $1.8 million this quarter?

Correct.

And should we think about that as a run rate going forward? I know you don't want to give guidance but just roughly for this year on a quarterly basis?

As I said to James, he asked earlier, James Dix, he asked.

I apologize if I missed that.

That's okay. And we said that we believe that going forward the revenue from that, from our retransmission agreements will increase through the year. And subsequent years we expect it to increase as well, particularly in the early years of the contracts.

Okay. And I assume that Univision takes a little bit of that retrans fee, so is that number you have of $1.8 million, is that post what they've taken? Does that make sense?

Yes. That is post.

Is there a way to get a sense, do they take 50% or plus or minus?

It's very complicated, but there's no real formula. It's just a very complicated series of contracts between Univision, us and the cable and satellite providers.

Okay. Very last on this topic and I appreciate the time. But when you talk about early years increasing significantly, and I don't want to put words in your mouth, but should I think about it generically as something better than 5%?

You could think about it like that, sure.

Okay. Thank you very much.

And at this time I'm showing no additional questions. We would like to turn the conference call back over to management for any closing remarks.

Thank you, Jamie, and thank you, everyone, for participating on our first quarter investor conference call. We look forward to reporting our second quarter results in August and we look forward to talking to all of you again. Thank you.

Thank you for participating in the Entravision Communications Corporation conference call. This concludes today's event. You may now disconnect your telephone lines.