Entravision Communications Corp (EVC) 2011 Q1 法說會逐字稿

Hello, this is the Chorus Call Operator. Welcome to the Entravision Communications Corporation first quarter 2011 earnings conference call. (Operator instructions.) For your information, this conference is being recorded.

I would like to turn the conference over to Walter Ulloa, Chairman and Chief Executive Officer. Mr. Ulloa?

Thank you, Rocco. Good afternoon, everyone. Welcome to Entravision's first quarter 2011 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. 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 Entravision Communications Corporation is strictly prohibited.

Also, this call includes certain non-GAAP financial measures. The Company has provided a reconciliation of these non-GAAP 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 in a Form 8-K.

Overall, we are pleased with our first quarter performance. We continue to execute on our operating plan despite a challenging economic and advertising environment. We are seeing a recovery across a broad base of advertising categories, and our Sales Teams did an outstanding job in the quarter as they worked to offset approximately $1.6 million in incremental political and census revenue from the year-ago period. Our Management Team remains focused on cost management, and our results reflect the strong operating leverage of our business model.

The release of the 2010 census data reconfirms the growth and strength of the U.S. Hispanic population and our position in some of the most attractive Hispanic markets in the United States. The census noted that the overall Hispanic population jumped 42% in the last decade to 50.5 million or one in six Americans. U.S. Hispanic population growth accounted for more than half of the total U.S. population increase in the last decade, and analysts estimate that the Hispanic population is on its way to make-up a third of the total U.S. population by 2050.

In addition, the 2010 census reported strong Hispanic population growth in all of our markets, highlighted by Orlando up 100%, Tampa plus 89%, Las Vegas plus 89%, and Washington, D.C. Latino population grew 82% over the last 2000 census tally.

Fifty-five percent of the total population growth in the U.S. in the last decade was produced by the Latino community. In the Entravision market some of the fastest-growing and highest-density Latino markets in the nation, the Latino community represented 68% of all the population growth since the 2000 census. These are truly powerful demographic trends, and we are uniquely positioned to reach this growing consumer market, given the leadership position of our assets, which are among the most watched media outlets in their markets, regardless of language, and the most listened to.

Turning to our financial results for the quarter, our consolidated revenue was $44 million, up 2% versus the same period in 2010. Excluding retransmission fees, political, and census advertising our core revenue was up 3%. Operating expenses increased 1% to $30.1 million in the quarter. Consolidated adjusted EBITDA improved 9% to $10.4 million versus last year, while free cash flow decreased 40% to negative $1.6 million.

Our Television Division total revenue grew 3% in the quarter, with local revenue down 3%, and national revenue up 4%. If you exclude retransmission fees, political, and census advertising our core television revenue grew 4% versus last year's comparable quarter.

We recorded growth in five of our top 10 advertising categories in the quarter, led by automotive, which grew 30%, travel and leisure up 28%, product brand names expanding 22%, financial up 8%, and fast food up 11%.

The auto category extended a string of consecutive double-digit growth quarters to four, dating back to the second quarter of 2010. In fact, our first quarter in the new year automotive billings for the Television Division actually matched that of fourth quarter 2010, which gives us growing confidence in this key category.

Additionally, the automotive category growth was no longer supported by only tier 2 or dealer association spending. Tier 1 automotive billing grew 81%, while tier 3 local dealer billing grew 24% in the quarter compared to prior year. And despite the slow-down in Japanese auto production, we expect our growth in the auto segment to continue in the second quarter of 2011. Driving our growth in the auto category was the resurgence of Dodge, Chrysler, Jeep, who now tops our list of auto brand spenders.

The travel and leisure category was driven by strong growth from SeaWorld, Texas and Florida Lotteries, and Paramount Pictures, while the fast food category was a result of a new product launch for McDonalds and expanding Latino marketing budgets from KFC and Church's Fried Chicken.

Apart from $900,000 in non-returning political and $200,000 of census spending in the prior first quarter, the Entravision TV Group revenue declines were focused on three primary categories, including services down 3%, telecom down 4%, and growth convenience stores down 15%. The service category declines were directly attributable to three advertisers, Census 2010, State Farm, and Morgan & Morgan Law Firm.

The telecommunications category was impacted by declines from Verizon Wireless, Qwest, and Pocket Communications. And the grocery convenience store segment was negatively impacted by declines from Safeway, [Laboya Markets], and [ATB Stores].

We successfully added 27 new advertisers, who invested $10,000 or more in the first quarter. New clients included U.S. Bank, Starbucks, Hotels.com, and RC Wiley Furniture, just to name a few.

Our Univision and TeleFutura affiliates are proud to be broadcasting the 2011 [Konka Golf Gold Cup] in the second quarter. The tournament includes national teams from North America, Central America, and the Caribbean nations, including the popular Mexican national team. The United States will serve as host nation with games being played in U.S. soccer venues across the country, which has historically helped increase interest in viewership. Our coverage includes 17 games on our Univision and TeleFutura affiliates, starting June 5th and concluding on June 25th. We anticipate that this outstanding international soccer tournament will mitigate a portion of the non-returning incremental World Cup revenue in the second quarter.

Turning to our ratings performance, our Univision television affiliates extended their ratings leadership positions in the February 2011 sweeps. In the Entravision markets combined our Univision and TeleFutura affiliates have 43 of the top 50 Spanish language programs among adults 18 to 34. Among the adults 18 to 49 and adults 25 to 54 we have 45 of the top 50 Spanish language programs. The number one Spanish language television program in Entravision markets was our airing of Univision's top entertainment award show, [Prem Luiesto].

Among all adults 18 to 34, regardless of language, in the 2011 February sweeps seven of our Univision affiliates ranked number one or two sign-on to sign-off. Additionally, six of our Univision television stations were either number one or two among adults 18 to 49. Eight of our TeleFutura television stations are the number two ranked Spanish language station in their markets in adults 18 to 34, and 10 are number two in adults 18 to 49.

During our prime time Novella block Entravision Univision television stations are either number one or two in eight markets, adults 18 to 34. Eleven of our Univision affiliates are number one or two in early local news. And in early national news 14 of our Univision television stations are ranked number one or two in their markets, regardless of language. Again, adults 18 to 34. And late local news nine of our Univision television stations are ranked number one or two in their markets, again regardless of language.

At our Radio Division revenues were flat in the first quarter when you compare it to the same period in 2010. Local revenue increased five points over Q1 2010, while national was down 14%. Local was up 16% in January, flat for February, and up 3% for March. It is important to remember that in the first quarter of 2010 we booked a total of $116,000 in net political revenue, $34,000 of net World Cup revenue, and $339,000 in census revenue. When you exclude these three items revenue increased 3% over first quarter 2010 for our Radio Division.

We recorded revenue growth in four of our top 10 categories in the first quarter. The auto category once again generated growth in our Radio Division with a first quarter increase of 20%. Both tier 2 and tier 3 saw positive growth at 96% and 8%, respectively, but tier 1 factory dollars saw a decrease in spending for radio. Other top categories for first quarter were services, travel and leisure, fast food restaurants, telecommunications, and retail.

In the quarter we added 30 new advertisers who spent more than $10,000, which in total represented $581,000 in new revenue for the quarter. New advertisers included Safe Auto Insurance, Sports Authority, Harbor Freight Tools, Hyundai Deliver Association, Pepsi-Cola, Wondries Toyota, and the Arizona Diamondbacks.

On January 10th we acquired the remaining 50% interest in Lotus Entravision Reps, LER, from Lotus Communications, and national sales were up from representing more than 156 Spanish language radio stations across the U.S.

The job of a national rep has changed. LER sales executives need to not only be able to sell traditional media but also our unwired network, event marketing, and our digital properties. We believe that the ownership of 100% of this important national sales force will help drive national radio and digital sales, as well as provide more market information to our national TV sellers.

Los Angeles is always a key focus for our Radio Division. Among adults 18 to 34 our clusters reached, increased over the same quarter last year by 13%. The audience of our Super Estrella Station KSSE FM increased 12% over last year and has a 3.3 share. KDLD FM El Gato continues to perform strongly with a 3.8 share, and is the number five Spanish language radio station in a market of 13 Spanish language radio stations.

In the first quarter of 2011 the Entravision LA radio cluster generated a 16% increase in total revenue for the quarter, beating the market growth by over 10 points, which increased by 5%. We also beat our Spanish language counterparts by 17 points, with that portion of the marketplace decreasing by 2% in total revenue.

Entravision's Los Angeles radio cluster continues to perform much better than our peers on every level. Local sales has improved with new incentives and initiatives in place, such as our realigned sales team and focus on new direct business. In addition, we are focusing intensive cold-call strategies and training of our account executives to take advantage of exciting new commission incentives to help grow business. These initiatives seem to be working as we're seeing a steady improvement in billing from January to February to March for our cluster locally versus our key competition.

[Matt Karvinus] has done a fantastic job of bringing in some key hires in 2010 that are paying dividends, and [Juan Navarro], our Interactive Sales Manager, has exceeded his digital budget two quarters in a row. National sales had a very slow start but finished with a tremendous March. The Los Angeles radio cluster (inaudible) rated in digital sales again and expects that trend to continue. This digital revenue number does not take into consideration the incremental share of radio dollars absorbed by our Los Angeles Radio Team by putting together creative advertising and marketing solutions for local and national advertisers.

Turning to our ratings performance, our rates in adults 18 to 34 is up 2% over last year in the most recent Arbitron quarterly data. Entravision Radio reached 39% of all Hispanic persons and 42% of all Hispanic adults 18 to 34 in the first quarter based on Arbitron results released to date.

Turning to our Interactive or Digital Division, we have strategically positioned our digital effort as an integral part of our sales platform. We now provide our advertising clients a multichannel approach that incorporates new media to engage with our audience with traditional media, social media, online, and mobile. This makes our model far more compelling, unique, and richer in terms of the new 360 marketing programs we now implement for advertisers.

Interactive creates new opportunities for growth. Equally important, it also supports our broadcasting core. It broadens and deepens our relationship with current clients. It helps to minimize churn and provide opportunities to attract new clients that historically have not utilized our television or radio assets.

Although still less than 2% of our total revenue, we continue to make significant progress with our interactive and digital initiatives. In the first quarter interactive revenue grew 83% over the 2010 comparable quarter, while we had another record quarter of growth we also managed to reduce interactive expenses 4% over the same period in 2010.

We completed launching in most of our markets our new 2.0 effort. This is a major redesign of all of our television station websites. The new sites better feature our local content and are more engaging for our users, and allow for multiplatform syndication of video content beyond our site. As a result of this digital first initiative we are now publishing every month over 2,000 local news video stories. This represents an increase of 500% on the amount of content we published on the internet over the previous quarter. This growth in content availability increased visitors from 50% to 300% in the initial new TV sites. We launched on the new platform with a similar increase in the available inventory for video ad units.

Busca, our local Latino digital marketplace, keeps growing. In a very short period we have more than 315 new advertisers, and we are well on our way to our first million dollars in pure incremental Busca revenue. During the first quarter we have seen visitors to the sites increasing by 50% over last quarter, and we added 80 new advertisers.

We also ramped up our social media efforts and launched companion Facebook and Twitter profiles for all our local station websites. We now have more than 125,000 followers on our social media channels, which represents a growth of 50% over last year's first quarter.

We revamped our mobile platform to include MMS, Multi-Media Messaging Services, which complement our texting capability. We also partnered with the biggest U.S. text mobile aggregator for carrier connectivity. Advertisers, like Jiffy Lube, Pizza Hut, Live Nation, AEG, WWE, Bud Lite, Freeway Insurance, and the Auto Club of Southern California, now rely on Entravision to manage their mobile campaigns for the Latino market. This first quarter our mobile [op] and database grew 85%, and our mobile revenue grew 78% over the same period last year.

These initiatives reflect our ongoing commitment to be a multiplatform provider, and we are pleased with the progress, development, and positive feedback we've received from our partners, advertisers, and audience on each of these projects so far.

Going forward, we continue to see digital as a growth driver. We have built this interactive business from the ground up, we will continue leveraging the mass reach of our core broadcast television and radio assets to drive traffic to our online and mobile interactive properties, creating engagement, new opportunities for advertisers, and growth for the Company.

In conclusion, we had a solid first quarter despite approximately 1.6 million of non-returning political and census revenue, and we are well positioned to benefit as the U.S. Latino market continues to expand. In addition, our television radio interactive properties are leaders in their markets and provide the premiere advertising platform to reach the ever-growing U.S. Latino market. The 2010 census data provides additional validation of the tremendous value of our media assets, and we remain focused on building shareholder value over the long term.

I will now turn the call over to Chris Young for a review of our financials.

Thank you, Walter. And good afternoon, everyone.

As Walter has discussed, net revenue for the quarter was $44.0 million, up 2%. Operating expenses increased 1% to $30.1 million. And consolidated adjusted EBITDA increased 9% to $10.4 million.

Net revenue for the quarter was up 2% to $44 million compared to $43.1 million in the same quarter last year. Television net revenue was up 3% to $30.7 million for the quarter compared to $29.6 million in the same quarter of last year. Radio net revenue was flat at $13.4 million for the quarter. The increase in net revenue came from our TV segment, and was primarily attributable to retransmission consent revenue.

Retransmission consent revenue for the quarter was $4.2 million compared to $3.1 million in the same quarter of last year. Total political revenue for the quarter was $0.1 million compared to $1.0 million in the same quarter of last year.

Operating expenses for the quarter were up 1% to $30.1 million compared to $29.8 million in the same quarter of last year. Excluding noncash compensation expense, operating expenses for the quarter were up 1% to $29.9 million compared to $29.6 million in the same quarter of last year.

Corporate expense was $3.7 million for the quarter. Excluding noncash compensation expense, corporate expense for the quarter increased to $3.6 million from $3.5 million, an increase of $0.1 million or 1%.

Free cash flow, which we define as consolidated adjusted EBITDA less CapEx, cash interest, cash taxes, plus interest income, was a negative $1.6 million or a negative $0.02 per share. Cash interest expense for the quarter was $8.9 million. Cash CapEx for the quarter was $2.5 million. CapEx for the year will be approximately $8.0 million.

Earnings per share for the first quarter of 2011 applicable to common shareholders was a negative $0.05 per share compared to an EPS applicable to common shareholders of negative $0.03 per share in the first quarter of last year.

Turning to our balance sheet, as of March 31st, 2011 our total debt was $401 million, and our trailing adjusted 12-month EBITDA was $64.5 million. Our total debt to EBITDA as adjusted was 6.2 times versus a maximum leverage covenant in our revolving credit facility of seven times at 3-31-11.

Cash on the books was $66.1 million at March 31st. Net of (inaudible) total net leverage was 5.2 times.

This concludes our formal remarks. Walter, Philip, and I would be happy to take your questions. Rocco, I'll turn it over to you.

(Operator instructions.)

Our first question is from Jim Boyle of Gilford Securities. Please go ahead.

Good afternoon. Are there any lingering effects in radio from going with that Arbitron PPM data for much of last year?

No, we didn't go with that, any of the data, that was Univision.

Univision, okay. I'm sorry. I thought you guys were -- had a gap there, as well.

Both of your segments faced rather tough growth comparisons in Q2 from the World Cup last year. If you take that out of the mix what might this year's Q2 revenue growth look like for both TV and Radio?

Well, we haven't been providing guidance, but as you did note we had some significant World Cup revenue in Q2, as well as some political, and census. But the World Cup, the incremental World Cup revenue was clearly the bulk of the non-returning revenue in the second quarter of this year.

Okay, can Entravision come close to or exceed last year's EBITDA margin this year given all the moving parts?

Jim, that's a good question, but we'll see. Again, we're not going to give guidance but we do have some headwinds as far as the comps are concerned and, as Walter said, the World Cup is a big one, and political although political is not as big an event for us it is for some of our English language competitors, it still has the numbers. So we'll see. I mean we just can't give you a number at this point.

Okay. Thank you.

(Operator instructions.)

Our next question comes from Anil Gupta from Imperial Capital. Please go ahead.

Hey, guys. Thanks for taking the question. So I had a few for you. One is just starting with the balance sheet, you have about $60 million in cash and just wondering if you're actively looking at any opportunities and, if so, what's the landscape like? Are you seeing more stuff in the TV or radio side? And then I have a follow-up to that.

Hey, Anil. We are looking actively. I think it's safe to say there are more deals out there than there have been historically, and it is something that we're -- it seems like we're looking at something new pretty constantly. So, yes, that is out there.

And then so you have a little bit less than three months to redeem up to I believe 10% of your outstanding notes at [103]. And I think on the last quarterly call we talked about looking at deleveraging versus M&A. I'm just wondering when you'll make that decision, and if deleveraging is a priority for you guys?

Well, sure, I mean you're trying to balance deleveraging with any opportunities that are out there. So the reality is, yes, we have until August to pull the trigger on the [103] option in the bond deal, so we'll keep that option open as long as we can and make a decision into late summer as far as what we're going to do on that front. But it's a function of what other alternatives we have for our cash and if we think we can get a better return on capital than just deleveraging.

And then so 2012, obviously, a big political year. Wondering if you guys have any preliminary thoughts on whether that's going to be a bigger event for the Company than 2008?

2012?

Yes?

Oh, we expect it to be a big political year for us. I mean we have some very important media assets in four critical swing states -- Nevada, and New Mexico, Colorado, and Florida. So we expect to be pretty active in 2012 with political revenue.

We did in '08, you know, $8.1 million in political, pre census announcements. In the interim year last year we did $7.1 million. So obviously those are two benchmarks that we feel pretty confident that we're going to be able to overcome in 2012.

Okay, great. Thanks.

Our next question comes from Michael Kupinski from Noble Financial. Please go ahead.

Thanks for taking the question. I just want to clarify a couple of numbers that I have here. In the first quarter of 2010 in your Television Division I had here that you did $800,000 in political, I just want to verify that, and then what number did you say that you did in political and radio? And then if I recall you did like $300,000 in the second quarter of 2010 on your TV side, I just wanted to check that number, as well?

That's right, Michael. Hi. TV did $892,000 political for Q1. Radio did $116,000. That's $1 million even or a million and change for Q2, 2010 TV political is $288,000, and radio political is $186,000, $474,000 all in.

And can you just quantify for me what the World Cup numbers were for the second quarter?

Sure. For TV World Cup was $4,039,000. For radio it was $1,695,000. $5,734,000 all in.

Okay, and if you could just tell me if you're looking at the core radio, for instance, and just X out like you said the World Cup, as well as the political, are you seeing that the local advertising is kind of strengthening from what we've seen in the first quarter? Because like a number of the variables in the category seem like they're strengthening a little bit industry-wise. I just wanted to know if you're starting to see that now?

You're speaking about radio specifically, right?

Specifically radio, yes?

We did see more strength in our local revenue category in the first quarter than our national. National is usually about 25% of our total radio revenue, and local is about 75%. But national started rather slowly this first quarter, whereas local was more consistent through the quarter, and we were certainly pleased with the growth of our local radio revenue for the quarter.

And is that the same kind of trends you're seeing so far in the second quarter?

Yes, but we're putting a lot of effort behind the local, as we always do. We partnered with a company this year out of Australia, NRS Media, to help us drive new local direct revenue for our radio and television stations. And this is an international company, and they come in with a program which helps our local sales teams not only generate new local direct revenue but provides us with ongoing training for our sales teams to ensure that they continue to use this disciplined sales program.

And we're very pleased right now with the results. We've launched it in five or actually six markets, but five markets where we've completed the program -- Sacramento, Phoenix, Denver, McAllen, and Los Angeles. And over a 12-month cycle we expect to generate just from those five markets about $4 million in direct, local direct revenue. So, so far we're quite pleased with how local is developing through this new program. We just launched it in San Diego, but the results have just started to come in.

Right. And can you characterize that going into the second quarter as kind of like accelerating from the first quarter, or is it you think that it's just -- the momentum is picking up? I just kind of want to get some color on that.

Well, in the opening -- in my opening remarks I talked about how we're still, we believe, and given our experience and what we're seeing, in a challenging economic and advertising environment. Are we seeing improvement? Yes, and we've talked about automotive, what an important sector that is for the entire Company, both television, radio. And now interactive.

But, again, it's slowly improving. Our television business two years ago was at an all time low of about, from about -- our automotive television business went from about 30% of our total TV revenue to about 15%, so it was -- it dropped 50% over the all time high.

Since we hit the bottom in terms of the economy we have made progress, and we talked certainly in our remarks about how that category continues to improve, and we're seeing strengthening across all three tiers. In television we saw some tier 1 advertising, which we hadn't seen in quite some time. So, again, our business is improving but it is challenging and it is more slowly, it's improving more slowly than what -- than we would like.

Michael, if I could just add? This is Philip. The question keeps coming up in terms of our core growth. We outperformed the industry in first quarter. [Recorded TBB] on the TV side the industry was down 2.3%, while we were flat on our television. But if you X out political and this non-returning business the industry was down a point and we were up four points. So we outperformed by five basis points, right?

Right.

And we've seen that in our core business. We've seen -- if you take out the political, if you take-out the non-returning big events, like World Cup, it's like our English language peers will take out the Super Bowl one year to the next because it switches networks, we are growing our core business. And, as Walter said, our emphasis is on this local business. And our auto is up 0.7%, and that's the fourth quarter in a row where we've had double-digit growth.

I know there's some seasonality --

You're seeing growth, we're seeing local growth, we're seeing momentum into the second quarter. That said, we have these big non-returning events.

Okay, and just one final question? I know auto, it kind of jumps around and there's some seasonality there. What is auto as a percent of your total TV revenues? And then if you can just remind me what it might be as a percent of radio, as well?

A percent of the total auto blended right now is 15%. Of radio stands at 11%. And TV stands at 16%. Combined in broadcast the auto business is right now 15% for TV and radio.

Okay, all right. perfect. Thank you so much.

I'm showing no further questions at this time. So I'd like to turn the call back over to Mr. Ulloa for any final remarks he may have.

Thank you, Operator. Thank you, Rocco. And thank you, everyone, for joining us on our first quarter earnings call. We look forward to speaking to you in August when we report our second quarter results. Thanks, again.

Thank you for participating in the Entravision Communications Corporation conference call. This concludes today's event.