Entravision Communications Corp (EVC) 2012 Q3 法說會逐字稿

Good afternoon, and welcome to the Entravision Communications third quarter 2012 earnings conference call.

(Operator Instructions)

Please note this event is being recorded.

I would now like to turn the conference over to Walter Ulloa. Please go ahead.

Thank you, Drew. Good afternoon, everyone, and welcome to Entravision's third quarter 2012 earnings conference call. Joining me today on the call is Chris Young, our Executive Vice President and Chief Financial 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 will include 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.

Our third quarter results demonstrate our success in executing our growth strategy and monetizing both our core and digital assets. We generated solid political revenues in the quarter as a result of our strong competitive position in markets located in key swing states. The operating environment for our core television and radio assets has continued to improve, while our digital platform has continued to grow and we have further strengthened our integrated advertising capabilities. This effort has put us in a very good position to continue to benefit as more and more advertisers seek to reach Latino audiences.

Turning to our financial results for the quarter, our consolidated revenue was $58.5 million, up 17% over the third quarter of last year. Operating expenses increased 5%, to $32.9 million in the quarter, as we continued to invest in our growth opportunities while also effectively managing our cost structure. Our prudent cost management and strong top-line performance resulted in 43% growth in our consolidated EBITDA. Consolidated EBITDA was $21.6 million during the quarter, compared to $15.1 million in the year-ago comparable period. Free cash flow more than doubled, to $10.5 million, in the quarter, compared to $4.3 million during the third quarter of 2011.

Turning to our -- now to our television division, total revenues increased 22% during the third quarter. Excluding retransmission fees, our television revenues grew 23%. Excluding retransmission fees and political revenues, core TV revenues increased 10% compared to the third quarter of last year. This strong performance in our core television business reflects ongoing improved performance across all our markets and advertising categories. During the third quarter, local TV revenue was up 3%, while national revenue was up 46%. Excluding political billing and retransmission fees, local TV revenue grew 3%, while national revenues increased 18%.

The automotive category growth continues to deliver significant strength to our television division. Auto was up 41% during the third quarter, which was the 10th consecutive quarter of double-digit auto segment growth. This growth continues to be broad-based, with all eight of our top eight automotive brands delivering year-over-year growth as well as posting increases in all three automotive tiers. This balanced category growth and momentum has continued into fourth quarter, as October will reflect growth of 19% in the automotive category for our television group.

Overall, the television division posted growth in eight of our top 10 advertising categories, led by automotive, media, services, healthcare and product and brand names. Only the fast food and retail categories posted revenue declines in third quarter.

Political spending for our TV operations during the quarter was approximately $4.4 million, compared to $400,000 of political revenue during the third quarter of last year and $1 million in the third quarter of 2008, the last comparable presidential election cycle.

In the third quarter the telecom category recorded its first year-to-year -- year-over-year growth period since fourth quarter 2009. The modest 3% growth for the category was a result of improved spending from Cricket Communications, AT&T and Verizon Wireless.

Our television division welcomed 37 new television advertisers in the quarter, including Volaris Airlines, Hyundai dealers in Washington, DC, and Army-Navy Federal Credit Union. Each new advertiser invested more than $10,000 in the quarter with our television group. These new advertisers resulted in about $856,000 of new revenue in the third quarter.

Turning to our ratings performance, our Univision affiliates extended their ratings leadership positions in the July 2012 sweeps. Among all adults 18 to 34, regardless of language, seven of our Univision affiliates ranked No. 1 or 2 sign-on to sign-off. Additionally, six of our Univision television stations were either No. 1 or 2 among all adults 18 to 49 regardless of language. Nine of our TeleFutura television stations are the No. 2-ranked Spanish language stations in their markets in adults 18 to 34, eight are ranked No. 2 among adults 18 to 49.

During our prime-time novella block, Entravision Univision -- Entravision's Univision affiliates were either No. 1 or 2 in eight markets regardless of language. In the early Univision network newscast, 10 of our Univision affiliates were No. 1 or 2 in the July sweeps, and nine of our Univision affiliates were the No. 1 or 2 early local newscast leader and 11 were No. 1 or 2 in late local news regardless of language.

In Entravision markets combined, our Univision and TeleFutura affiliates aired 45 of the top 50 Spanish-language television programs among adults 18 to 34, 43 of the top 50 programs among adults 18 to 49 and 42 of the top 50 programs among adults 25 to 54.

At our radio division, revenues increased 6% during the third quarter compared to the same period last year. Local was down 2 points over the same period, while national was up 25%. National increased 26% in July, August finished up 24%, and we continued this positive trend in September, with a 26% increase in national revenue. Local revenue is not rebounding as quickly as national, but we have put programs in place with our clients and incentives in front of our sellers to improve our performance.

Net political revenue in the third quarter was $540,000, compared to only $36,000 in 2011. Political spending with our radio unit is up over 18% through the third quarter compared to the same period in the 2008 presidential cycle.

Core revenues for third quarter increased 3% over last year when we exclude political revenue. This solid performance by our radio group has carried into the fourth quarter, as well, with total revenues pacing up 23% in October compared to prior year.

We recorded revenue growth in five of our top 10 categories in the second quarter. The auto category, which was our second-largest category in the quarter, ended with a revenue increase of 41%. Tier 1 increased 15%. This increase in Tier 1 automotive spending was fueled by Dodge. We saw a 118% increase in Tier 2 spending over Q3 2011. Tier 2 saw growth from Southern California Toyota dealers and Nissan regional, just to mention a few. Tier 3 local car dealerships increased their spending with our radio group 38% in the quarter due to greater investment with Entravision radio. The automotive sector continued the strong momentum into October, with revenue in this important category up 24% with our radio unit compared to last year's October.

In addition to automotive, our other top core categories by spending during the third quarter were services, which was our largest category for the quarter, increasing 16%. We also saw increased revenue in the telecom category of 8%, with increased spending by both T-Mobile and AT&T Mobility. The finance category experienced an increase of 22%, propelled by spending from JPMorgan Chase. Healthcare advertising was up 6%, and grocery category grew 14% over last year's comparable quarter. Retail, travel and leisure, fast food restaurants, beverages and product brand names reduced their spending with our radio group compared to last year's comparable quarter.

During the third quarter we added 39 new radio advertisers, who spent more than $10,000 each, which amounted to approximately $800,000 in revenue. New advertisers included Academy of Arts, Kia of Alhambra, America's PAC and Fast Credit Financial.

In the third quarter of 2012 our Los Angeles radio cluster generated a 10% increase in total revenue. Entravision's LA radio cluster continues to perform much better than our peers. According to revenue data from Miller Kaplan the Los Angeles radio market's total revenue for the third quarter decreased 1%. Our LA revenue growth continues to be propelled by solid growth in both local and national revenue from our three Spanish language formats in the No. 1 radio market in the nation. Our cluster increased local revenue by 5% for the quarter by focusing on local direct business.

In addition, we are continuing to focus on intensive cold-call strategies and training of our account executives to take advantage of exciting new commission incentives and to help grow new business. These initiatives seem to be working, as we're seeing a steady improvement in billing for our LA cluster locally.

National revenue increased by 28% in the quarter over the same period last year. Over the past few quarters we have implemented strategies with our national sales team to further target differences in our clusters -- in our cluster formats. We are very aggressively targeting advertisers who still spend too much on our competition by providing integrated marketing solutions and leading with idea-driven strategies.

On August 10, we continued our tradition of producing one of the largest Latin music concerts in the United States, the 14th Annual Reventon Super Estrella. Once again the concert exceeded all of our expectations. This year's event featured an all-Spanish rock lineup. More than 13,000 fans enjoyed their favorite artists at Staples Center for a six-hour concert that featured top rock Latin music artists. We also had a record number of sponsors for this year's event. These sponsors included Bud Light, AT&T, McDonald's, City Loan, Vallarta Markets, Toyota and The Conga Room.

This year was the first time we used Facebook for our presale of tickets. We asked our listeners to Like us on Facebook, and as a result they received a presale code. We sold over half of our tickets on Facebook, and we sold out the event in a total of six hours.

For the summer 2012 radio ratings 10 of our markets have been released by Arbitron, and our radio stations continue to be ranked among the leaders in adults 18 to 34 against all competitors regardless of language. In full week Monday through Sunday 6a to 12a, 10 of our radio stations are in the top 10 radio markets in their -- are on the top 10 radio stations in their respective markets regardless of language. In morning drive El Vacilon del Mandril on our Tricolor stations and El Show del Genio on Jose stations are on the top 10-rated radio stations in six markets. Our cornerstone afternoon drive program Erazno y La Chokolata is in the top 10 in five of our radio markets.

Moving now to digital, our efforts have been concentrated in investing in our capabilities and providing our advertising partners with the ability to expand their targeting and reach the rapidly growing Latino population across multiple platforms. Advertisers are increasingly seeking opportunities to connect with Latino consumers through multichannel and integrated advertising campaigns. We continue to focus on capitalizing on the inherent strengths of our core radio and television assets and extending our leadership online through social media and in mobile. By doing so we will deliver current and potential clients with a single integrated solution capable of connecting them with our audiences across all key media and digital channels and offering attractive multiplatform advertising opportunities.

We continue to make significant progress with our digital initiatives, which currently account for 2% of our total revenue. This third quarter was our best interactive quarter ever. Our interactive revenues have grown year over year for 17 straight quarters, including strong revenue growth of 71% during the third quarter over the same period last year.

One area of our digital business that has generated consistently strong growth is our portfolio of television station websites and our video platform. Our video consumption increased 20% during the third quarter. We are driving this growing online viewing by increasing the amount of video content we publish online. During the third quarter we published 6,000 local news stories in all our markets, while our ongoing commitment to expanding our content continues to drive increased viewer engagement. It is also serving to expand our total digital network audience, which increased 43% over the third quarter of 2011. We also had an impressive 3.5 million hours of streaming audio to 1.8 million unique people.

During the third quarter we delivered more than 150 compelling mobile campaigns as well as the management of a number of Latino mobile communities for advertisers like Coors Light, McDonald's, AT&T, Enterprise Car Rental and many others. Our mobile community keeps growing at a fast rate. We currently have 250,000 mobile subscribers. We experienced record results and usage in mobile during the third quarter. Mobile revenues were 268% higher than the third quarter of last year. We sent over 2 million text messages to our mobile audiences. Third quarter 2012 was our best mobile quarter ever, and overall we feel highly confident about the positive growth of our mobile initiatives.

Another major initiative of ours is to drive engagement with our audiences through social media. Our television and radio station websites continue to grow their following on Facebook and Twitter. At the end of the third quarter we had over 500,000 total followers on our social media channels, up 100% over the third quarter of last year.

In summary, we are steadily advancing our digital initiatives and continuing to grow our online and mobile audiences. We are building a loyal and engaged digital audience and connecting brands with Latino consumers across our station websites through social media and on tablets and smartphones. When we combine our digital assets with our core portfolio of television and radio assets, we are able to offer a robust solution to our advertising partners that allows them to reach the rapidly growing Latino population across all major media platforms.

As we look at the current quarter, we continue to see positive trends across our business. October top-line consolidated results excluding political and retransmission revenue are up 8% over October 2011, with core TV revenue up 10% and our core radio revenue up 4%. Including political revenue for October, our TV unit increased revenue by 63% and our radio revenue groups -- and our radio group's revenue was up 23% in the just-completed month.

As noted, our political revenue is extremely robust for this year's presidential election cycle. Our political revenue is up 107% through the third quarter versus the same period in 2008. We currently expect to generate political revenue of $16 million in 2012 versus $8.1 million in 2008. The Latino voter electorate continues to become more important with every election cycle. Over 12 million Latino voters are projected to go to the polls on November 6, an estimated 25% increase over 2008. And the Latino vote may very well decide the outcome of this year's presidential election, given Entravision's strategic media assets in four important swing states, Nevada, Colorado, Florida and Virginia.

In conclusion, we continue to execute our growth strategy, as evidenced by our third quarter performance. Our core radio and television stations have maintained a strong competitive position in the densely populated Latino markets they serve, while our digital audience continues to grow. We are providing advertising partners with more touch points through which to connect their brands and businesses with the increasingly important Latino consumer.

The underlying fundamentals of our business continue to improve, and we are focused on building upon this momentum and further monetizing our platform. To that end, I should note that we also announced today that we have updated our management structure to better align our leadership, sales and marketing functions with our diversified media assets.

During the past several years we have made a concerted yet prudent effort to build our digital, mobile and marketing assets with the goal of strengthening the value proposition we provide to both advertisers and Latino consumers. We have now reached a point where we can increasingly present advertisers with an integrated marketing solutions package to more deeply reach Latino audiences in our markets. It's imperative that we continue to carefully invest in the branding and positioning of these resources in a manner that builds on our success to date and maximizes our ability to capture the opportunities in front of us.

Under the new structure Jeff Liberman has assumed the role of Chief Operating Officer, having previously served as President of our Radio Division. Mario M. Carrera was named Chief Revenue Officer, after previously serving as Senior Vice President of Entravision Spanish Language Television. And Esteban Lopez Blanco was named Chief Strategy Officer following his role as Entravision's Executive Director of Interactive.

With our revenue, operations and strategic initiatives now aligned under these executives, we have also created aggressive internal financial goals, adopted an integrated national and local sales organization, strengthened our planning and budgeting processes and initiated mandates on innovation, new business development and economies of scale. We believe our new structure will enable us to more effectively and efficiently build and capitalize on our diversified asset base as well as serve both advertisers and consumer audiences.

At this time I'll 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 $58.5 million, up 17%. Operating expenses increased 5%, to $32.9 million, and consolidated adjusted EBITDA increased 43%, to $21.6 million. Net revenue for the quarter was up 17%, to $58.5 million, compared to $50.1 million in the same quarter of last year.

TV net revenue was up 22%, to $40.9 million for the quarter, compared to $33.6 million in the same quarter of last year. Radio net revenue was up 6%, to $17.6 million for the quarter, compared to $16.6 million in the same quarter of last year.

The increase in our TV segment was primarily attributable to an increase in political advertising revenue, which was not material in 2011, core advertising revenue and retransmission consent revenue. Excluding retrans and political revenue, core TV advertising revenue was up 10% for the quarter.

The increase in our radio segment was primarily attributable to an increase in core advertising revenue and political advertising revenue, which was not material in 2011. Excluding political revenue, core radio advertising revenue was 3% -- plus 3% for the quarter. Retrans consent revenue for the quarter was $4.9 million, compared to $4.2 million in the same quarter of last year. Retransmission consent revenue for the year will be approximately $20 million.

Operating expenses for the quarter were $32.9 million, up 5%. Excluding noncash compensation expense, operating expenses for the quarter were $32.6 million, up 5%. The increase was primarily attributable to variable expenses relating to the increase in net revenue and an increase in salary expense.

Corporate expenses for the quarter were up 15%, to $4.5 million, compared to $3.9 million in the same quarter of last year. Excluding noncash compensation expense, corporate expenses for the quarter were $4 million, up 10%, compared to $3.6 million in the same quarter of last year. Excluding noncash compensation, the corporate expense increase was primarily attributable to the increase in salary expense, interactive and an increase in bonus accrual for the period.

Free cash flow, which we define as consolidated adjusted EBITDA less CapEx, cash interest, cash taxes and dividend payments plus interest income, increased 147%, to $10.5 million, or $0.12 per share, for the quarter. Cash interest expense for the quarter was $8.1 million. Cash capital expenditures for the quarter was $2.9 million. CapEx for the year will be approximately $10 million.

Turning to our balance sheet, as of September 30, 2012, our total debt was $363.8 million and our trailing 12-month consolidated adjusted EBITDA was $65.9 million. Our total debt to EBITDA as adjusted was 5.5 times. Cash on the books was $45.2 million at September 30, 2012. Net of cash on the books, our total net leverage was 4.8 times.

This concludes our formal remarks. Walter and I would be happy to take your questions. Drew, we'll hand it over to you.

(Operator Instructions)

The first question comes from James Dix, of Wedbush. Please go ahead.

Hey, good afternoon, gentlemen. Just a couple things. Obviously political is -- was strong in the quarter and it looks like it's going to be a blowout for the year. Do you have any sense, just given the challenges of managing inventory, how incremental we should be thinking about that across the TV and the radio segments? And then I had one follow-up.

I would say, James, that the political revenue is for the most part I would say 95% to 100% political -- incremental, excuse me, and that's because we've done such a great job of managing our inventory. So, we have not taken, as you noted, a huge volume of political advertising at the cost of our core business, and I think the proof of that is the 10% growth in core television and the 3% growth in core radio. We're very proud of our core growth in third quarter. Certainly we think that the political revenue received is fantastic, and we've always talked about the growth of the Latino voter electorate and the four swing states that we operate in. We knew we were going to have a good year in political, but it turned out to be even a better year than we expected. But we've done a great job of managing inventory.

Great. And I guess that was kind of my second question. As you look into October's results, are you seeing -- what's driving that strength in the core business for both TV and radio? Are you seeing any change in the composition of advertisers, and do you have any sense that there's going to be any advertisers who were kind of crowded out or just decided on their own to sit out the political season who are going to come in after the elections? Thanks.

Well, I'll just make a couple of comments to that question, and Chris may have something to add. But we don't give future pacing on these calls, but we do talk about actuals, and we just completed October yesterday, so we were frantically assembling numbers today. But the key category that remains strong into October besides political is automotive. And that's all I have to report to on right now, frankly. We haven't looked really beyond automotive. We were just, again, just trying to come up with some numbers here for everyone that we could share with you. But automotive remained strong once we go into -- as we -- as noted from our October numbers that I just gave you.

Yes, I think, James, from a category perspective, we would expect to see more the same of what we saw in third quarter from a category perspective. In TV you had eight out of the top 10 categories showing improvement year over year in the third quarter, and, like I've said -- I said at the last conference, we're just -- we're feeling good about the business and we're seeing that continue into the fourth.

Thank you.

The next question comes from Michael Kupinski, of Noble Financial. Please go ahead.

Thank you, and congratulations on a great quarter. The -- I just want to verify. You had mentioned that you believe that political is going to be $16 million for the year?

That's correct, Michael, $16 million.

Okay. That's substantially more than what I was looking for, and I would imagine most of that is in television at this point?

That's correct.

Yes, the variance, yes, the variance.

Right. It's mostly in television. It's about a 5.5 to 1 ratio --

Okay.

-- as far as the spend is concerned.

Yes. In terms of your core, you did so well on that core, like you had mentioned, in terms of the third quarter. I suppose, do you -- given that huge influx of political in the fourth quarter in television, do you still think that you'll have that -- the core being fairly robust like you had in this last quarter?

Well, all we can point to is the 10% core growth in October for TV and the 4% growth for radio in October in core. And, as you know, October was just a huge month for political. So we feel good about the continued strength of our core business through the rest of the quarter.

It's too -- a little too early to maybe look out too far into the future, I suppose, but how have you -- how does the business look absent the political as you go into December?

Like I said, it looks steady. It looks good. That's all I really want to say about it other than what I've given you in reference to our October results.

Yes, I understand. In terms of the auto category, you mentioned that your auto category remains robust, and I was just wondering, a number of other broadcasters were saying that that's been largely fueled by foreign auto manufacturers. It looks -- is that what you're seeing as well, where whereas General Motors looks like they've kind of not -- are not spending as much, and that might be an opportunity as we go into 2013?

Well, as I said about our automotive revenue for television, it was pretty broad-based. We had strong advertising from eight of the top brands, and that included domestic as well as foreign. And the television revenue from automotive is by far the largest portion of our total automotive revenue. But radio, as well, was broad-based --

Okay.

-- in terms of the advertisers that came into our business in the third quarter.

And obviously you had some very strong results here and throwing off a lot of cash flow. Any early indications of what you might do in terms of a more aggressive pare-down of debt? Any thoughts on what your thoughts are on that going forward?

Well, I think the answer to that question is that we're committed to reducing our debt to EBITDA leverage to below five times. We've made significant progress throughout the year to attain this goal, and we believe that we should reach this goal in the near future. Once our debt leverage is below five times we intend to keep it there going forward, and we'll achieve this reduction in leverage through a combination of debt reduction and EBITDA growth.

Okay, perfect. Thank you so much.

Thanks, Michael.

(Operator Instructions)

The next question comes from Davis Hebert, of Wells Fargo Securities. Please go ahead.

Good afternoon, guys. Thanks for taking the question.

Hey, Davis.

So, the 103 redemption on the secured notes, is that something that's been discussed internally? I know Q4 is obviously political coming in. I don't think you have the coupon payment, so it should be a nice cash flow quarter for you guys. Is that something you could comment on?

That's right. I guess the question is what we're going to do with respect to that 103 call option?

Right. And it's still -- is it $40 million? Is that the right (multiple speakers)?

It's $40 million. It runs -- the option window is open through next -- the end of next July. And we're looking at it and we'll be calling the shots over the near term on what to do with it.

Okay. Sounds good. And then if you -- you said $20 million of retrans for 2012. Do you guys have some contracts that are coming up for renewal that could bump that number higher next year?

Well, we do all of our retrans deals -- they run through Univision, so Univision has been in the process of renegotiating some of their deals. But we're not going to give guidance beyond this year with respect to retrans. But Univision runs point on all that.

Okay. That's what I thought. I just wanted to verify that. Okay. That's all I have. Thank you very much.

Thanks, Davis.

Thank you.

The next question comes from Howard Rosencrans, of Value Advisory. Please go ahead.

Oh, hi, guys. Excellent quarter. The numbers, the auto numbers, etc., are really unbelievable. Can you give us -- pretty much all the affiliates are suggesting that a lot of the numbers are so badly skewed because the political is doing -- is crowding out everything. What is your sense of, in light of your unbelievable auto numbers, and the auto guys clearly, and some of the other guys, clearly did not get crowded out, are these meaningful -- are these representative, are they meaningful of what the sort of post-environment, post-November 6 environment will look like? That's the gist of the question. Thank you.

Hey, Howard. You know, we finished October at a plus-10% core and a plus-4% for radio, TV and radio, and, again, the business feels good for the fourth quarter. We've been gearing up for this political season for years, and inventory management is something that we have been stressing with our management team for quite some time. So we were ready for this. We've been talking about it publicly for about a year and a half, and we were ready for it from an inventory management standpoint. And I think that's, in part, why you're not seeing the crowding-out factor like you're seeing with some of the English-language folks.

Keep in mind also on the English-language side that political revenue is almost 20% of their total top line. We're not quite there yet. So they're having to deal with a much more meaningful level of volume with respect to their spot inventory. So that's also a factor that's coming into play. But the business as far as core is concerned for both platforms right now feels generally solid.

Great. Congratulations. Thank you.

Thank you.

As I see no other questions, this concludes our question-and-answer session. I would like to turn the conference back over to Walter Ulloa for any closing remarks.

Thank you, Drew. Thank everyone for participating in our -- on our third quarter conference call. We look forward to reporting our fourth quarter and full-year results, 2012 full-year results in our first quarter conference call in 2013. Thank you again.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.