Entravision Communications Corp (EVC) 2013 Q1 法說會逐字稿

Good afternoon, and welcome to the Entravision communications first quarter 2013 earnings conference call. All participants will be in listen-only mode. (Operator Instructions) After today's presentation, there will be an opportunity to ask questions. (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, Amy. Good afternoon, everyone. Welcome to Entravision's first quarter 2013 earnings conference call. Joining me today 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 matters. 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 8K.

We generated solid results across our businesses during the first quarter, and we are off to a strong start at 2013. Our television and radio businesses continue to outperform the broader market, with healthy core revenue growth, driven by your solid audience shares and strength in effort. We also continue to build upon our digital platform and multichannel sales capabilities, which is helping us to attract and build relationships with our advertising clients.

In addition to driving top line growth, we've also taken advantage of the operating leverage in our organization and have maintained a commitment to effective cost management. This commitment to expense control is driving strong profitability gains and free cash flow generation.

Overall, we remain extremely well-positioned across the nation's most densely populated Latino markets and are steadily building our television, radio, and online audience shares.

Consolidated first quarter revenue was $49.1 million, up 6% over the same period last year. Prudent cost management and sound execution resulted in strong profitability gains during the quarter, as our consolidated EBITDA was $13.4 million, a 15% increase over the first quarter of last year. In addition, our free cash flow in the quarter was $3.4 million, up 138%, compared to $1.4 million last year.

We have also taken steps to enhance our capital structure, as evidenced by the debt refinancing announcement we announced today. We believe this refinancing will greatly improve our financial positions and offer us additional flexibility as we look to execute our strategic plan in 2013, and beyond. Chris will provide more details on our refinancing activities in a few minutes.

Now moving on to our operating highlights in the first quarter. Our total television revenues increased 5% during the quarter. Excluding retransmission, TV revenues also increased 5% compared to the first quarter of last year. Local television revenue grew 11%, while national revenue decreased 2% in the quarter. The decline in national revenue was driven by Chrysler Group delaying on their Spanish language ad campaign and the absence a Culinary Union fight in Los Angeles. We fully anticipate that national core revenues will improve in the second quarter of this year.

We're placed with the performance of our television business, which once again outperformed the broader industry. Our core TV growth of 5% during the first quarter marks the 6th straight quarter we out-paced television industry growth, which TVB estimates was minus 1% during the first 3 months of the year.

Our consistent out performance demonstrates the strength of our assets and market position, as well as a steady influx of advertising dollars targeting the rapidly expanding US Latino market.

The automotive category continues to be a solid performer for our television business, and was up 18% during the first quarter. This marks our 12th consecutive quarter of double-digit automotive spending growth, and, importantly, the strength of the category remains broad-based. In the first quarter, 6 of the top 8 auto brands showed growth over the prior year, led by and Hyundai, up 348%, Nissan plus 119%, Kia up 68%, and Toyota increased 20%.

Moving now to our other television advertising categories. During the first quarter, we experienced solid growth in 5 of our top 10 categories. The best performing categories during the first quarter included automotive plus 18%, retail plus 22%, media plus 55%, telecom plus 32%, and product brand names up 15%.

We are encouraged by the continued balance performance across our advertising categories, and that momentum has continued in the current quarter, as 6 of our top 10 categories are up through April, including auto retail, telecom, media services, and financed.

We added 45 new advertisers who invested $10,000 or more in our television business. New clients for our television division in the first quarter included the premiere of the film Bless Me, Ultima, Regions Bank in Florida, Morgan and Morgan Law Firm in Florida, Sam's Club, and Wawanessa Insurance.

Turning to our ratings performance, our Univision affiliates extended their ratings leadership position in the February 2013 sweeps. Among all adults 18 to 34, regardless of language, 9 of our Univision television affiliates ranked number 1 or 2 sign on to sign off. Additionally, 8 of our Univision television stations are either number 1 or 2 among all adults 18 to 49, sign on to sign off, regardless of language. 9 of our UniMas television stations are the number 2 ranked Spanish-language television station in their markets in adults 18 to 34, and 10 of our UniMas affiliates ranked number 2 among adults 18 to 49, behind our Univision affiliates.

During our prime time Novella block, Entravision Univision affiliates are either number 1 or number 2 in 6 markets. In the early Univision network news, 13 of our affiliates are number 1 or 2 in their markets, regardless of language. 13 of our Univision affiliates are number 1 or 2 in early local news, and 8 are number 1 or 2 in late local news, regardless of language.

In Entravision markets combined, our Univision UniMas affiliates aired 42 of the top 50 Spanish-language programs among adults 18 to 34, 43 of the top 50 programs among adults 18 to 49, and 41 of the top 50 programs among adults 25 to 54. In each demo, the highest rated program was Univision's premier award show, (inaudible - Spanish)

At our radio division, revenues increased 6% in the first quarter. Local revenue, which represented 69% of our total revenue, came in flat for the quarter, and national revenue, which represents 31% of our total revenue in our radio business saw an increase of 22% compared to the first quarter of 2012. Miller Kaplan estimates that the radio industry was flat during the first quarter.

Our solid performances carried into the second quarter as well, with total revenue pacing up approximately 4% in April compared to last year's comparable quarter. Our radio results continue to be positively impacted by the tremendous progress we have made with the Entravision Solutions Network, which we launched in 2011. Entravision Solutions Network remains the number one Spanish-language radio network in coverage and ratings. Our network revenues increased 25% during the first quarter and continues to draw interest from major advertisers. Our sales team was able to almost double the amount of advertisers in the quarter, compared to the same quarter last year. In the first quarter of 2012, we had a total of 19 network advertisers. That compares to a total of 29 network advertisers in the first quarter 2013.

Top advertisers on the Entravision Solutions Network during the quarter included Wal-Mart, State Farm Insurance, the O'Reilly Auto Parts, AutoZone, Morris, and Macy's, just to name a few.

Similar to the trends in our television business, radio revenue growth occurred across key advertising categories. In fact, we recorded revenue growth in 7 of our top 10 categories in the first quarter. Our best performing categories during the quarter were services, which increased 12% in the quarter, with increased spending by State Farm Insurance and H&R Block. The auto category, which was our second largest quarter -- it's the second largest category in the quarter, and with a revenue increase of 20%. Tier 1 automotive advertising was down, but we saw an 8% increase in tier 2 spending over first quarter 2012, tier 2 saw growth from Southern California Toyota dealers and Nissan Regional, just to mention a few. Tier 3, local car dealership advertising increased 32% in the quarter due to EZ Auto Solutions, Bert Ogden Dealers in McAllen, Texas, [Leah] of Alhambra, and Downtown LA Motors.

In addition to the aforementioned services and automotive categories, other top growth advertising segments in the quarter for our radio business were retail, which saw a 5% increase in the quarter propelled by Wal-Mart, which increased their spending 89% in the quarter.

Telecommunications increased 20% in the quarter, with more spending by AT&T, TracFone, and MetroPCS. The finance category grew 18%, groceries increased 5%, and the [media] category grew 23% in the quarter. We added 24 new radio advertisers who spent more than $10,000 during the first quarter, resulted in approximately $470,000 in revenue. New advertises included Stater Brothers, World Baseball Classic, TurboTax, and Nissan of Duarte.

On January 14th, we launched a new morning show on all of our Tricolor-formatted radio stations and our El Gato stations in Los Angeles and El Paso. (Inaudible) is a fast-paced, music-intense morning show that features a multigenerational view of a day along with news and sports.

Entravision's radio cluster increased total revenue by 15% in the quarter, outperformed the Los Angeles market by 12 points. This revenue growth was driven by strong increases in national advertising revenue and KLYY local spot. National billings posted exceptional year-over-year with an increase of 86%.

Local sales continue to post strong gains, with direct business increasing 17% in the quarter. KLYY remains the Entravision Los Angeles cluster's direct response leader. Combined local and national digital revenue in Los Angeles increased 64% year-over-year to the successful integration of our digital sales products, which includes our new lead generation platform EntraLeads.

Our Los Angeles cluster continues to focus on selling 360 integrated marketing solutions to new and existing clients. This requires total focus on property identified in new business categories, continued training of our staff, and implementation of Entravision's full list of sales products and new business initiatives.

With the winter 2013 radio ratings, our stations continue to be ranked among the leaders in adults 18 to 34, against all competitors, regardless of language. Among the 10 Entravision markets measured by Arbitron in the winter survey, 9 of our stations are in the top 10 in their markets in the full week against all competitors, regardless of language, and morning drive (inaudible) on [3] Tricolor stations, and (inaudible) on Jose stations are in the top 10 in 7 markets. In our cornerstone afternoon drive program, (inaudible) is in the top 10 in 6 markets, regardless of language.

Now let me turn briefly to our digital business. We have continued to leverage our strong brands and sales force to deliver attractive integrated marketing solutions. Our clients could connect with our audiences across all key Entravision media and digital channels, thereby accessing new attractive multi-platform advertising opportunities.

We continue to make significant progress with our digital initiatives, which is growing significantly quarter-after-quarter, and currently accounts for 2% of our total revenue and 4% of our local revenue. Our interactive revenue has grown year-over-year for 19 straight quarters, including strong growth of 54% during the first quarter over the same period last year.

Video consumption across our digital networks increased 42% during the first quarter. We published close to 10,000 local news stories online across our markets during the quarter. Our increased digital video content is driving strong digital audience growth. We now have more than 1.1 million monthly unique visitors to our websites.

Our audio live streaming operations also showed solid performance and continued growth. During the first quarter, we streamed 4 million hours. We have now every month on an average of 700,000 unique audio streamers with an average session length of one hour.

Our mobile presence continues to grow. Our Latino mobile communities have over 300,000 subscribers. Mobile revenues increased 77% during the first quarter, as mobile engagement remains at record levels. During the first quarter, we sent over 4.75 million text messages to our mobile audiences on behalf of our advertisers.

We are also driving increased engagement across social media, as our TV and radio station websites continue growing their Facebook and Twitter audiences. We finished the first quarter with more than 600,000 total followers on our social media channels, an increase in social media engagement of 63% over the first quarter of last year.

Lastly, we continue to grow our big data unit. We understand big data as a world where the volume, variety, and velocity of data are growing like nothing we have seen before. We are going from sample data to full [census] and empirical data. This is unlocking tremendous opportunities for companies to drive growth and create value with faster and better analytical insights to support the right actions.

We launched Luminar in July of last year as the first big data analytics and modeling provider to focus on the Latino market, as a growth driver for Fortune 1000 companies. Luminar enables clients to identify predictable models of Hispanic consumer behavior that allow them to gain deep insights in order to size the business opportunity, reach, up-sale, and retain Latino consumers more effectively.

Luminar is becoming an incremental new revenue driver for Entravision, as well as providing strong synergies that make our company core business far more compelling and efficient.

Turning to our pacings, while we do not provide specific guidance, we continue to see positive trends in our television, radio, and digital businesses in April. Our television business is up approximately 10% over last year, while radio is up approximately 4% over last April.

On a consolidated basis, our April revenues are up 8% compared to last year's comparable month. If we exclude political and retransmission revenue from our April numbers, core TV finished plus 11%, and core radio was up plus 5%. Consolidated quarter revenue in April was up plus 9%.

It is important to note that most of last year's second quarter political, about $2 million, was placed across our media platform in May and June.

In summary, we are successfully executing our strategy across our core media and digital assets and delivering strong audience shares. The Latino population is growing rapidly in numbers, as well as in overall influence. Advertisers are increasingly recognizing the need to target and interact with Latinos, and we offer a robust, multi-platform advertising conduit for reaching this important audience across our nation's most densely populated Latino markets.

Our television and radio stations are extremely well positioned and our online mobile and social media presence is expanding as well. Taken together, we have the unique ability to connect brands with an important and growing audience across all major media channels.

As I noted, overall advertising trends remain positive, and we are pleased with our second quarter pacings. Our national radio network continues to drive strong national advertising gains, and we continue to anticipate additional revenue growth from a number of strategic initiatives, including our focus on securing advertising dollars related to the Affordable Care Act, as well as our efforts in increasing our share of Mexican advertising with our border media assets.

Overall, we are pleased with our first quarter results, as well as our continued progress in strengthening our balance sheet and delivering increasing returns to shareholders.

Now I will turn the call over to Chris for a review of our financial.

Thank you, Walter and good afternoon everybody. As Walter has discussed net revenue for the quarter was $49.1 million, up 6%. Operating expenses increased 3%, to $31.9 million, and consolidated adjusted EBITDA increased 15% to $13.4 million.

Net revenue for the quarter was up 6%, to $49.1 million, compared to $46.5 million in the same quarter of last year.

Television net revenue was up 5%, to $35 million for the quarter, compared to $33.2 million in the same quarter of last year. Radio net revenue was up 6%, to $14.1 million for the quarter, compared to $13.4 million in the same quarter of last year.

The increase in our TV segment was primarily attributable to an increase in local advertising revenue and an increase in retransmission consent revenue. The increase in our radio segment was primarily attributable to an increase in national advertising revenue.

Excluding retransmission revenue, core TV advertising revenue was up 5% for the quarter versus TVB industry core spot revenue of minus 1%. This is the 6th consecutive quarter where our core television revenue has significantly outperformed that of the television industry.

Core radio advertising revenue was up 6%. Retransmission consent revenue for the quarter was $5.3 million, compared to $5 million in the same quarter of last year.

Operating expenses for the quarter were $31.9 million, up 3%. Excluding non-cash compensation expense, operating expenses for the quarter were $31.7 million, up 3%. The increase was primarily attributable to an increase in expenses associated with the increase in net revenue and an increase in salary expense, partially offset by a decrease in bad debt expense.

Corporate expenses for the quarter were up 16%, to $4.5 million, compared to $3.9 million in the same quarter of last year. Excluding non-cash compensation expense, corporate expenses for the quarter were $3.8 million, up 2%, compared to $3.7 million in the same quarter of last year.

Free cash flow, as defined in our earnings release, increased 138%, to $3.4 million, or $0.04 per share for the quarter, compared to $1.4 million or $0.02 per share for the same quarter last year. Cash interest expense for the quarter was $7.3 million. Cash capital expenditures for the quarter was $2.6 million.

Turning to our balance sheet, as of May 31st, 2013, our total debt was $343.8 million, and are trailing 12-month consolidated adjusted EBITDA was $78.6 million. Cash on the books was $32.3 million as of March 31st, 2013. Net of $10 million of unrestricted cash on the books, our total leverage, as defined in our revolving credit agreement was 4.2 times as of 3/31/2013.

As Walter mentioned, we have announced our intention to seek a new credit facility in May of 2013. The facility is currently anticipated to consist of a new delayed draw term loan, as well as a new revolving line of credit. The proceeds will be used to refinance our current 8.75% notes outstanding, as well as our existing $20 million term loan and our $30 million revolver, which is not drawn. GE Capital will serve as book runner on this transaction.

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

(Operator Instructions) At this time, we will pause momentarily to assemble our roster. Our first question comes from Michael Kupinski, at Noble Financial.

Thank you. And thank you for taking the question. Congratulations on a solid quarter. Television revenues, though, were a little bit lighter than expected and a little bit below what you indicated in terms of the core growth rate. [Did] anything happen there, like particularly, I suppose in March? And while it seems like things have accelerated, it sounds like pretty positive for April. What are your thoughts in how it's going to [need to] look as you come against some of that political advertising in May and June? Any thoughts on that.

Well, a couple of comments, Michael. This is Walter. Our television revenue did slow down a bit in March. We have, I think we were plus 6 coming out of February, plus 7. And we did see television slow down there last quarter.

That said, radio, on the other hand, actually grew to a plus 7 in the quarter, and we were thinking the opposite was going to happen. But just the way the numbers fell. But we certainly were pleased with the quarter.

We gave you an insight on our April numbers. We're certainly pleased with the plus 10 for television and the plus 4 for radio, and that includes all revenue, except for any retransmission revenue.

We've got, we think good momentum going into May and June, but we are looking at $2 million of non-returning political revenue in May and June. So we're doing everything we can right now to make sure we deliver another strong corner for our shareholders.

Yes, appreciate that. I know that the numbers can get a little screwy when you start coming up against the political advertising, depending on the displacement and so forth. But is there any way that you can give us some visibility on how the bookings are looking for May at this point?

Well, we don't give pacing, Michael. We only give what we call actuals, right. But by actuals we mean the months completed, so we feel confident to be able to give our investors some insight onto how the quarter's going. But we're not going to predict or forecast what may happen in May and June.

Okay, fair enough.

Michael, if you just consider that core TV bounced back to plus 11 on a core basis for April, that gives us a lot of confidence in the quarter, and that's all we really can comment on it.

Okay, perfect. And then on direct operating expenses, were a little bit higher, and, of course, you came in with a little bit better revenue anyway. But as a percent of revenues, could we expect that that [numbers grow] to kind of decrease as the year goes forward? I mean, because some of your digital initiatives and so forth kind of start to roll off, I would imagine. But can you give us a little color on that?

Well, all in, we ended up at a plus 3 on the operating expenses. So there was some movement between SG&A and direct operating expenses. That may be what you're referring to.

Right.

Simply because our management reorg, you had that whole layer of management that moved from one category to the other, as far as the expenses are concerned. So when you see that fluctuation between both SG&A and direct operating expenses, that's what's behind that.

But overall, both numbers up, I think kind of low single-digit, to -- low to mid-single-digit expense numbers are kind of what we should expect to see for the balance of the year.

Okay, perfect. Thanks for the color there.

Our next question comes from Aaron Syvertsen at Sidoti.

Aaron Syvertsen Kind of a follow-up to Mike there, similar question. I just want to confirm the SG&A cost that was lower year-over-year, that was kind of more of a personnel shift into the direct operating?

That's exactly right. So the quarter-by-quarter comps will look a little screwy just because we had to reclassify those expenses as far as that layer of management is concerned. We'll have a full year to cycle through that before they kind of even out on a comp basis.

Aaron Syvertsen And kind of a question on the big data. I know there was a press release a couple days ago as well. Will there be a point where you will kind of begin to break out what those numbers are looking like? And will there be any kind of year-over-year comparisons once we lap in the July?

There will be a point, but we're not, as we currently sit here today, we're not prepared to kind of tell you when that's going to be.

Aaron Syvertsen Okay. And lastly --

As we pointed out, that business is less than a year old.

Aaron Syvertsen Right.

We are certainly pleased with what we see in terms of the incremental revenue that that business can produce, as well as the efficiencies that it brings our current core business.

Aaron Syvertsen Sure. That's actually it for me. Thanks, guys.

(Operator Instructions) Our next question comes from James Dix at Wedbush.

Just got a couple things. I guess in terms of your outlook for the TV business and what the drivers of that can be, I mean, once again, in the first quarter you had very strong out performance versus the industry, about 6 points. I guess what goes into maintaining that? Or is that sustainable for the balance of this year? And if so, do you need different things to start to work in your favor? And if you have any particular color on how we should think about quantifying any of the initiatives. I know you've talked about a number in the past at conferences, on your calls, Affordable Care Act, the border markets. But thinking just in particular about how we should be thinking about that difference between TV and the rest of the industry, which is pretty big at the moment.

Well, James, we continue to believe that our automotive business will show a strength through the year. We posted plus 18% for television, and I think plus 20% for radio. We think that mid-teen growth for automotive through the years is achievable. So we just saw, we all saw the numbers posted by the auto industry yesterday for April - very strong.

And then, of course, we were pleased to see retail up 22% in our television business. That's always a very important core advertising category. So that was a good sign. We're pleased with that.

Telecom appears to be back, plus 32% in the first quarter in television, and I believe radio was up as well. I'm looking for that number right now. But there's a category -- up 20% for radio.

There's a category that struggled for quite awhile. We started to see some signs of growth, positive signs of growth in third, and then, of course, in forth, we did see strong growth in telecom, and then that followed into first. We believe that'll continue as well.

So those 3 categories, I think are critical for a good core category growth here. And so far, we like what we see.

Okay. Great. And then in terms of expenses, I guess, Chris, any update on just the seasonality, the expense growth that we should be expecting this year versus last year, given some of the new hiring you had in certain of your divisions? I just want to make sure that we're modeling that right as the year [moves forward].

Well, I think just the same thing we said last quarter, the front half of the year, the comps will be a little bit higher than the back half of the year, just because we had incremental variable expense-related items that aren't going to be there with all of that political that was flowing through.

So they will trend a little bit higher on a percentage basis as far as the delta's concerned first half of the year, and then they'll get a little easier into the back half of the year.

Okay. So at the moment, like 2Q should look fairly similar to 1Q in terms of the expense, and then --

That's correct.

-- and then we start to see a change? Okay.

Yes, low to mid-, I guess is what I just said to Michael.

Okay. And then finally, just any thoughts on the timing of your refinancing and when we should start -- when we could potentially start seeing the impact in terms of your interest in free cash flow?

Well, we're going to go into the market this month. And you know what? We'll release more information when we're in a position to do so. But we're ready to go, and the market seems to be ready, and we're anxious to get out there.

Okay. Great. Thanks very much.

Just to follow up, James, on the refinancing, we expect, we anticipate we're going to execute a solid, strong refinancing. But as Chris pointed out, the feature has -- or the refinancing comes with a delayed draw feature. So we won't see the benefits of free cash flow starting until August, right, because we'll --

Right, if you go out and call the bonds, which the hard call date is August 1st, then that's when you'll see the free cash flow ramp up as a result of presumably a lower interest expense item.

Great. Very helpful. Thanks.

(Operator Instructions) And our next question is a follow up from Michael Kupinski.

Yes. I wish just to follow up on the radio comment. In terms of April, were you seeing similar trends that you saw in the first quarter, local versus national? Particularly, we are seeing a little -- you indicated a little deceleration from what you saw in the first quarter. But was just curious if the mix has changed or if you saw a little bit of slowdown or deceleration in the pace of national. If you can just add a little color, what you saw in April.

Well, we did see a little bit of a change in April as it relates to the local forces national. Local was -- in April was plus 6 and national was minus 1, which is different than what we saw in the first quarter where local was flat and national was up significantly.

Is there any particular thing that you could indicate where you've seen the little softness, I guess in national at this point?

I just think that it's the quarter. I think that traditionally, the first quarter's always slow, it takes clients awhile to get rolling with their national campaigns. But I think we'll see national come back here in the rest of the quarter.

And you indicated that telecom seems to be coming back. Is that what you're seeing also in April?

I don't have that number. We didn't have enough time to drill down that deeply. But I have no reason to believe that telecom is not continuing to perform positively.

Okay, perfect. Thank you.

At this time, we show no further questions. I would like to turn the conference back over to management for closing remarks.

Thank you, Amy. Thank you, everyone, for joining us on our first quarter 2013 conference call with our investors. We look forward to speaking to all of you in August of this year, and we will then announce our second quarter results. Thank you.

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