Entravision Communications Corp (EVC) 2015 Q2 法說會逐字稿

Good day, and welcome to the Entravision Communications' 2015 Second Quarter Earnings Conference Call. All participants will be in listen-only mode. (Operator Instructions) Please note, this event is being recorded. I would now like to turn the conference call over to Mr. Walter Ulloa, Chairman and CEO. Please go ahead.

Thank you, Kerry. Good afternoon, everyone. Welcome to Entravisions' Second Quarter 2015 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 expressed 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 on Form 8-K.

Now, moving on to our review of the second quarter. We have reached the halfway point of the year and continue to feel positive with the progress we have made in executing our growth strategy, as we expand our reach in audience across all media platforms and further advance our digital capabilities. Our reported results for the quarter, particularly for our television group were negatively impacted by the strong World Cup advertising revenue we generated during the second quarter of last year.

That said, our audio properties including our radio station group and network delivered another strong quarter. And once again, we believe we outperformed the broader radio market. Our digital revenues continued to expand and we remain focused on further strengthening our unique digital platform and delivering a highly targeted and engaged audiences to advertising partners. We also continue to return capital to our shareholders through our quarterly dividend.

Looking now at results, second quarter consolidated revenues were $59.9 million, down 3% year-over-year due to the impact of World Cup revenues in the second quarter of last year. Excluding the estimated impact of World Cup, political retransmission fees and the additional Pulpo's digital revenue, our core advertising revenue was up 2% in the second quarter. Consolidated adjusted EBITDA was $16.8 million in the second quarter while free cash flow was $8.1 million and earnings per share were $0.06.

Turning to our segment operating highlights, television revenues were down 16% during the second quarter, primarily due to the impact of World Cup revenues last year. Local TV revenues were down 8% while national revenue was down 33% during the quarter. Excluding the impact of World Cup spending, political and retransmission revenue, core TV advertising revenue was down 5%. The automotive category was down 19% during the second quarter in our television business, due to mostly to strong World Cup related auto advertising last year. Excluding the impact of World Cup, our auto revenue in the second quarter was up 4% over the prior year.

Looking ahead, we expect auto and Tier 2 automotive, in particular, to rebound in the second half of the year. While our performance across other key advertising categories was affected by World Cup last year, we did see growth in several advertising categories including; the auto aftermarket up 25%, travel and leisure up 24%, and finance up 8%.

During the second quarter, we added 38 new television advertisers and that spend $10,000 or more which generated approximately $737,000 in advertising revenue for our television business. Notable top new advertisers included Presbyterian Health Plans, [Tissor] Corporation, eBay Classified, Cacique Cheese and Caltrans.

Turning to ratings, our Univision television affiliates continue to operate from a position of strength in their respective markets and continue to be the dominant Spanish language television stations in their respective markets, based on the May 2015 [news]. And early local news for adults 18 to 49 our Univision television affiliates finished as a number one television station in 12 of the 14 markets where we operate. In the late local news in the same demo, our Univision television stations finished number one in nine out of 15 markets.

In weekday prime, our Univision affiliates combined averaged a 3.0 rating among adults 18 to 49 while Telemundo average to 2.6 rating. In weekday prime, our Univision ratings are up from last year, ratings have increased 3.4% among Hispanic adults 18 to 34, 13.6% among adults 18 to 49 and 3.1% among Hispanic adults 25 to 54. Our total reach in markets we subscribe to -- where we subscribe to Nielsen is [2.6 billion] Hispanic persons two plus, that represents 26% of the total Hispanic persons two plus population in our market. Our nearest competitor, Telemundo reaches only 1.8 million Hispanic persons two plus in our markets or 18% of the Hispanic person two plus population.

Looking now at our radio division, where revenues increased 5% in the second quarter compared to last year with local up 3%, and national up 9%. We achieved this topline growth, despite the lack of $1.7 million World Cup in revenues this year compared to last year. Excluding the impact of World Cup spending and political in the prior year core radio revenues increased 12.5% during the second quarter.

This strong performance during the quarter places us in a position to continue outperforming the broader industry, which is estimated to increase 1% during the second quarter, based the Miller Kaplan estimates for the 12 markets to which we subscribe. Our Entravision Solutions audio network continued to generate strong results with revenues up 84% during the second quarter. The growth drivers for the ES network include telecom, tune-in media, finance, auto repair and healthcare. Our audio network business is the leading platform to connect advertisers with Latinos across the United States.

The key driver of our network growth comes from our industry leadership in content, including Erazno y La Chokolata, Alex El Genio Lucas and Eduardo Piolin Sotelo, an unprecedented trifecta in any language. Both Alex and Erazno have a 100 indices of the top 150 US Latino markets reaching over five million listeners weekly through terrestrial radio, streaming mobile and social media. Erazno y La Chokolata, our top ranked afternoon syndicated program is aired in markets where 84% of the total US Latino population resides.

Alex El Genio Lucas, also a top ranked leading performer is airing in market with an aggregate of 75% of the entire US Latino market. And El Show de Piolin continues to significantly increase its network reach across the United States. This one, two, three, punch lineup of Erazno, Piolin and Alex Lucas has proven that Entravision audio networks represents the best Latino talent in Spanish Language Radio today.

This powerful audio content offering continues to resonate with our advertising partners, as our Entravision Solutions network logged in a total of 35 advertisers during the second quarter, an increase of 21% from the same period in prior year. The list of top network advertisers making investments in our network this quarter included Sprint, TCS, Sears, Macy's, JCPenney, O'Reilly Auto Parts, Wells Fargo and many others. New radio network advertisers included Budweiser, Kentucky Fried Chicken, Mexico Tourism and T-Mobile, which is now the official telecom sponsor of the Piolin show and our 18th annual Riverton live music festival, which was held in late July. Our radio division as a whole reported revenue growth in eight of our top ten categories in the second quarter, including services up 13%, automotive up 16%, travel and leisure up 18%, retail up 11%, and telecom plus 20%.

Automotive, which is the second highest revenue generating category, as I mentioned, was up 16% from the quarter, primarily due to a very healthy 25% increase in local auto dealership revenue. During the second quarter, we added 37 new radio advertisers who spent more than $10,000, which generated approximately $752,000 in advertising revenue. These advertisers included Los Angeles Immigration Attorneys, Superior King Groceries, Apollo College and Immigration America.

In Los Angeles, our largest radio market, our radio station generated an impressive 12% revenue growth during the second quarter, while the LA radio market as a whole declined 1% according to Miller Kaplan. Our strong performance in the LA market this quarter reflects the programming changes we made in the second half of last year, as well as the recent addition of El Show de Piolin in January. Our Los Angeles radio station group generated 35% revenue growth during the second quarter, while KLYY Jose up 50% and KSSC generating revenue increase, up 18% compared to last year.

We outperformed the LA market, which was flat in the second quarter according to Miller Kaplan. We also outperformed our Spanish-language peers, which were up 1% during the quarter, again, according to Miller Kaplan. This performance was even stronger considering that book KDLD and KLYY broadcast the World Cup in 2014 last year.

In Los Angeles, the leading Latino market in United States both El Genio in morning drive and El Show de Erazno Chokolata in afternoon drive are both airing on Jose, our KLYY-FM and are among the top 10 radio stations regardless of language. Erazno is the highest rated program among Spanish-language radio stations in its time period.

Turning to our audio ratings performance, our stations continue to be ranked among the leaders in adults 18 to 49 against all competitors regardless of language. In the 12 Entravision markets, with spring 2015 Nielsen audio data, nine of our radio stations are ranked among the top 10 in their markets, full week Monday through Sunday 6:00 AM to 12 midnight. In morning drive, six of our radio stations airing El Show de Erazno on Jose station and five of our radio stations airing El Show de Piolin are in the top 10. Our cornerstone afternoon drive program Erazno y La Chokolata is in the top 10 in eight markets. Entravision radio reached nearly 3.5 million Hispanic persons 12-plus or 32% of Hispanic person 12-plus population in the markets, Nielsen Audio has released so far this quarter.

Now let's turn to digital. Digital revenues are $3.9 million in the second quarter, which represents 51% pro forma growth over the same period last year. Digital now accounts for approximately 7% of our total revenues and we expect that percentage to continue to grow in the coming quarters. Our digital revenue growth continues to be driven by our national and local fast growing unique portfolio of digital offerings on our owned and operated sites, as well as our Pulpo audience platform.

With Pulpo, we can target and reach Latinos nationwide with display, video, mobile and social across all devices and platforms and across all levels of acculturation, which together with our traditional assets now allows Entravision to deliver the total US Latino market for our advertisers.

With Luminar and Pulpo, we have built the strong big data management platform, which is delivering increased efficiencies with programmatic targeting and yield in optimization tools. Entravision now has a clear leadership position in data driven marketing to connect brands with Latino consumers online and via mobile.

Content remains key to our efforts to expand our digital revenues, and our online, social and mobile audiences. During the second quarter, we published over 13,870 local news stories and videos at our station website. In addition, we streamed over 5.5 million hours of audio in the second quarter. We also increased our unique monthly audio streamers to an average of 700,000 for the second quarter, a 150% above the last quarter.

We have, by far, the greatest digital Latino reach with an average of 2 million monthly unique visitors on our owned and operated sites. Also Pulpo, ranked by comScore's Hispanic ad focused ranking is the number one digital platform to reach Latinos in the United States across all levels of acculturation with 8.5 million monthly unique Spanish dominant Latino visitors and 16.4 million unique bicultural Latino monthly visitors. Entravision is now the largest media destination for digital Latinos in the United States period. During the second quarter, we also further extended our social media presence. We ended the second quarter with more than 5.6 million social media followers across all key channels.

Turning to Mobile, we all know we are in a world gone mobile and Latino is clearly over-indexed in mobile media consumption. We now reached 12 million unique Spanish dominant Latinos in mobile devices and 26.7 million unique bicultural Latinos in mobile devices to our Pulpo network. Digital and mobile-first is our mantra. This focus on digital and mobile is paying off. We're happy to report that one-third of our digital revenue is already derived from mobile and continues to be the fastest growing revenue platform at Entravision.

We are in the process of launching mobile apps centered around our radio personalities, including Erazno, Alex El Genio Lucas and El Show de Piolin which will significantly increase our level of engagement with our audiences not only via streaming, but also in social media, video and unique mobile content, all in one platform. Mobile also includes our text and MMS operations. We sent over 1.5 million text messages during the quarter and usage levels continue to gain momentum.

We are also harder at work increasing our content for mobile and then partnering with advertisers, including McDonald's, Buick GMC, Chevrolet, MetroPCS, Toyota, Jaguar Land Rover, Nissan, Cricket Wireless, Texas A&M and many, many more. Approximately 32% of our text messages were MMS.

All-in-all, our digital segment continues to expand its revenue streams and the strategic investments and targeted acquisitions we have made places us in a unique leadership position in the markets and are delivering solid returns. We will continue to invest in digital businesses and talent. Today, we are delivering a highly targeted and engaged Latino audiences across all media platforms and key demos at a time, when the US Latino population continue to expand both in numbers and influence.

Turning now to our pacings; so far, in the third quarter, our television revenue is pacing positive mid-single digits versus prior year which included World Cup advertising. However, we should note that included in this pacing is $5.5 million revenue contract with the telecom company for services performed unrelated to advertising. This transaction is similar to a contract that we booked in the first quarter of this year.

Excluding this line item, our TV broadcast business is pacing in the negative high single-digits, primarily due to the difficult comparison from World Cup and political last year. Excluding the estimated impact of World Cup and political in the prior year, our core TV advertising revenue is pacing flat in the quarter compared to the prior year. Radio for the third quarter is currently pacing in the positive high single digits, despite the impact of World Cup in the prior year. Excluding the estimated World Cup impact, radio is currently pacing in the positive mid-teens. Our digital business is currently pacing up over 50% compared to pacings at this point in the prior year period.

In summary, our second quarter results demonstrates the benefits of our content investments in our Audio business and the continued progress we are making in expanding our total audience strategy and transforming Entravision into a leading multi-platform media Company. While last year's strong World Cup revenues impacted our reported results, the underlying performance of our business remains healthy and our third quarter pacings to-date are strong. Looking ahead, we are focused on continuing to connect advertisers and their brands with the targeted and engaged nationwide Latino audience that can be reached at home, on the Internet, and on-the-go via mobile.

Now I'll turn the call over to Chris Young, our Chief Financial Officer for a review of our financial information.

Thank you, Walter, and good afternoon everyone. As Walter has discussed, net revenue for the quarter was $59.9 million, down 3%. Operating expenses increased 7% to $37.5 million and consolidated adjusted EBITDA was $16.8 million. During the second quarter of 2015, the Company declared and paid cash dividend of $0.025 per share to shareholders of the Company's Class A, Class B and Class U common stock. The total amount of cash disbursed for the dividend was $2.2 million.

The Company also announced today that the Board of Directors has declared a quarterly $0.025 per share dividend to shareholders of the Company's common stock payable on September 30, 2015. The total amount of the cash to be disbursed for this quarterly dividend will be approximately $2.2 million. As previously announced, we currently anticipate making cash dividends on a quarterly basis in future periods.

For the quarter, TV net revenue was down 16% to $36.4 million compared to $43.2 million in the same quarter of last year. The decrease in our TV segment revenues was primarily attributable to the absence of World Cup and a significant political advertising revenue in 2015 compared to 2014 and a decrease in national advertising revenue, partially offset by increases in local advertising revenue and retransmission consent revenue.

Radio net revenue for the quarter was up 5% to $19.6 million compared to $18.7 million in the same quarter of last year. The increase in our radio segment was primarily attributable to increases in local and national advertising revenue, partially offset by the absence of World Cup revenue in 2015 compared to 2014. Excluding the World Cup, our radio revenues were up 12.5% compared to second quarter of last year.

Our digital media segment generated $3.9 million in revenue for the quarter. Unaudited pro forma revenue for Pulpo in prior-year period was approximately $2.6 million. Retransmission consent revenue for the quarter was $7.2 million compared to $6.8 million in the same quarter of last year. We expect retransmission consent revenue to be approximately $27.5 million for the year.

Operating expenses for the quarter were $37.5 million, up 7%. The increase was attributable to increased operating expenses of Pulpo, which we acquired in June of 2014. Excluding the impact of Pulpo, operating expenses were flat for the quarter. TV operating expenses, excluding non-cash compensation expense were down 2% and radio operating expenses, excluding non-cash compensation, were up 4%. Digital operating expenses, excluding non-cash compensation, were $2.2 million. Corporate expenses for the quarter were down 4% to $5.1 million compared to $5.3 million in the same quarter of last year. Excluding non-cash compensation expense of $0.6 million, corporate expenses for the quarter were $4.5 million versus $4.8 million in the same quarter of last year, a decrease of 7%.

Excluding non-cash compensation expense, the decrease in corporate expenses was due primarily to higher non-recurring expenses incurred last year related to the acquisition of Pulpo Media, partially offset by an increase in salary expense. Cost of revenue, consisting primarily of cost of online media acquired from third-party publishers at our digital unit was $1.4 million for the quarter.

Income tax expense was $3.5 million for the year, while cash taxes paid was $0.1 million. Given the elimination of our full valuation allowance in the fourth quarter of 2013, future income tax expense will run at approximately 40% of pre-tax income, although most of this expense will continue to be non-cash given our NOL offsets. Earnings per share for the quarter was $0.06 per share compared to $0.10 per share in the second quarter of last year.

Free cash flow, as defined in our earnings release, decreased 51% to $8.1 million or $0.09 per share for the quarter compared to $16.7 million or $0.19 per share for the same quarter of last year. Cash interest expense for the quarter was $3 million compared to $3.3 million in the same quarter of last year, due to less outstanding debt. Cash capital expenditures for the quarter was $5.6 million. Capital expenditures for the year is expected to be approximately $14 million.

Turning to our balance sheet, as of June 30, 2015 our total debt was $338.4 million and our trailing 12-month consolidated adjusted EBITDA was $75.8 million. Cash on the books was $50.9 million as of June 30, 2015. Net of $20 million of unrestricted cash on the books, our total leverage, as defined in our 2013 credit agreement, was 4.2 times as of June 30. This concludes our formal remarks.

Walter and I will now be happy to take your questions. Kerry, I'll turn it over to you.

Thank you. (Operator Instruction) Michael Kupinski, Noble.

Thank you. Thanks for taking the questions. Given all the investor concern over Pay TV subscribers these days, I was wondering if you can indicate if you're seeing growth in Pay TV subscribers in your market. And maybe, you might use this as an opportunity to give us an update on the progress of your discussions with Univision regarding your retransmission proxy?

Well, based on the information we have, Michael, we have not seen any change in the Pay TV subscribers in our markets. We've looked at it here last couple of quarters and there seems to be little change or in the change in cable subscribers in our markets here certainly over the last two quarters. As far as our discussions with Univision, they continue. We extended the proxy agreement that we're currently under and we are negotiating with them to try to reach an agreement that is certainly beneficial to both parties.

And correct me if I'm wrong, but the Company will need to identify its participation in spectrum auctions in the October timeframe with the SEC. Has the Company determined, at this time, how many markets that it plans to participate in?

No. The short answer is, no, Michael. We continue to do work on that front and the rules got voted in today. So we're set now on a March, 29 auction date and we continue to work on what the right strategy is to maximize potential value. But we've not made that determination as of today.

(Operator Instructions) Hudi Miller, Cedarview Capital.

Good afternoon, guys. I guess just following up on the last question. It seems like you touched upon this question a little bit, but at the East Coast IDEAS Investor Conference back in June, it seems like you guys spent a considerable amount of time talking about it. So could you just expand a little bit about -- I guess since then where you guys are in your path and seems like everything is pretty telegraphed to what public is out there in respect of a final rule. So where you are sitting at this time, without being definitive, I guess?

Well, I think the best way to answer that is we've got full-time staff working on this. We're running simulations, we're running scenarios and we're looking at the opportunities both from an auction participation standpoint, as well as a potential hosting standpoint, where you don't participate in the auction directly, but you host with somebody else who potentially could participate in the auction.

Going beyond that, as far as assigning a number potentially, I think at this stage in the game, I don't think there's much point to that. I think what I would say is we continue to remain optimistic given the work that we've done to date, about potential upside provided you've got the right scenario on the table. If it's a 126 megahertz clearing target, that's obviously good news for everybody in the industry. If it's 84 megahertz clearing target, it's not such great news for the industry.

And we have no control over that. All we have control over is just what our stations could potentially go for both on a hosting and an auction participation basis and that's the work we continue to do. So there was another broadcaster earlier this week who quoted Greenhill figures and quite frankly, Greenhill is months-and-months ago and light years ago as far the work that we've done. So we're going to shy away from giving Greenhill numbers again and just continue to do the work.

No, that's fine. And does anything precludes you guys from like, on the next call or the next two calls I guess before the auction in speaking about what your strategy is going to be or there is other kind of non-disclosures that you can put out?

No, you'll never hear about our strategy with respect to the auction, because we are playing a game of poker with everybody else in broadcasting community. For us to kind of broadcast what our strategy is gives everyone the answers that they could strategize against us. So we're never going to make public what our strategy is, specifically, market-by-market.

Michael Kupinski, Noble.

Thanks. I just have a couple of clarifying questions. In the pacing data for the radio, is there any political or advocacy advertising in the number. I was just wondering if you've already started to see some of that and if that's included in the pacing information you provided?

Michael, as of now, we don't have any political or advocacy revenue in our pacing for Q3 for TV and radio, better just heightens the fact how well our radio group continues to perform, based on the pacings that we indicated. I will say though, I want to add to that just briefly, we do expect a robust political year. We think that the political season is going to start even earlier than in 2011. In 2011, we had about $800,000 of revenue in TV and radio in the second half of the year as we approach the 2012 election.

We're forecasting much stronger growth this year. We believe that the states where we operate, Colorado, Florida, Nevada, New Mexico, Virginia are going to become even more important in this election. The Latino electorate is, every day we read another article about the growing influence of Latino voter electorate. So, a lot of interest in the Latino market as it relates to the political elections, We're certainly in contact every day -- weakly with both major parties Democrats and Republicans about the national race as well as local races.

And in California, for example, there is going to be an important Senatorial race. It looks like right now the two candidates are two women, Loretta Sanchez a Congress person and Kamala Harris, the State AG and that's going to be probably decided by mid-year as to who the nominee is going to be for the Senate race and that's going to be an important election. We expect to see, certainly a considerable amount of messaging to Latino markets here in California to drive voters to the polls.

Thanks for the color there. And also, Walter, you indicated that auto advertising you're expecting to see come back stronger in the second half year, was wondering what gives you the confidence that you're going to see that. And if you can remind me what's the percentage of auto is, as a percent of total revenues and what that was like, maybe, last year and see the comparisons from year-over-year?

Well, let me just say that our pacing for the Q3 for automotive is quite strong, both TV and radio and sales nationwide continue to be strong for the automotive sector. I believe the target this year now is about 17 million units. And then you've got another fact which is that the highest records of older cars on the road now are 11.5 years than ever. So we continue to remain bullish. The Latino consumer is certainly important to this critical sector for our business. And like I said, we'll certainly -- we expect to see some healthy growth here in the second quarter, total percentage of our total revenue for auto is about 23%.

And can you remind me what it was last year?

It was about a point and a half lower. The breakout, it's 29% of total TV revenue right now and it's about (technical difficulty) total radio revenue and that 29% is kind of at a point where historically, I think our high point, high watermark was back in 2006 where we hit 30%. So, we're getting up there as far as the auto penetration is concerned. But radio seems to certainly be on the rise, given the new strength in the content. Radio at the high watermark was -- as high as 20%. So, sitting at 14% there's room for growth there.

And this ends our question-and-answer session. I would like to turn the call back over to Mr. Walter Ulloa for any closing remark.

Thank you, Kerry. Thank you everyone for listening into our second quarter earnings results. We look forward to talking to all of you in November when we will report our third quarter earnings results. Thanks again, bye.

Thank you. This concludes our conference. Thank you for attending today's presentation. You may now disconnect. Have a great day.