Entravision Communications Corp (EVC) 2015 Q3 法說會逐字稿

Good afternoon everyone and welcome to Entravision's Third Quarter 2015 Earnings Conference Call. All participants will be in a listen-only mode. (Operator Instructions) After today's presentation, there will be an opportunity to ask questions. (Operator Instructions) Please also note that today's event is being recorded.

At this time, I like to turn the conference call over to Mr. Walter Ulloa, Chairman and Chief Executive Officer. Sir, please go ahead.

Thank you, Jamie. Good afternoon everyone and welcome to Entravision's Third 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 a 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 it was filed with the SEC on Form 8-K.

Now moving on to our review of the third quarter. Our third quarter results reflect the continued strong performance of our audio segment, further expansion of our digital revenues, as well as improved results at our television group. Our audio segment and audio network business continue to outperform the broader industry as well as our Spanish language peers, primarily due to our industry-leading content offerings.

We grew our audience shares across all key audio platforms and our digital revenue streams continued to expand. Today, we remain well-positioned in digital given our unique capabilities to deliver a large targeted and engaged digital US Latino audience to our advertising partners. We also continued to return capital to our shareholders through our quarterly dividend.

Looking now at specific results, third quarter consolidated revenues were $69.3 million, up 11% year-over-year due to increased revenues across all three of our business platforms. Excluding the estimated impact of World Cup, political and non-advertising revenue, total core revenue on a consolidated basis increased 10% in the third quarter. Consolidated adjusted EBITDA was $23.9 million in the quarter, up 15% while free cash flow increased 18% and earnings per share were $0.11 compared to $0.09 in the third quarter of last year.

Turning to our TV segment operating highlights, television revenue increased 5% during the third quarter. This increase reflects approximately $5.5 million in non-advertising revenue related to a channel modification made by us to accommodate a telecom operator.

Excluding this non-advertising revenue, television was down 8% primarily due to difficult comparisons for both World Cup and political revenue in the prior year.

Further analysis of our television third quarter performance shows local advertising down 7%, national advertising down 16%, our retransmission revenue was up 7%. Excluding the impact of the telecom deal of the telecom transaction, World Cup spending, political and retransmission revenue, our core TV advertising revenue was down 1% with core local down 3% and core national up 3%.

Automotive revenue, our largest advertising category for our television segment, increased 2% during the quarter, despite the impact of World Cup related revenues in the prior year period. Driving this category were Volkswagen, Mercedes-Benz, Mazda, Honda and Chrysler Jeep Dodge. We're also pleased to see higher end auto brands such as Acura, BMW, Land Rover and Audi make meaningful contributions to our growth in this category in the quarter.

The World Cup last year impacted on our ad sales performance in certain other categories as well. However, we did generate growth in multiple key ad groups including travel and leisure, grocery, auto repair and direct marketing. We continue to expand our roster of advertising partners in television. During the quarter we added 26 new television advertisers who have spent $10,000 or more, which totaled approximately $867,000 in advertising revenue for our television business. Notable top new advertisers included Colorado Department of Health, Sycuan Casino, Stoneledge Furniture, various key Tier 3 auto dealers such as Morgan Automotive Group, City Chevrolet, Las Vegas Honda Dealers, Mossy Toyota and ABC Hyundai among others.

Turning to ratings performance, our Univision television affiliates build up their market leadership in the July 2015 sweeps. For adults 18 to 49 in early local news, our Univision television stations finished ahead of their Telemundo competitor in 12 of 14 markets.

In late local news, our Univision television stations finished Number One over our Telemundo competitor in 9 of 15 markets. In the Entravision markets combined, the cuming audience of our Univision and UniMas affiliates is 2.8 million Hispanic persons aged two-plus, one million more than Telemundo's cume of 1.8 million.

In local news, the highest rated of any newscast across all Entravision markets Spanish or English among early and late news airs on Entravision. Our radio affiliate, KLDO, gets a six point rating, six rating, 31 share for its early newscast and a 10.1 rating, 29 share for its late newscast, double-digit ratings and share are an extreme rarity today.

Looking now at our audio division, we are pleased to see our audio revenue grow 15% in the third quarter compared to last year with the local up 10% and national up a very healthy 27%. These numbers are particularly impressive considering they are before taking into consideration the difficult comparisons created by World Cup and political revenue generated in the prior year period.

Excluding the impact of World Cup and political, core radio revenues increased an incredible 20% in the third quarter. This marks the continuation of our outperforming the broader industry, which is estimated to have increased just 1% in the third quarter based on Miller Kaplan estimates for the 12 markets which we subscribe.

Our Entravision Solutions Audio Network continued to generate strong results with revenues up [56%] during the third quarter compared to the same period last year. This growth was propelled by increased revenue from Anheuser-Busch, Sprint, PCS, JCPenney, Home Depot and Sears. We were also able to attract a number of new network advertisers this quarter including Kentucky Fried Chicken, Discovery Network, Choice Hotels, Mexico Tourism and [Pantheon Films].

Our audio network business is a leading industry platform to connect advertisers with Latinos across United States and the key driver of our network growth continues to come from our industry leadership in content including Oswaldo Diaz also known Erazno y La Chokolata, Alex El Genio Lucas and Eduardo Piolin Sotelo, the three top Spanish language talents in the entire country, all under the Entravision roof.

We are extremely proud of the roster of talent that we have assembled here at Entravision. On top of that, we are pleased to announce on this call that we have reached agreements with both Alex Lucas and Oswaldo Diaz also known as Erazno y La Chokolata to extend their contracts to December 31, 2019. This effectively locks up all three of our top audio acts for the next several years. Both Alex and Erazno index at a 100% in the top 150 US Latino markets, which means they have full coverage reaching over 5 million listeners weekly through terrestrial radio, streaming mobile and social media. Network revenue for Erazno's show alone grew 79% in the third quarter versus the prior year period.

The strength of our content offering continues to resonate with our advertising partners. We had a total of 33 Entravision Solution Network advertisers during the third quarter, an increase of 27% from the same period in prior year. Our audio division recorded revenue growth in eight of our top 10 categories in the third quarter including services up 21%, automotive up [23%], telecom up 162%, travel and leisure up 9%, healthcare up 26%, auto repair up 26%, product brands up 17% and alcohol up 10%.

Driving, automotive are audio segment's second largest category, with 26% increase from our tier 3 or local [autoship] clients. Our efforts continue to generate results as well as expand our base of advertising and marketing partners. During the third quarter, we had 24 new radio advertisers who spent more than $10,000 and we've generated approximately $561,000 in advertising revenue. These advertisers include (inaudible), Choice Hotels and Showtime Entertainment.

Our strong performance in the audio market this quarter continues to reflect the programming changes that we made in the second half of last year, as well as the addition of El Show de Piolin. On a combined basis, our Los Angeles radio station cluster was up 30% in revenue growth in the quarter versus the prior year with local up 18% and national up an incredible 98%. KLYY, our Jose branded station in the market, saw core revenue growth of 54% excluding World Cup and 45% when we include World Cup revenue from last year's comparable quarter.

KSSC, our Super Estrella banded station in the market, also grew 21% compared to the prior year, all of which compares favorably to the Los Angeles market performance as a whole, which was down 1% regardless of language and down 2% for Spanish language radio stations only according to Miller Kaplan. In Los Angeles, the leading Latino market in the United States, our show El Genio airs in morning drive while our show the Erazno y La Chokolata airs in afternoon drive, both on Entravision's KLYY-FM. Both shows are among the top 10 in their time periods regardless of language and Erazno was the highest-rated program among Spanish language radio stations in this time period in the market. I should say he is the highest rated program.

In the ten Entravision markets for the summer of 2015 news and audio data, six of our radio stations are ranked among the top 10 in their markets regardless of language. In morning drives, seven of our radio stations airing El Genio on Jose stations and three of our stations airing El Show de Piolin are in the top 10 regardless the language. Our cornerstone afternoon drive program Erazno y La Chokolata is in the top 10 in seven markets.

Also in the third quarter, we announced a new three-year agreement with the NFL to broadcast Spanish NFL games on Sunday night (inaudible) Thanksgiving Day and AFC playoffs across the entire country. This agreement also gives Entravision the rights to broadcast Super Bowl 51 from Houston, Texas in 2017. We are obviously pleased with this new venture and look forward to broadening our relationship with our Latino audience through this new and exciting venue on our audio platform.

Now let's turn to digital. Digital revenues were $5 million in the third quarter, which represents 73% growth over the third quarter of last year. Our digital revenue now accounts for approximately 7% of our total revenues. Our digital revenue growth is driven by our unique portfolio of offerings, our owned and operated digital publishing operations, Pulpo and Luminar, our strategic focus on offering compelling content and our ability to deliver the largest digital US Latino reach to our advertising partners.

With Pulpo we can target and reach Latinos nationwide across all devices and platforms while Luminar adds a unique big data management platform complete with programmatic targeting and yield optimization tools. Today, we can efficiently and effectively connect advertisers with Latino consumers online, on mobile devices and social media with digital video, display, audio and native ad units.

Our digital reach remains strong as Pulpo continues to be the number one digital platform to reach Latinos in the United States according [to their] comp score, including 8.2 million monthly unique Spanish dominant Latino advertisers and 16.8 million unique bicultural Latino monthly visitors and our owned and operated station websites deliver an average of 2 million monthly unique visitors as well.

We've continued to execute a content-driven strategy and expanding our digital revenues as well as our total online, social and mobile audiences. During the third quarter, we published over 14,000 local news stories and videos across our station websites and streamed over 4.7 million hours of audio to over 1.8 million unique listeners. Close to 80% of our visitors across our digital platform are using a mobile device.

We have also further expanded our social media presence and ended the third quarter with more than 6.1 million social media followers across key networks including Facebook, Twitter and Instagram. This represents an increase of 240% compared to last year. Turning to Mobile, where Latinos continue to [over-index] in mobile ownership and mobile media consumption, today we reached over 12 million unique Spanish dominant Latinos through mobile devices and 28.3 million unique bicultural Latinos through mobile devices through our Pulpo digital network.

Mobile is a key area of strategic focus for us and remains our fastest growing revenue stream. Our unique offerings and capabilities continue to have great success and [23%] of our digital revenue comes from mobile today. Our digital video offerings continues to grow and it now represents 28% of our digital revenue.

Our digital team is working on mobile apps and mobile first websites related to our most popular personalities including Erazno, Alex El Genio Lucas and El show de Piolin. We believe these consumer-focused apps will drive additional audience engagement with via streaming audio, social media integration and unique mobile content.

Mobile also includes our text and MMS operations. We sent over 1.7 million text messages during the third quarter and our usage level continues to rise. This has led to a steady increase in our number of MMS text which reached roughly 41% of our total text messages.

In closing, we are extremely excited about our ongoing progress in growing our digital revenues, our audience and our capabilities. We believe we have built a truly unique digital platform and one that delivers the largest and most engaged Latino audience today. Digital remain a key component of our overall strategy as we look to continue growing audience shares across all media platforms and further expand our advertising base.

Turning now to our pacings, so far in the fourth quarter, our television revenue is pacing down in the low mid teens versus prior year, which included 4.7 million of political advertising. Excluding political in the prior year, our core TV pace is flat to slightly up in the quarter compared to the prior year.

Audio for the quarter is currently pacing up in the positive low to mid single digits, despite the impact of 1.1 million of political revenue in the prior year. Excluding political in the prior year, core audio is pacing in the positive low teens. Digital is currently pacing up 30% compared to bookings at this point in the prior year.

In summary, our third quarter results demonstrate the continued success we are having executing our growth strategy. Our audio platform continues to deliver industry-leading growth and we have further advanced our digital segment revenues and reach. We are relatively pleased with our current core pacings in the quarter and remain focused on continuing to execute our strategy of transforming Entravision into a leading multi-platform media company.

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 $69.3 million, up 11%, operating expenses increased 8% to $38.8 million and consolidated adjusted EBITDA was $23.9 million.

For the quarter, TV net revenue was up 5% to $43.4 million compared to $41.3 million in the same quarter of last year. The increase in our TV segment revenue was primarily attributable to approximately $5.5 million of revenue associated with television station channel modifications made by the Company in order to accommodate the operations of the telecom operator, an increase in national revenue and an increase in retransmission consent revenue. This increase was partially offset by decreases due to the absence of World Cup and significant political advertising revenue in 2015 compared to 2014 and a decrease in local advertising revenue. Excluding World Cup, political and non-revenue, our television revenues were down 1% compared to the third quarter of last year.

Radio net revenue for the quarter was up 15% to $20.9 million compared to $18.1 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 and political, our radio revenues were up 20% compared to the third quarter of last year.

Digital net revenue for the quarter was up 73% to $5 million compared to $2.9 million in the same quarter of last year. The increase in our digital segment was primarily attributable to an increase in local revenue. Retransmission consent revenue for the quarter was $7.1 million compared to $6.6 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 $38.8 million, up 8%, excluding non-cash compensation expense. TV operating expenses were up 2%, audio operating expenses were up 11%, and digital operating expenses were up 61%. Driving audio expenses in the quarter were an increase in sales commission and bonus expense related to the increased revenue, an increase in event expense related to several new events, including a new agency upfront presentation that we held in the quarter in New York and increased rent expense for our Los Angeles studios under the terms of a new release. The increase in digital operating expenses were mostly related to the increase in revenue at the division.

Corporate expenses for the quarter were up 13% to $5.5 million compared to $4.9 million in the same quarter of last year. Excluding non-cash compensation expense of $600,000, corporate expenses for the quarter were $4.9 million versus $4.3 million in the same quarter of last year, an increase of 15%. Excluding non-cash compensation expense, the increase in corporate expense was primarily due to an increase in salary expense, increased legal expense and an increase in expenses related to the upcoming FCC spectrum auction.

Income tax expense was $6.4 million for the quarter while cash taxes paid was $100,000. 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 $0.11 per share compared to $0.09 per share in the third quarter of last year. Free cash flow as defined in our earnings release, increased 18% to a record $17.8 million or $0.20 per share for the quarter compared to $15.1 million or $0.17 per share for the same quarter of last year. Cash interest expense for the quarter was $3.1 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 $3 million. CapEx for the year is expected to be approximately $13.5 million.

Turning to our balance sheet, as of September 30, 2015, our total debt was $337.5 million and our trailing 12 month consolidated adjusted EBITDA was $78.9 million. Cash on the books was $58 million as of 09/30/2015. Net of $20 million of unrestricted cash in the books, our total leverage as defined in our 2013 credit agreement was four times as of 09/30/2015.

That concludes our formal remarks. Walter and I will now be happy to take your questions. Jamie, I'll hand it over to you.

Ladies and gentlemen, at this time, we are ready to be in the question-and-answer session. (Operator Instructions) James Dix, Wedbush Securities.

I guess first just in terms of your pacings, just refresh my recollection, do you pull out all of the political from both periods in that or do you make some attempt at estimating displacements and then any color you can give on just the change in the pace versus the core growth that you saw on the third quarter, anything that's driving that and then I'll just -- I'll stop there and I've got a follow-up on that?

Okay. James. So we do not make any adjustments for displacement in the political. So we pick out a 100% of the political in prior year when we are looking at the pace.

Okay.

And then the next question, you're looking for some color on the core pace?

Yes, exactly. Just kind of the change in the color of the core pace for TV and audio in particular, fourth versus the third?

I think, generally speaking, TV feels a little better on a core basis. We've talked about the pace being flat to slightly up. We've got a good story running for us in the auto category in particular. We've got an auto pace that keeps for the TV division and that's really what's helping that segment.

For audio, on a core basis, we talked about the pace being in the low teens once you extract political and everything is -- audio seems to firing on all cylinders and that's been a current theme throughout the year, but the content is really working for us and just generally speaking, as we sit here in the fourth quarter at this position, I think, generally speaking, we feel sequentially better than we did at this point last quarter about how the business was trending.

Okay, great. And then specifically on auto, is there anything in particular that's going on, is there some promotional activity, rebates, special offers that's starting to affect the category, I know a couple of other broadcasters have mentioned things like that. I'm just curious on that category since it's your largest on TV?

Auto is just very healthy right now. You've got -- certainly, the macro auto industry is pacing [16 million, 17.5 million units] which I think is going to be a record. Gases remains more affordable, interest rates are low, Latinos are the fastest growing consumers of automobiles. So I think that's contributing certainly to our growth.

I think the great success we've had with content is and continue to have and we are so excited about the announcement we made today about keeping our content roster together and certainly exciting plans we have for 2016, but, I think we've done a good job overall within in our marketing sales teams. I think they're doing great. But, our pacing for television for fourth quarter for automotive is plus 19, radio is way up, digital is off the chart. So overall it's just a strong category and we're taking advantage of it.

Great. And then you mentioned the audio, any color, especially in the light of your announcement today on just the sustainability of that level of growth. Anything in terms of comparisons that we should be thinking about for next year, such as the ramp in the number of affiliates at the network or any particular -- I know certain ratings that you might be getting, if you get two books, for example, that allows you to start seeing some national dollars. That may not have been something that you [had earlier] but you're starting to see now. I'm just trying to get a little bit of a sense as to how to think about that for the sustainability of it into next year?

Well, I'll just -- a quick comment on it. Maybe Chris has some more to add but overall, we're very pleased with the performance of our national sales teams including Entravision Solutions and of course, our national sales managers. But our network, our audio network continues to perform at the highest level.

We're seeing growth which is just incredible given what's happened to the overall radio or audio industry. We think that -- and right now, we're in the process of preparing our 2016 budget. So a lot of time is being spent around where we expect to end up next year with our audio efforts and of course, included in that is digital as well.

We have plans to further expand our offerings in digital with our personalities that I spoke of earlier. So we think, we're going to be able to report really strong numbers at the end of the year overall for our audio business, given what we've done so far this last three quarters and we think the strength of our audio business will continue into 2016.

Okay, great and then one last one from me. If you could just lay out any milestones that we should be thinking about in terms of your participation in the auction, the FCC incentive auction and your assessment of how kind of the last data dump in kind of rule tweaks by the FCC have affected your outlook for monetization or participation if at all? And then anything on the likely timing of when you would get any proceeds if you did participate?

Well, I'll just kind of speak about it in general terms about the upcoming 600-megahertz spectrum auction. We believe that these upcoming spectrum auctions are terrific way for television broadcast companies to maximize shareholder value.

That said, we continue to evaluate opportunities within our group. We have people here within the Company working on this effort full time and all their efforts are related to the auction. But certainly, we are not in a position at this time to state what our position might be in the future with regards to the auction.

It's still a very dynamic process. We know that the application will start being accepted on December 1. That window will close on December 18. I believe that the reverse auction will start sometime late in the first quarter, early second quarter and should wind up sometime late in the second quarter and then you've got the forward auction which will come on the heels of the reverse auction. That should end around September we think and then of course, it will all sort out after that.

I believe that the rules are that any broadcaster that participates in the auction will receive compensation from his or her spectrum within two months after the forward auction is completed, but again, even though we're starting to see rules tighten up and become clear as to what the future lies ahead for all of us, it's still a very dynamic process, at least I think it is and I'm sure that Chris and others who work with both of us feel the same way.

I don't think we're going to see cash going out until October, November at the earliest of next year.

(Operator Instructions) Tracy Young, Evercore.

I just wanted to follow up on the spectrum auction. Obviously you sort of [have been talking] little a bit about the opening prices, the updated or revised prices came out a couple of weeks ago. Do you think that in any way changed your view of the auction? Are you more or less favorable to it? And then, could you tell us a little bit about the upfront that you held at New York, who was invited or the types of companies who were invited and what the intent was?

I'll take the auction question, if Walter want to take the front question. So the most recent data upload from the SEC wasn't a surprise. I think most broadcasters had already sold for those starting values for every station across the country many, many months ago. So, there wasn't really -- for us, internally, there was no news in that additional information. So if anything, it validated the work that we've done up until that point.

I think most investors out there have not had the tools to be able to put those numbers together. So there was a surprise in the investor community, but there is no new information as far as we were concerned based on the research we've done to that point. So I think that covers your first question. And the next question shared was on the upfront.

Tracy, we are very pleased with the results of our upfront that we held in New York in early October. We invited national advertising agencies, those individuals who are involved certainly with network advertising schedules, as well as national advertising spot market advertising agencies and we had the three top talent that I spoke of earlier, Erazno, Piolin, Alex El Genio Lucas were all there.

The idea was to showcase these individuals to the New York advertising agencies and to get them excited about our plans for 2016. We had a number of our executives there, we made several presentations, we had some great entertainment as well. I think it's the best entertainment I've seen in all the years I've been going to these many upfronts, it was the best I've ever seen. So all-in-all, it was a great night and we think we did a good job in communicating our message, our marketing message to the advertising community in New York.

Ladies and gentlemen, at this time and showing no additional questions, I'd like to turn the conference back over to management for any closing remarks.

Thank you, Jamie. And thank you everyone for participating on our third quarter conference call where we gave our earnings results for the quarter. We look forward to talking to all of you in the new year sometime in the first quarter when we will give our results for the fourth quarter as well as for the full year 2015. Thank you.

Ladies and gentlemen, that does conclude today's conference call. We do thank you for attending. You may now disconnect your telephone lines.