Entravision Communications Corp (EVC) 2016 Q2 法說會逐字稿

Good afternoon and welcome to the Entravision Communications Corp. Second Quarter 2016 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, CEO. Please go ahead.

Thank you, Danielle. Good afternoon everyone and welcome to Entravision's second quarter 2016 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 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 non-GAAP financial measures. The Company has provided a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measures in today's press release. The press release is available in the Company's website and was filed with the SEC on Form 8-K.

Turning now to our second quarter results. We continued to execute our multi-platform strategy during the second quarter and made solid progress in both our television and digital businesses while we remained hard at work on the audio side as we cycled against challenging comparisons from last year. That said, our radio assets remain well positioned and we are benefiting from our Entravision Solutions Network as well as our industry leading content line-up. We also continue to return capital to shareholders via our quarterly dividend.

Looking now at our financial results, revenues increased 8% to $64.8 million in the second quarter as higher TV and digital revenues offset a flat audio performance. Consolidated adjusted EBITDA also increased 8% to $18.2 million in the quarter compared to the same period last year.

Free cash flow, which we define in our press release, was up 46% to $11.8 million or $0.13 a share, compared to the prior period. And net income was $5.7 million or $0.06 per share, representing an increase of 9% over last year.

Turning to our TV segment operating results, television revenue increased 8% during the second quarter assisted by the Copa Centenario soccer tournament as well as strong growth in automotive. National revenue was up 22%, while local revenue was flat. Retransmission revenues increased 4% during the second quarter. Excluding retransmission revenues, television revenues increased 9% from the second quarter.

Excluding the impact of retransmission revenues and political revenues, core television advertising revenues were up 7% with core national advertising revenue up 18% while core local was down 1% during the second quarter. The automotive category continued to be a strong contributor to our television advertising revenue with 27% year-over-year growth during the second quarter. This growth was driven by double-digit increases from Nissan, Honda, General Motors and Toyota.

Revenue growth from both autos Tier 1 and 2, were 6% and 17% respectively, while growth from our Tier 3 local dealerships was an incredible 40% in the quarter. Our television business generated advertising revenue growth across other key advertising categories including; legal, up 12%; finance, up 59%; [process], up 22% and political which represented approximately $670,000 in television revenue for the quarter.

Our roster of television advertising partners continues to expand. During the second quarter we added 44 new television advertisers, who spent more than $10,000, which totaled approximately $1.4 million in advertising revenue. Among the largest new brands that began partnering with Entravision are Smart &Final, Fields Auto Group, General Electric, Best Way Supermarket and Hasbro.

Turning to our ratings performance, our Univision television affiliates built upon their market leadership in the May 2016 sweeps. For adults 18 to 49 and early local news, our Univision television stations finished ahead of their Telemundo competitors in 15 of 17 markets, where we have head-to-head competition with a Telemundo affiliate.

In late local news we finished ahead of our Telemundo competitors, among adults 18 to 49 in 14 of 17 markets where we have head-to-head competition. Additionally our local news casts are ranked number one or two against English and Spanish competitors in 14 markets. Our late local news cast ranked number one or two in eight markets regardless of language.

During the full week our Univision and UniMas stations combined have a cumulative audience of 2.9 million Hispanics in our markets combined, compared to Telemundo's 2 million Hispanics.

We have 47% more viewers in Telemundo in our footprint and our reach is up 9% over the same period last year. Turning to our Audio division, Audio revenues were flat in the second quarter, with both national and local revenues flat. This was in line with the broader audio industry, as Miller Kaplan estimates that for the 13 markets to which we subscribe, they too experienced flat growth during the second quarter.

Further breaking out our national audio revenue, our national spot businesses was down 5%, while our national network business was up 13%, compared to prior year. Our audio division results continue to benefit from our Entravision solution's national audio network. The 13% growth achieved by the networks was led by key brands such as Home Depot, O'Reilly, (inaudible) and AutoZone. A key driver of our audio network remains our industry leading content offerings that include Oswaldo Diaz, also known as Erazno y la Chokolata, Alex El Genio Lucas, and Eduardo Piolin. These personalities are the top-ranked Spanish language audio talent in our industry. All of them have a strong following on air, online as well as via mobile.

Overall, Entravision Solutions Audio Network is attracting an increased amount of advertising dollars and growing its audience shares. Our Entravision Solutions national audio network had 36 network advertisers during the second quarter, which was up 6% compared to the prior year. A key contributor to this growth continues to be the Erazno show which had 15 active national advertisers, representing the 14% increase compared to the second quarter of last year.

The Erazno network grew over $1 million in the quarter for the first time and more importantly because of his success, his show was the only Spanish language nominee for Marconi Award for the best nationally syndicated show in the country as all other four nominees for this prestigious award were premiere English language national syndicated shows. We believe that this Marconi Award nomination is another indication of the rating success, its reach of the US Latino market and the mass appeal of the Erazno y la Chokolata show for both listeners and advertisers.

Categories in material growth for audio division in the second quarter included auto, up 10%; healthcare, up 13%; finance, up 7%; services, up 2%; and political which represented about $242,000 in revenue for the quarter.

In Los Angeles the leading Latino market in the United States KYY continues to be a top-ranked Los Angeles radio station delivering a number of key demos. For the most the recent three-book Nielsen survey April, May and June against a coveted Hispanic adult 18 to 49 and 25 to 34 demos, KYY has a number one afternoon drive show with Erazno y la Chokolata, the number three morning show with Alex El Genio Lucas and the number three radio station in prime time Monday to Friday 6:00 AM to 7:00 PM.

For the second quarter of 2016 Entravision Los Angeles cluster saw double-digit growth in local direct business on KYY posting a 15% increase. Our digital revenue for LA continues to significantly outpace the market in Q2 2016 with year-over-year gains of 54% versus 12.2% for the total market.

Looking at our audio division ratings performance on all stations regardless of language in the adults 18 to 49 demographic, the Erazno y la Chokolata show is in the top 10 in nine of the 12 markets released for spring 2016 as of July 22. Alex El Genio Lucas is the top 10 in four markets and Piolin is in the top 10 in three markets.

Across the 12 markets released by Nielsen Audio for spring 2016 as of July 22, eight of our radio stations are among the top 10 stations overall in their markets regardless of language among adults 18 to 49.

Now let's move onto our digital business. We continue to generate strong growth in digital revenues, which increased 55% during the second quarter and are up 41% through the first six months of the year. Our digital revenues accounted for approximately 9% of our total revenues in the second quarter. Our consistent digital performance is driven by what we believe is a truly unique platform that combines strong online and mobile audience shares with engaging content and enhanced capabilities via our Pulpo and Luminar assets. Our roster of digital advertising partners continues to grow. During the second quarter, our digital teams worked with major brands including Metro PCS, Nissan, Microsoft, Wendy's, Covered California, Chrysler, AT&T, Kaiser Permanente, and Heineken among others. And we once again generated solid broad based growth across key advertising categories. Automotive was up 72%, while other key categories, consumer goods and telecom were up 85% and 130% respectively. Retail was up 38% and healthcare up 51%.

One key reason for this strong advertising sales performance is our digital reach. Today, we delivered the largest digital US Latino reach to advertisers. Our industry-leading audience share is driven in part by Pulpo, which targets Latinos across all devices and platforms and then leverages Luminar's big data programmatic targeting and yield optimization tools. We build on this tremendous value proposition through engaging mobile centric digital content and offerings coupled with expanding social media presence. We continue to find our digital audience connecting with our content primarily through mobile devices. As such mobile remains an essential component of our digital strategy and platform offerings.

US Latinos, particularly Latino millenials continue to over index in both mobile usage and mobile content consumption. Not surprisingly, mobile is our fastest growing revenue stream and has reached 27% of our total digital revenues. comScore continues to rank Pulpo as the number one digital platform for reaching Latinos in the United States. The latest comScore numbers point out that our mobile audience shares continue to grow. comScore data shows we connect with 13.3 million unique Spanish dominant Latinos and 25 million unique by bicultural Latinos through mobile via our Pulpo network. It is important to note that our digital audiences across all acculturation levels, all key demographics and Spanish Dominant bicultural and English dominant Latinos. We reach all corners of the total Latino market nationwide with our digital and traditional media assets.

Turning to our station websites, which delivered an average of 2.9 million unique visitors during last quarter we continue to focus on providing a robust content offering for audience. During the second quarter we published over 11,000 local news stories and over 5,000 videos across our station websites, which produced more than 21 million page views. We also streamed over 6 million hours of audio entertainment during the second quarter to over 700,000 monthly unique listeners. We continue to expand our following presence on major social media channels. Our cumulative social media engagement levels have passed 6.5 million followers across key networks including Facebook, YouTube, Twitter and Instagram.

Overall, mobile remains a key area of focus for our digital team as we look to further strengthen our offerings and capabilities. This includes developing the apps and mobile-first websites for our industry-leading personalities such as Erazno y la Chokolata, Alex El Genio Lucas (inaudible) and El Show De Piolin. We've already launched an app for Erazno y la Chokolata with much fanfare and consumer adoption. Since its launch in January the app has been downloaded 150,000 times. We will be announcing and demonstrating our integrated and branded digital video capabilities, virtual reality and augmented reality in our September 29 Entravision's audio network upfront in New York.

Our mobile offerings also include text and MMS operations. We sent over 1.9 million text messages during the second quarter with 60% of those messages being MMS. We saw a 27% increase in overall usage levels over the same period last year.

Overall, we are very pleased with the evolution of our digital businesses. We will continue to invest and expand our capabilities. We will increasingly focus on mobile first digital content, the best add and marketing technology, the best data assets to target and deliver increased content value from our Latino audiences and increase return on the advertising spend for our national and local clients.

Now let's take a look at our [thesis] for the third quarter. Looking first at television. As a reminder during the third quarter of last year our television business secured $5.5 million of non-advertising revenue related to a channel modification transaction we made with a telecom operator. Excluding that non-advertising revenue, our television business is currently pacing positive high single digits including and excluding political.

Our audio advertising revenue is currently pacing in the negative mid-to-high single digits including and excluding political compared to last year but we are hard at work trying to drive better performance for the quarter despite having to overcome a difficult quarter three 2015 radio comparables.

Digital revenues are currently pacing at approximately 40% above bookings at this point in the third quarter of last year, including and excluding political.

In summary, we had a good second quarter that was driven by solid growth across our television and digital segments. We are at the halfway point of the year and to date have made solid progress executing a multi-platform strategy. This is particularly true on the digital side where we continue to expand our capabilities and introduce compelling new digital and mobile offerings.

Our core television and radio assets remain well positioned in their markets and we are focused on continuing to build our total share and connect brands with an attractive engaged Latino audience spanning all platforms, key demographics and acculturation levels.

Finally, I'd like to comment briefly on political. We are well positioned across notable swing states such as Florida Colorado, Nevada, New Mexico and Virginia. This is viewed by many as being a truly historic election and it comes at a time when the Latino population has expanded rapidly in terms of population and political influence. Front-running candidates will win or lose depending on the support they're able to muster from the Latino electorate. We expect to see the soft pre-convention placement now move slowly back into August and start gaining more traction in our [ballot ground] markets previously mentioned like Nevada, Colorado, Florida and Virginia.

In addition, we believe down-ticket races are critical for this election and they represent a significant part of our total goal expectations. Already unlike previous elections we have seen several campaigns reserve inventory in the third and fourth quarters well in advance of what we normally see in an election cycle.

At this time, 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 up 8% at $64.8 million compared to $59.9 million in the same quarter of last year. Operating expenses increased 6% to $39.9 million and consolidated adjusted EBITDA was $18.2 million. During the second quarter of 2016, the Company paid a cash dividend of $0.03125 a share to shareholders of the Company's Class A, B and U common stock. The total amount of cash disbursed with the dividend was $2.8 million. The Company also announced today that the Board of Directors has declared a quarterly cash dividend of $0.3125 per share to shareholders of the Company's common stock payable on September 30, 2016. The total amount of cash to be disbursed for this quarterly dividend will be approximately $2.8 million. As previously announced, we currently anticipate making cash dividends on a quarterly basis in future periods.

For the quarter, TV net revenue was up 8% to $39.2 million compared to $36.4 million in the same quarter of last year. The increase in our TV segment was primarily attributable to an increase in national advertising revenue, an increase in political advertising revenue, which was not material in 2015, and an increase in retransmission consent revenue.

Political revenue for the quarter was approximately $700,000 compared to $100,000 in the same quarter of last year. Retransmission consent revenue for the quarter was $7.5 million compared to $7.2 million in the same quarter of last year.

Radio net revenue for the quarter remained constant at $19.6 million compared to the same quarter of last year. Political revenue for the quarter was approximately $200,000 compared to $100,000 in the same quarter of last year. Digital net revenue for the quarter was up 55% to $6.1 million compared to $3.9 million in the same quarter of last year. The increase in our digital segment was primarily attributable to increases in national and local advertising revenue.

Operating expenses for the quarter were $39.9 million, up 6% with TV operating expenses up 5%, audio expenses up 5%, and digital expenses up 29%. Excluding non-cash compensation expense TV operating expenses were up 4%, audio operating expenses were up 5% and digital operating expenses were up 37%. Corporate expenses for the quarter were up 5% to $5.3 million compared to $5.1 million in the same quarter of last year. Excluding non-cash compensation expense, corporate expenses for the quarter were $4.6 million versus $4.5 million in the same quarter of last year, an increase of 4%. Excluding non-cash compensation expense, the increase in corporate expenses were primarily attributable to an increase in salary expense.

Income tax expense was $3.9 million for the quarter, while cash taxes paid was approximately $200,000. Given the elimination of our full valuation allowance for the fourth quarter of 2015, 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 constant at $0.06 per share, compared to same quarter of last year. Free cash flow as defined in our earnings release, increased 46% to $11.8 million or $0.13 a share for the quarter compared to $8.1 million or $0.09 per share for the same quarter of last year. Cash interest expense for the quarter was $3.5 million compared to $3 million in the same quarter of last year due to interest related to our swap agreements. Cash capital expenditures for the quarter was $2.6 million. Capital expenditures for 2016, the entire year, are expected to be approximately $10.5 million.

Turning to our balance sheet, as of June 30, 2016, our total debt was $314.7 million and our trailing 12-month consolidated adjusted EBITDA was $73.4 million. Cash on the books, was $31.4 million as of 06/30/2016. In February of 2016, $30 million of cash was invested in a six-month CD and is classified as short-term investments on our balance sheet.

Net of $20 million of unrestricted cash in the books our total leverage as defined in our 2013 credit agreement was four times even as of 06/30/2016.

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

We will now begin the question-and-answer session. (Operator Instructions) Michael Kupinski, Noble Financial.

Thanks for taking the question. Can you talk about the extraordinary growth in the auto category and a little bit about the pacing as it looks into the third quarter? And if you could remind me what was auto as a percent of total television revenues and what was it at the peak? And just finally, is the strong performance in autos similar to kind of like that late stage economic cycles that the Company experienced in the past or is it something pretty extraordinary that you are seeing right now?

Well, auto just to look back, looking for peak levels, back in 2006 and we've talked about this before, Michael, auto saw a peak of around 30%, 31% of our total TV revenue. Auto for television in the prior quarter represented 34%, so we're beyond that peak. We're at peak levels as we speak. So it's kind of a good news, bad news story. We'll take the revenue, but we are very wary of where we are in a cycle as a result.

Are there other categories, Chris, that are kind of emerging that might kind of look like that they're gaining some strength as we kind of go into the second half?

Well, the legal services category, which is the number two category, that showed significant strength. That was up double digits in the quarter as well. Grocery stores seem to be picking up as well as finance. So there are other categories, but nothing is going -- nothing is coming close to the auto category. That's always been our number one category. And the primary driver of that over the past couple of quarters hasn't been the national dollars per se, it's been the local dealerships. Local dealerships were up almost 40% for a television group and that momentum -- for the past quarter and that momentum continues into the third quarter.

Michael, to add to what Chris has said already, our automotive category continues to produce great results for the Company. Part of this -- of our success in auto this last quarter was due to Copa Centenario which is this soccer tournament that was held during the month of June. That was certainly a great event for our audiences as well as, as for advertisers and the automotive category was certainly part of that.

Total automotive was up 25% over the second quarter, including all of our -- entire platform, which could be our TV, our radio and digital.

Finally on an aggregate basis, you talked about specifics on some of your radio programs and so forth, but on an aggregate basis are ratings up for the radio group?

Ratings are slightly off year-over-year compared to where we were at this point last year.

And what would that be attributable to?

I think the environment really what's happening in Los Angeles, and Phoenix in particular, is that the marketplace has got much more competitive from a content standpoint. You have folks that have been tweaking -- competitors that have been tweaking their content and showing progress. So that's something that we need to address and we're doing that as we speak.

And finally you mentioned that bookings were pretty strong on political in the second half. Is there any way that you can add any color on that or frame that in terms of whether the rates are kind of improving now, is it tax money that's coming in, is it candidate money, any thoughts on guidance maybe in terms of political for the second half?

Well as you're aware, Michael, 80% of the political revenue for all of us will fall into the third and fourth quarters. The first and second quarter or the first half of the year, our political was certainly above 2012, but it was slightly behind where we wanted to be. But we are seeing strong momentum building for third and fourth. I think I mentioned that we have more bookings on the books at this time than we had in 2012. But the conventions are over now. The campaign is just starting to focus on the advertising and getting ready for the final push which will be the September and October. So we expect to see momentum continue to build here as we move through August and get towards the end of August and we'll see where we're at in terms of how bookings have developed.

Walter in past cycles what was the percent of Presidential versus other political advertising, whether it'd be house, gubernatorial or advocacy advertising?

That's a good question, Michael. All I can say to you is that I know that it was substantially -- it was the major part of our total political advertising for 2012 and 2008. So if I had to take a number I'd say probably 70/30.

I got it. Okay. All right, thanks guys. Appreciate it.

Tracy Young, Evercore ISI.

Could you give us some more color on digital expenses or margins so where you think digital could be as a percentage of revenue by next year?

Well, Tracy, our revenue is up as we indicated in our remarks. It was up 55% in Q2 and I think we're up over 40% through the first six months of the year. So we're very pleased with how our digital platform is performing. Pulpo is the number one digital network to reach Latinos across all levels of acculturation. We also are spending more or investing more in our digital products through, especially in the side of content. But our margins are probably somewhere -- I think in the second quarter they are what?

12%.

12%. We expect them to be higher for the year certainly. We also expect that our total digital revenues will be about 10% of total revenue. But our goal is to get our digital to 20% of total revenues for the Company by the end of 2017 and that will be through a combination of organic growth as well as some acquisitions that we're looking at and adding to our current digital platform.

Just to add to that, Tracy, looking at that 12% performance for Q2 I would look for a margin expansion of somewhere between two to three points per quarter over the next couple of quarters to get us through the year on top of that 12%.

Okay. Thank you very much. And then just going back to the radio division, you mentioned (inaudible) performed in line with the industry. So as you look ahead you expect some deceleration or do you think that's where the industry is headed, could you just talk a little bit about that?

Well, Tracy, I think one of the things that we're up against in the back half of the year that's when really our radio division started to shine. Q3, we talked about that pace [driven in] Walter's remarks. Remember Q3 for us last year, our local ended up at plus 10%, our national business ended up a whopping plus 27%, and all in the radio division was up 15%. So we were up against tough comps. If you look at the radio business sequentially this year, we continue to expect to see gains in the third and fourth quarter. Now where that stands against prior-year numbers are a different story just because prior-year numbers were so strong. That's kind of how we're looking at it right now.

We also expect, Tracy, that political will have a -- will drive regular revenue growth in the quarter as well.

(Operator Instructions)James Dix, Wedbush Securities.

I guess three things. Just in terms of auto, you mentioned the strength in the dealers. I'm just wondering whether you've seen particular volatility or acceleration, deceleration from particular tiers historically and whether what you're seeing now is kind of consistent with that, but just simply at a greater level or whether you're seeing a different mix of growth than you've seen historically?

And then second, just on political, I think some clarity there. You called out an expectation for maybe a little bit more of a fourth-quarter weighting to political this year. Do you have a similar sense [they mention] particularly the Trump campaign. So not sure whether that would affect you as much, but just curious whether you have any sense on the seasonality, political being any different in particular this year than 2012. And then I just have one follow-up.

So the question was is the political, call it, cycle this year than in -- different than in --?

Yes, do you think your political might just fall a little bit more in fourth quarter than in prior election cycles (multiple speakers) 3Q?

Well, it always bee -- yes, as I said earlier, like 80% of all the political revenue falls in the third and fourth quarter, but we could see, to your -- to the question you raised, is we could see even more of that total political revenue fall in the third and fourth quarter this year. Maybe 5 points more, maybe we'll see 85% more this year in terms of the split between the first half and the second half.

It is building later than than we anticipated and it has been a year that is a little harder to predict in terms of which way it's headed, but we continue to remain optimistic about our performance. We believe that the media assets that we operate in four key swing states will be vital this time as well to growing our political revenue. All roads lead to Florida. We have media assets in Central Florida, Orlando, and Tampa and we believe that the winner of Florida will eventually have to persuade the Latino electorate to support them in order to come up with a victory, and the same with Colorado, Nevada and Virginia.

And on the automotive question between the tiers as far as trends are concerned, what I will say is that we're sitting here looking at Q2 and about 10% of our total auto revenue was Tier 1 and 90% was Tiers 2 and 3. Three, four five years ago, it was about 30% of our auto revenue was coming from Tier 1 and the balance 70% was coming from Tiers 2 and 3. So, it clearly looks like the local and regional side of the auto business is accelerating while the rate of growth for the Tier 1 money seems to be decelerating. I don't know if that's helpful. That's an observation.

Yes, that's very helpful. And then just my follow-up is just thoughts on the M&A environment. You mentioned a little bit -- the potential to acquire some digital assets over time, but I'm curious as to what you think might be your priorities in terms of just core TV stations, core radio stations, any sense as to where the market might be, when and if the spectrum auction finally clears. Thanks.

Well, James, as far as traditional assets are concerned, media assets, there are a lot of opportunities for us out there right now. I mean we looked around and we continue to receive calls from brokers and other people that are involved in these transactions. But, in terms of what we're looking for is this not the right fit, it hasn't come along, that doesn't mean that the market will change and suddenly there may be some more opportunities to grow our traditional media assets. But a lot of our focus is on digital. We think that certainly the performance of our digital business gives us great confidence that we're on the right track. Mobile first is certainly first and foremost of how we look at digital as well as marketing technology data in branded content. So I think you're going to see us more and more looking for ways to grow our digital media platform. If there are some traditional media assets that are out there, that we think are interesting, certainly that will enhance our total media platform as well. But anyway I think that's [a summary of] where we are at.

James, I think you are done, right? He is done. Okay, next question

This concludes our question-and-answer session. I would now like to turn the conference back over to Mr. Ulloa for closing remarks.

Danielle, thank you, and thank you everyone for participating on our second quarter 2016 investor call. We look forward to speaking to all of you in November when we will announce our earnings results for the third quarter. Thank you.

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