Entravision Communications Corp (EVC) 2018 Q1 法說會逐字稿

Good day, and welcome to the Entravision Communications Corporation First Quarter 2018 Conference Call and Webcast. (Operator Instructions) Please note that today's event is being recorded.

I would now like to turn the conference over to Mr. Walter Ulloa, Chairman and CEO. Please go ahead.

Thank you, Andrea. Good afternoon, everyone, and welcome to Entravision's First Quarter 2018 Earnings Conference Call. Joining me on the call today is Jeff Liberman, our President and COO; and 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 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.

Our first quarter results were in line with our expectations, with increased revenue overall thanks to our digital segment, partially offset by decreased revenues at both our television and radio segments. To be clear, this was a difficult quarter. The acceleration seen with industry platform changes has negatively impacted our linear delivery, creating significant operating headwinds across the country.

As a result, during the quarter, we began taking some necessary steps to realign our cost structure given this new market reality. These steps resulted in over $8 million of annualized expenditures being removed from the business, effective Q2 of this year. We will continue to focus on additional cost reductions and provide our investors with an update on our Q2 earnings call in August.

Looking beyond the general business environment, our balance sheet continues to be solid, with approximately $248 million in cash and marketable securities on the books versus the total debt of $298.5 million. During the quarter, we also -- we were also active in buying back our stock, with approximately 1.5 million shares having been repurchased during the month of March and April at an average price of $4.82 per share. On this note, with approximately $2.3 million of our existing $15 million repurchase plan remaining, we are announcing today that the Board of Directors has approved a new stock repurchase plan for an additional $15 million, effective immediately. We also continue to return capital to our shareholders through our quarterly dividend.

Now turning to our financial performance. Revenues increased 16% to $66.8 million in the first quarter. Consolidated operating expenses were up 16% and consolidated adjusted EBITDA was $6.9 million compared to $12.6 million last year. Free cash flow which we define in our press release, was $1.6 million compared to $7.3 million last year. Turning to our television segment. Operating results. Television revenues were down 9% during the quarter, primarily due to lower national sales, slightly offset by increased retransmission revenues. National advertising revenues was down 17%, while local advertising revenue was down 11% compared to last year's first quarter period. Retransmission revenues increased 11% during the first quarter.

Excluding retransmission, political revenues and factoring out the loss of our San Diego Telemundo affiliation last year, core television advertising revenues were down 8%, with local down 9% and national down 8% during the quarter. Automotive advertising was down 19% for our TV segment and represented approximately 30% of our total television advertising revenue. Breaking up the various auto tiers: tier 1 auto revenue was down 46%; while Tiers 2 and 3 were down 11% and 21% respectively.

Beyond automotive, top 10 advertising categories that generated growth during the first quarter were retail up 7% and travel and leisure up 11%. Services, restaurants and healthcare, 3 of our top 10 categories for Television, were particularly soft in the quarter, producing declines of 11%, 34% and 8%, respectively, compared to the first quarter of last year. Overall, we added 39 new advertisers who spent more than $10,000 during the first quarter, which totaled approximately $964,000 in advertising revenue.

Notable new brands in the first quarter included Fred Loya Insurance, Verizon Corporation, Knight Law Group and Women Vote. Turning to our ratings performance. Our Univision Television affiliates built upon their market leadership in the February 2018 sweeps. For adults 18 to 49 in 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. In late local news, we finished ahead of Telemundo competitors among adults 18 to 49 in 11 markets among the 17 markets where we have head-to-head competition with Telemundo. Additionally, our early local newscasts are ranked #1 or #2 against English-Spanish competitors in 11 markets.

During the full week our Univision and UniMas television stations combined have had a cumulative audience of 2.8 million persons 2+ compared to Telemundo's 1.8 million persons 2+. We have 53% more viewers than Telemundo in our television footprint. During weekday prime time, when compared to all stations, we had higher ratings than at least 1 of the big 4 networks in 10 markets among adults 25 to 54 and 11 markets among adults 18 to 34. Telecast for Univision's Premio Lo Nuestro award show in February 2018 was among the top 10 prime time programs for the night among adults 18 to 49 in 15 markets. Now looking at our audio division. Audio revenues were down 10% during the first quarter compared to the prior year. Local revenues were down 12% and national revenues decreased 6% in the quarter. Excluding political, Core Radio revenues were down 11% in the first quarter.

According to Miller Kaplan, we outperformed the market in 6 of the 13 markets that we subscribed to. Advertising categories increased their ad spend with us year-over-year during the first quarter. These categories included retail up 4%, media up 21% and grocery up 8%. Services, auto and travel and leisure, 3 of our top 10 categories for audio, were particularly disappointing in the quarter, producing declines of 15%, 12% and 8%, respectively, compared to the first quarter of last year. Overall, our Audio business added 25 new advertisers who spent more than $10,000 during the first quarter, which totaled approximately $482,000 in advertising revenue.

Notable new brands in the first quarter included [GNG] Events and Entertainment, Coloradans for Responsible Energy and the Wondries Auto Group. Looking at our audio division ratings performance for winter 2018 among Spanish language radio stations, the Erazno y la Chokolata Show is ranked #1 in 8 of our 9 -- in 8 of 9 markets released to date among Hispanic adults 25 to 54, #1 in 7 markets among Latino adults 18 to 49 and #1 in 6 markets among Hispanic adults 18 to 34. Across our 9 O&O stations released for Winter in 2018, the Erazno y La Chokolata show reached more than 600,000 Hispanics 18 to 49.

On our Tricolor network the AM drive and midday programming ranked as a top choice among Hispanics. During midday, La Plebe ranked #1 or #2 among Spanish radio stations in 7 out of 9 markets released to date among Hispanic adults 18 to 34. For AM Drive, our radio stations ranked #1 or #2 among Spanish radio stations in 6 out of 9 markets, released to date among Hispanic adults 18 to 34. La Suavecita, our new format brand that replaced Jose in January of this year, had encouraging results during its first quarter on the air. High profile shows, El Genio Lucas and El Show de Piolin anchor our morning drive and midday spots.

Across our 9 markets released for winter 2018, El Genio's Hispanic adults 18 to 49 cume audiences up over 26,000 and Piolin's Hispanic 18 to 49 cume audiences up over 33,000 from the same time last year. Now let's move to our Digital business. For first quarter, digital revenues increased 347% versus the same period last year, primarily attributable to the Headway acquisition. On a pro forma basis, accounting for the Headway acquisition, digital revenue grew 32% in the quarter. Our Digital revenue accounted for approximately 27% of our total revenue in the quarter. We are driving consistent growth in our Digital revenue by the combination of our robust online and mobile audiences. Mobile audience shares, our engaged communities and our white glove service standards within our Pulpo and Headway platforms.

With the Headway acquisition, Entravision has further enriched its powerful add stack of services, all of which are fully advertiser-centric, covering 14 additional countries, a market that is 5x bigger than the U.S. Hispanic total purchasing capacity and 12x bigger regarding target population. A market where Internet, smartphones and e-commerce penetration are strong drivers of growth because Latin America is not yet as digitally mature as the United States. This acquisition is part of an ongoing strategy to sustain a leading digital position not only within the U.S. Hispanic market but also in less mature markets abroad.

As we continue growing our digital and data-enriched client-centered services, we are focusing on 4 business development lanes: first, we are strengthening our existing brand portfolio and their owned communities reach and engagement; second, we are adding new capabilities to our existing add stack to provide more accurate, efficient and rapid results to our clients; third, we are enhancing our mobile, programmatic and performance demand side, with data-rich platforms, clear attribution and machine learning optimizations to better support our clients and our margins; fourth, and last, we are committed to further developing our Digital sales by maximizing the efforts of a sales force of over 300 professionals across 14 countries, with a combined population of 680 million at total GDP of $7.6 trillion. Moreover, additional exciting projects are happening with all of our Tech Data and business units, as we add capabilities and seek economies of scale.

Within Headway and Pulpo, we are driving essential synergies and value as we advance our existing legacy media data sets and business intelligence as well as our integrated media and Digital services, Pulpo and Headway. These synergies will improve our overall digital product offerings, our digital margins, our digital growth and our R&D in the product development capabilities. On this front, Entravision continues to build a leading database of Latino Online navigation and Purchasing behavior. Also, we are building our data management platform to enable efficiencies, productivity and powerful, insightful product offering to our clients for broadcast, digital and integrated solutions.

The number of brands working with us on digital campaigns continues to grow. Major brands we worked with during this first quarter include L.A. Care, H&R Block, Covered California, Sprint, Mobile Action, 99 Taxi, DraftKings and xoom.com. We generated strong year-over-year performance in the first quarter a number of key advertising categories, including our top category, Services, which saw a 2000% increase: Travel and Leisure increased 500%, Retail increased 323% and Healthcare saw a 14% increase. Overall, our digital platform continues to benefit from our unique combination of assets and expansive reach. In fact, it remains the #1 digital platform to reach Latinos in the U.S. Based on the most recent comScore data, we connect with 41 million unique U.S. Latinos across all acculturation levels, delivering the total Hispanic market to our advertisers.

According to Appsfire rankings, Mobrain is the third mobile and volume platform in Latin America and the #12 worldwide. As it is well known, the digital industry is currently demanding the expansion of audiences through owned and operated properties. Entravision keeps investing in the growth of its managed platform to serve Latino population at a local and national level. Through our online verticals we have published over 6,300 original stories during the first quarter composed of stories and videos aligned with our top categories such as news, entertainment and sports. These stories produced over 7 million views across the owned -- our owned and operated websites and over 65 million views -- video views across Facebook, Instagram and Twitter.

During the first quarter, we have seen a significant increase in engagement on our digital audio streaming initiatives. We reached over 700,000 unique listeners, which generated 7.2 million hours of listening. This represents a 13% increase in hours listened per user when it compared to the previous quarter. As we head into second quarter, we are exploring new audio opportunities such as programmatic partnerships and podcasting. Our social media strategy to create and strengthen bonds with local communities is showing positive results, as we are nearing the 11-million-followers mark across key platforms such as Facebook, Instagram and Twitter. Overall, Entravision continues to strengthen its digital platform through its commitment to produce high-quality content, increased community engagement, and above all, to provide the most powerful set of Latino data and digital services to our advertisers.

Turning now to our paces for the second quarter. Television advert revenues are currently pacing minus 9% in the second quarter. Factoring out the loss of our Telemundo affiliation in San Diego last year, TV ad revenues are pacing minus 2%. Our audio advertising revenue is currently pacing minus 6% in the second quarter. Digital revenues are currently pacing plus 30%.

In summary, our first quarter results were largely in line with our plan, and we remain on track in executing our strategy to further build our unique audience reach and targeting capabilities while proactively managing our costs. With many nationwide political primaries heating up, we remain focused on maximizing our revenue potential in this important midterm election cycle. As we execute our multi-platform strategy and strategically invest in our content and distribution assets, we remain committed to maximizing our performance, and enhancing our cash flows to the benefit of our shareholders.

I will now turn the call over to Chris to give you a financial report.

Thanks, Walter and good afternoon, everyone. As Walter's discussed, net revenue for the quarter was up 16% to $66.8 million compared to $57.5 million in the same quarter of last year. Operating expenses increased 16% to $44.3 million, and consolidated adjusted EBITDA was $6.9 million. For the quarter, revenues in our TV segment were down 9% to $34.5 million compared to $37.7 million in the same quarter of last year. The decrease in our TV segment was primarily attributable to decreases in national and local advertising revenue, partially offset by an increase in retransmission consent revenue and an increase in political advertising revenue, which was not material in 2017. We generated retransmission consent revenue with $8.9 million for the 3-month period ended March 31, 2018, compared to $8 million in the same quarter of last year.

Radio net revenue for the quarter was down 10% to $14.1 million compared to $15.7 million in the same quarter of last year. The decrease in our Radio segment was primarily due to decreases in local and national advertising revenue. Digital net revenue for the quarter was up 347% to $18.2 million compared to $4.1 million in the same quarter of last year. The increase was primarily attributable to the acquisition of Headway during the second quarter of 2017, which did not contribute to our results in the prior year period. For the quarter, cost of revenue in our Digital media segment was up to $10.6 million compared to $1.8 million in the same quarter of last year. The increase was primarily due to the acquisition of Headway during the second quarter of 2017, which did not contribute to the cost of revenue in the prior year period.

Operating expenses increased to $44.3 million for the 3-month period ended March 31, 2018, from $38.3 million for the prior year period. The increase was primarily due to the acquisition of Headway in our Digital segment during the second quarter of 2017, which did not contribute to operating expenses in the prior year period as well as an increase in salary expense and an increase in expenses related to the acquisition of Station KMIR-TV in the fourth quarter of 2017, which did not contribute to operating expenses in the prior year period.

Excluding the KMIR and Headway transactions, operating expenses were down at 2% for the quarter. Corporate expenses for the quarter were up 2% to $6.0 million compared to $5.9 million in the same quarter of last year. Excluding noncash comp expense, corporate expenses for the quarter were $4.9 million versus $5.1 million in the same quarter of last year, a decrease of 3%. Income tax benefit was $0.9 million for the quarter, while cash taxes paid was $0.1 million.

Given the elimination of our full valuation allowance in fourth quarter of 2013, future income tax expense will run at approximately 35% of pretax income, although most of this expense will continue to be noncash given our NOL offsets. Earnings per share for the quarter were a negative $0.02 per share compared to a positive $0.03 in the same quarter of last year. Free cash flow, as defined in our earnings release, decreased to $1.6 million for the quarter compared to $7.3 million in the same quarter of last year.

Cash interest expense for the quarter was $3.3 million compared to $3.5 million in the same quarter of last year. Cash capital expenditures for the quarter were $3.0 million. Excluding capital expenditures, expected to be reimbursed by the FCC, we anticipate that our capital expenditures will be approximately $9 million for the full year 2018.

Turning to our balance sheet as of March 31, 2018. Our total debt was $298.5 million, and our trailing 12-month consolidated adjusted EBITDA was $45.8 million. Cash on the books was $89.2 million as of 3/31/2018. Net of $75 million of unrestricted cash on the books, our total leverage, as defined in our 2017 agreement, was 4.88x as of 3/31/2018. Net of both cash and marketable securities, our total net leverage was 1.1x. This concludes our formal remarks. Walter, Jeff and I will now be happy to take your questions.

Andrea, I'll now hand it back to you.

(Operator Instructions) And our first question comes from Michael Kupinski of NOBLE Capital Markets.

I was wondering if you can give me a little color on radio expenses in the quarter. Is it -- would -- they seem to be a little elevated. Can you just give me some color on that?

I think you're on.

I am. Just a quick comment on that. You're correct. Radio expenses were elevated, and when we -- as I mentioned in my remarks, we have taken a good look at Radio and taken steps to reduce that expense line. And you'll see the results of that action in Qs 2, 3 and 4, going forward. But anyway that's the (inaudible).

Were there one-time costs in there, Walter, or is that -- or any one-time costs in the direct operating expenses?

No. The cash expense was a minus 3 over a prior year. That's what you're talking about, Michael?

Yes, I was just looking at the total operating expenses for Radio in total.

Yes, it's at $15.2 million versus (inaudible).

$15.2 million. Okay. And SG&A expenses were a little elevated in the quarter, is that right? Is that -- or should we use that going as a run rate going forward?

No. We've been working on taking expenses out of the Radio model. I'd be reducing that going forward, Michael, but I'm not really ready to give you a run rate number at this point.

Okay. And then in terms of political, what was political in TV and Radio in the quarter?

Political was 400 for TV and 100 for radio.

Okay. And then in terms of -- with a lot of cash sitting there, any pipeline of acquisition prospects? Do you think you might just hold onto the cash? What are your thoughts at this point?

Michael, we will continue to look at a number of opportunities, but we're using a pretty strict -- we're using strict models when we assess any acquisition opportunities. And so like I said, we have a pipeline of certainly, of digital opportunities that would complement our existing digital platform. Occasionally, we see some television that might work. And then of course, if there's anything with regards to Radio but that's kind of the order in terms of which -- how we're looking at the future.

And I know that Auto is such a big factor for you guys, especially, in television. Can you give us a little color on what it's looking like in Q2, in light of your guidance? Or your pacing guidance.

We are pacing better than Q1. Q1 was...

Q1 was a minus 19 for TV.

For TV and Radio was a minus 12. And I believe that Q2 for auto was minus 12. Is that correct? Minus 12. So it has improved. I mean, like I said earlier, Q1 was a very tough quarter. We are seeing some improvement across the different categories. We continue to use all of our assets to drive better results for our advertisers.

And Walter, you mentioned about the ratings in terms of the station performance and, I think, you said 11 in the late-night news of your 17 markets were a ratings leader. How does that compare with previous quarters? Has it been trending better, the same or can you just give me a flavor on the ratings?

Well, we've been giving this type of information for a long time. And I would say, I didn't go back and look and compare but I've been doing this a while so I kind of have a feel for it. I mean, I would suggest that our ratings performance for our news product was as good or better than it's ever been. So we're quite pleased with our results for our early and late news in our Univision Television markets.

(Operator Instructions) Our next question comes from Jason Crawshaw of Polaris Capital Management.

A couple of questions. I guess, just when you look at the Digital business and roughly looking at the numbers, obviously, that's where the growth is. It seems like that business, at least in the first quarter, runs sort of at breakeven at the EBIT level. Is the idea to continue to run that business really for growth and anticipation is minimal profitability for the foreseeable future? Or, I guess, ultimately, when does that business start to become profitable and will it be a more profitable business than the 2 other businesses, I guess, would be the first question.

Well, Jason, you -- the statement you made, I think, is a correct one, which we are investing steadily in our digital businesses, and we're pleased with the revenue growth. At the same time, we're investing in technology. We're investing in more products. We're expanding our market penetration. So -- and then we've got expenses in our Radio -- in our Digital that are tied to the acquisition that we did last year. So to answer your question, we will continue to invest. We will see some cash flow production from our Digital businesses, particularly in the second half of the year. But I think, you'll see that cash flow accelerate certainly, as we move into the second half of 2018 and then into '19.

And to be clear, we had about $600,000 in one-time expenses in Digital in the first quarter that obviously, by definition, aren't recurring. And then, to Walter's point, we're expecting this business to generate margins at least in the high single digits by year-end.

Yes, but I guess going forward, structurally would seem that a double-digit margin out of a well-managed Digital business should be kind of a feasible target or is there something specific that makes this a structural high single-digit margin?

No, I think this year, I don't think that's feasible. But certainly, going beyond 2018, getting into the double-digit range is certainly a goal of ours.

Got it. And then, I guess, the other question -- or rather, another question would be just looking at the M&A opportunities out there in Digital, my guess is, anything that is remotely interesting or certainly, has the high level of growth opportunity or a high level of profitability, the multiples on that must be fairly pricey. I guess, a, is that a fair comment? And then how do you, kind of, reconcile -- I mean, clearly, you have enough cash to do a cash deal but when you kind of reconcile the fact that the stock itself is obviously quite cheap relative to what you'd have to pay cash, digital assets, how high are these multiples?

Well, I'll answer it this way. I mean, the multiples are anywhere from let's say 8x to 10x, the ones that we're looking at. But we're making every effort to structure any acquisition we do in Digital around 2 -- well, around a very strong management team, to begin with. And number two, digital assets that complement our existing digital platform. And three, we want the sellers to have a skin in the game. We want to be able to bring these digital assets into our platform and make sure that the management team that we are merging with has every intention to grow these businesses as strong as they -- as well as they can going forward. So there's an earnout model that we use and we've -- I wouldn't say perfected, but we've had good results with it.

Okay. And then just the last question really, I guess, on the balance sheet. So I mean clearly, I've seen you have aspirations to continue to add pieces to the business and certainly, that cash gives you a lot of flexibility. I guess, the one thing, if you kind of look at the interest cost leakage between what the debt service is relative to what you earn on the cash, somewhere probably, in the tune of roughly of kind of $8 million a year, which is not insignificant given the current profitability of the business. Now clearly, if you're going to fully deploy that cash in either new properties or share buyback and obviously, you've got the $30 million. But it just seems like a big delta given the size of the business, given the profitability of the business. I mean, how would you kind of reconcile or address that comment or criticism?

Well, it's a function of what's out there, as far as deploying the capital. I mean, we've put the bulk of our cash to work. We should generate on an annualized basis, somewhere in the range of around $5.5 million in interest income that we'll continue to monitor. And then what we do with the cash going forward, will really be a function of what the operating environment -- what the opportunity is. Really, if there's nothing out there that, with our appetite as far as M&A is concerned we'll take another look at possibly using a good chunk of that cash towards some kind of a debt repayment event. But we're not there yet. We just sit back and watch what happens.

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

Thank you, Andrea, and thank you, everyone, for participating on our first quarter 2018 Earnings Call. Please join us in August when we will report our second quarter earnings results. Thank you.