Entravision Communications Corp (EVC) 2019 Q4 法說會逐字稿

Good day, and welcome to the Entravision Fourth Quarter 2019 Earnings Conference Call. (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, Ailee. Good afternoon, everyone, and welcome to Entravision's Fourth Quarter 2019 Earnings Conference Call. Joining me on the call today are Jeff Liberman, our President and COO; and Chris Young, our 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 fourth quarter results were adversely impacted by revenue declines in our television and audio business segments compared to the prior year due primarily to the absence of political revenue, modestly offset by a slight increase in our digital revenues and a significant increase in cash flow from our digital business in the fourth quarter.

Looking beyond the general business environment, our balance sheet today continues to be solid, with approximately $138 million in cash and marketable securities on the books versus a total debt of approximately $218 million.

During the fourth quarter, we were also active in buying back our stock, with approximately 802,000 shares repurchased at an average price of $2.73 per share. We also continue to return capital to our shareholders through our quarterly dividend.

Now turning to our financial performance. Revenues decreased 14% to $70.8 million in the fourth quarter. Consolidated operating expenses were down 1%, and consolidated adjusted EBITDA was $11.1 million compared to $20.9 million last year or in 2019 -- 2018, excuse me.

For the year, total revenues decreased by 8% to $273.6 million compared to $297.8 million in the prior year. Consolidated operating expenses for the year were down 2% and consolidated adjusted EBITDA decreased 24% to $41.2 million.

Turning to our television segment. Television revenues in the fourth quarter were down 19% to $36.9 million compared to the prior year period, primarily due to the absence of approximately $7 million in nonrecurring political revenue in the fourth quarter 2018 midterm election cycle.

National advertising revenue was down 39%, while local revenue was down 6%. And on a core basis, fourth quarter television advertising revenue, excluding political, was down 7% during the quarter, with national down 11% and local down 4%.

Fourth quarter retransmission revenues were up 1% to $8.8 million during the quarter compared to the prior year period, while multicast revenue was up 16% to $1.4 million compared to the prior year period.

During the fourth quarter, both AT&T and Charter retransmission consent agreements were finalized for our Univision Spanish language television stations, and we negotiated new long-term retransmission agreements for our English language affiliates with Frontier and Charter spectrum.

For the year, television revenues declined by 2% in 2019 compared to 2018 to $149.7 million due primarily to the absence of $9.8 million in political, partially offset by approximately $7.9 million in onetime spectrum usage rights revenue recorded during 2019.

Total retransmission revenue for the year improved by 1% to $35.5 million in 2019, while total spectrum usage rights revenue, which includes a nonrecurring contract of approximately $7.9 million, was $13.1 million. For the year, total television advertising revenues were down 12% in 2019 to $101.2 million, national was down 19%, while local advertising was down 6%.

On a core basis, 2019 television advertising revenue for the year, excluding political, was down 4%, with national down 3% and local down 5%. In the fourth quarter, automotive, our largest advertising category, was down 7% for our television segment and represented approximately 30% of our total television advertising revenue in the quarter. Services, our second largest category, was flat in the quarter, while grocery stores and telecom were up 6% and 195%, respectively. Overall, we added 33 new advertisers who spent more than $10,000 during the fourth quarter, which totaled approximately $918,000 in advertising revenue.

During the quarter, our local news teams continued to shine by winning an additional 11 Emmy's, 9 in our Rio Grande Valley operation, and 2 in El Paso, bringing the total number of Emmy's for Entravision news in 2019 to 55.

Turning to our radio's performance, our Univision television affiliates built upon their market leadership in November 2019. For adults 18 to 49 in early local news, our Univision television stations finished ahead of their Telemundo competitor in 13 of 17 markets where we have head-to-head competition, plus 2 ties. During a full week, our Univision and UniMás television stations combined have a cumulative audience of 4.1 million persons 2-plus in our markets compared to Telemundo's 3.3 million persons 2-plus. On a weekly basis, we have 24% more viewers than Telemundo in our footprint. Telecast for Univision's Latin GRAMMY Awards show on November 14 was among the top 10 broadcast TV prime time programs for the night among adults 18 to 49 in 15 markets regardless of language. Among adults 18 to 34 and 25 to 54, the show ranked among the top 10 in 14 markets, again, regardless of language.

Turning over to our audio division. Audio revenues were down 17% during the fourth quarter compared to the prior year. Local revenues were down 9%, while national revenues were down 29% in the quarter. Core radio revenues, excluding approximately $1.6 million in political in the same quarter, were down 9% in the fourth quarter. For the year, audio revenues were down 14% in 2019 to $55 million compared to $63.9 million in the prior year. Local revenues were down 5%, while national revenues were down 27% over the prior year period. Core radio revenue for the year, excluding approximately $2.1 million in political and $1.9 million in World Cup revenue in 2018, was down 9% in 2019.

In December, Entravision entered into a new 2-year affiliation agreement with Oswaldo Diaz for his hit show, El Show de Erazno y La Chokolata to be carried in 15 Entravision markets. Also, Entravision has extended its programming and advertising representation agreement with Eddie "Piolin" Sotelo and his hit mid-day program, El Show de Piolin. Piolin's contract extension will run through December 2020 and is broadcast in 13 of our markets.

Viva debuted on KDLD in Los Angeles on December 16, 2019. It's the only 24-hour Cumbia station in the market, and the response on this exciting Latin Music dance format has been outstanding. Entravision's live coverage of the NFL expanded in Q4 to include both Sunday night and Monday night football games, all post-season games, the Pro Bowl and culminated with an exciting Super Bowl LIV live from Miami, Florida in February. Entravision aired a total of 47 games this 2019-2020 season. Our NFL rights extend to 2020-'21 season, including the Super Bowl LV Live from Tampa, Florida on February 7, 2021.

In December, we entered into an agreement with Katz Media to represent all of our radio properties on a national basis starting this past January. We expect this change in strategy to result in a significant decrease in expense in our audio business in 2020. It is also our opinion that Katz has better visibility into the national radio business, and this will lead to better national audio revenue performance in the quarters to come.

We will continue to operate our network radio sales organization. We saw an improvement in Q4, which performed 11 points better than Q3. You also saw a year-over-year increase of 4% in our audience in prime time 6 a.m. to 7 p.m. Monday to Friday in adults 18 to 34. We are well positioned for improved performance in 2020 for our network audio business.

In early first quarter 2019, we combined KLYY FM and KSSE FM in Los Angeles to create a super station under the successful Jose format. We are pleased to report that our Jose station has steadily built its audience, closing the year with great results for fall 2019. Across Spanish language radio stations in the Los Angeles Metro, KLYY ranked #2 in a.m. Drive, #1 in p.m. drive; and #3 during Monday to Friday 6 a.m. to 7 p.m. prime time listening hours among Hispanic adults 18 to 49.

Services, our largest advertising category for audio, improved its spin with our audio platform by 12% over the prior year. The increase in services came from increased spending by the Matian Law Firm, Intercoast Insurance, The JLF Firm and California Department of Public Health. The media category was up 20% due to an increased spending by Cox Communications. All other categories were down, including auto, which was down 22%.

Looking at our audio division ratings performance for fall 2019. Among Spanish-language radio stations in afternoon drive, Erazno y La Chokolata show is ranked #1 in 10 of our 15 markets, including Los Angeles in adults 18 to 49, and #1 in 11 markets among Hispanic adults 25 to 54. Across our 15 O&O stations, Erazno y La Chokolata show reached more than 760,000 Hispanics 18 to 49 in the fall survey.

Now let's move over to Entravision digital. For the fourth quarter, digital revenues increased by 1% to $20 million compared to $19.8 million in the prior year period. Our operating cash flow from our digital unit increased to $1.6 million in the quarter. For the year, digital revenues declined by 15% over 2018 to $68.9 million.

During the past earnings calls, I have addressed the changes in the digital industry, particularly the trends concerning programmatic buying, which now represent the primary method of buying digital media in the United States. With the advent of these new ad tech trends and programmatic buying, it's clear that advertising online is going to continue to evolve at a rapid pace. And Smadex, our proprietary DSP platform, is Entravision's superb technology to compete in this marketplace. Smadex's transparent mobile media buying platform connects to international mobile ad exchanges and offers real-time bidding for ad space. Smadex can easily plug-and-play with any new external partners and the platform has been working with agencies and direct clients across the globe. Mobile advertising now accounts for almost 75% of all U.S. digital ad spending.

Smadex is a state-of-the-art DSP technology that provides our advertisers unique tools to achieve their goals. These goals can be aligned under 3 pillars of excellence, performance, transparency and ROI. The Smadex DSP excels in all 3 criteria. For performance campaigns, Smadex DSP provides best-in-class features to help clients with global performance campaigns like mobile app promotion. Platform also measurable -- measurable results from post app installs, store visits and sales.

Transparency, on the other hand, is what drives every product decision at Smadex. We give our clients full visibility over more than 5 million ads that run every month. Advertisers and agencies have access to state-of-the-art interface where they can see a detailed account of ads, formats, mobile devices, phone models, types of connections and much more. The system also details all optimization criteria, including how algorithms are optimizing the client's budget.

ROI is of utmost importance to keep our clients on track to reach their goals. Our algorithms are able to achieve campaign key performance indicators more accurately and with scale, thanks to our data science teams. When it comes to delivering ROI, the Smadex DSP is one of the strongest tools in the industry.

Smadex DSP was built with one idea in mind, to deliver value for clients. That's what makes our platform different from the rest. The technology is 100% cost per action optimized, which allows clients to measure and adjust their strategy to get the desired results faster. On top of that, we have added massive scale, gathering the highest quality publishers supporting all programmatic trading models available, including cost per click, cost per action, cost per view and many more.

Our Smadex platform has grown steadily since our acquisition, generating approximately $6 million in revenue in 2017, $11 million in 2018 and $22 million in 2019. Furthermore, its expanding roster of sophisticated customers, such as Nike, American Express, American Airlines, Samsung, Audi and BMW Europe causes us to be excited and confident about rolling out the Smadex mobile-first DSP more proactively in the United States in 2020.

In addition to strong revenue in 2019, Smadex is recognized by the industry and its peers, including the IAB Gold Standard, which is a prestigious certification process created to reduce ad fraud, improve the digital advertising experience and increase brand safety. Smadex's mobile-first DSP was also added to the global top 20 traffic index in 2019 by Kochava and was recognized specifically for its excellent high-value user acquisition and long-term retention, scoring an A in traffic quality and ranking #2 in the Kochava Index in the traffic quality category. These recognitions follow on the heels of the Smadex DSP being selected by Analytics Insight magazine as one of the top machine-learning companies in 2018, and reflect the efforts of the Smadex and Headway teams who have built the leading mobile-first DSP with constant focus on improvement and innovation.

In short, while 2019 was a year of transition for our digital division, we are excited about our prospects for our digital division, led by Smadex in 2020. With a streamlined cost structure and a renewed focus on driving both revenue growth and profitability, we look forward to reporting significant progress in our digital unit in the quarters to come.

Turning now to our pacing. It is important to remember that we generated approximately $3.9 million in nonrecurring spectrum usage rights in the prior year's first quarter. With that said, our total TV revenue is pacing plus 6% all-in for the first quarter. Excluding the $3.9 million in nonrecurring spectrum rights revenue from the prior year period, our television business is currently pacing plus 21% in the first quarter.

Excluding political revenue in the current year and nonrecurring spectrum revenue in the prior year, our core TV advertising is pacing minus 1%. Our audio business is currently pacing plus 4% in the first quarter. Excluding political, our core audio business is pacing minus 5%.

Looking beyond the revenue pace, it is important to note that as part of our 2020 budget process, we have removed approximately $8 million in annual costs from our audio business, which should significantly enhance the cash flow profile for our audio division in 2020. Digital revenues are currently pacing plus 3% in the first quarter compared to the prior year period.

In summary, our fourth quarter results was largely driven by continued softness in our television and audio units, partially due to nonrecurring non-returning political revenue, while our digital results were greatly improved over the prior year period. We continue to work on executing our strategy to further build our unique audience reach and targeting capabilities, while proactively managing our costs. 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. Thanks in part to a strong political pacing in the first quarter, we are off to a good start in 2020. And we remain highly enthusiastic about the 2020 political year.

Our media assets are well positioned across key swing states, including California, Florida, Colorado, Nevada, New Mexico and Virginia at a time when the Latino population continues to grow in number, and most importantly, in influence. We continue to anticipate impressive political revenue increases versus 2016, and look forward to reporting those results during 2020.

I will now turn the call over to Chris to go over the numbers.

Thank you, Walter, and good afternoon, everyone. As Walter has discussed, net revenue for the quarter was down 14% at $70.8 million compared to $82 million of last year.

Operating expenses decreased 1% to $44.2 million. Consolidated adjusted EBITDA decreased 47% to $11.1 million. For the year, net revenue was down 8% to $273.6 million compared to $297.8 million we generated in 2018. Operating expenses decreased 2% to $173.4 million, and consolidated adjusted EBITDA decreased 24% to $41.2 million.

For our TV division, revenues in the fourth quarter declined 19% to $36.9 million, primarily due to the absence of approximately $7 million in political revenue in the prior year period, which did not return. Excluding political core TV ad, revenue was down 7% for the quarter. Retransmission consent revenue for the quarter was $8.7 million and was up 1% over the prior year period. Radio net revenue for the quarter was down 17% to $13.9 million compared to $16.8 million in the same quarter of last year. Decrease in our radio segment was primarily due to decreases in both national and local advertising.

Core radio revenue, excluding approximately $1.6 million in political revenue in the same quarter of last year, was down 9% in the fourth quarter. Digital net revenue for the quarter improved 1% to $20 million compared to $19.8 million in the same quarter of last year. The improvement was primarily due to growth achieved by our core programmatic platform, Smadex, in our international markets. Operating expenses decreased 1% to $44.2 million for the 3-month period ended December 31 from $44.6 million in the prior year period. The decrease was primarily due to a 9% decrease in our digital expense, slightly offset by a 3% increase at our radio division arising from an increase in severance costs.

Corporate expenses for the quarter were up 2% to $7.9 million compared to $7.7 million in the same quarter of last year. The increase was primarily due to an increase in legal expense, partially offset by a decrease in noncash stock-based compensation expense. Income tax expense was actually a benefit of $1.1 million for the quarter, while cash taxes paid was $523,000.

Earnings per share for the quarter were $0.09 compared to $0.08 per share in the same quarter of last year. Net cash interest expense was $2.2 million for the quarter compared to $3 million in the same quarter of last year. Cash capital expenditures for the quarter were $4.1 million compared to $4.7 million in the same quarter of last year.

Capital expenditures for the year were $25.3 million versus $17 million in 2018, and usually high CapEx in 2019 is attributable to 3 primary factors: First, core CapEx of approximately $10.3 million; second, reimbursable CapEx of approximately $6.7 million related to the FCC repack; and third, CapEx relating to a one-off project involving decentralization and optimization of our TV operations, which totaled $8.2 million during 2019. We anticipate that our CapEx will go back to a normalized level of between $8 million and $9 million for the full year 2020.

Turning to our balance sheet, as of 12/31 2019, our total debt was $218 million, and our trailing 12-month consolidated adjusted EBITDA was $41.2 million. Cash and marketable securities on the book was $124.8 million as of 12/31/19.

Net of $75 million of unrestricted cash to books, our total leverage, as defined in our 2017 credit agreement, was 3.48x as of 12/31/19. Net of cash and marketable securities, our total net leverage was 2.27x.

This concludes our formal remarks. Walter, Jeff and I will now be happy to take your questions. Ailee, we'll hand it back over to you.

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

First, did you do about $1 million in television political in the fourth quarter? Is that the right number?

No, no, no. Political was about $200,000 in the fourth quarter, Michael. About 15% up, $200,000 for...

Perfect. Okay. And can you talk about the amount of political that was booked so far in the first quarter?

We have approximately $4.6 million of political on the books for Q1 for television and about $794,000 of census dollars, which we also include as part of our political number. And for radio, we've got about $638,000 booked for Q1 in political and about $364,000 in census, which, as I said, we also include in political.

Got you. And just remind me, I may have missed this, you said that the World Cup contributed what, $1.9 million last year?

About $1.9 million in revenue.

Right. In 2018.

In 2018.

2018, right. And then in terms of the ratings in radio, have they kind of stabilized? Have you gotten a couple of positive books at this point? Or what are you seeing? And where are you seeing the most impact from -- on your radio side?

Yes, the ratings have certainly stabilized. I mean where we're -- the market that we pay the most attention to, just because of its size, is Los Angeles. And we've seen tremendous -- yes, of course it's tremendous, improvement in Los Angeles. We consolidated our signals in Los Angeles over 1 format, Jose, that's proven to be a very good decision. Our talent continues to perform at highest level. Erazno y La Chokolata, which is our prime time -- our afternoon drive show in Los Angeles and other 15 markets or 14 markets, is #1 in L.A., and I think is #1 in 10 of the -- the other -- of the remaining markets. So we're really pleased with the progress that that show is making. And then -- or continues to make. And then our El Genio Lucas, which is our morning show, among Spanish-language radio shows is #2 in actually every demo in -- when we compare it with the other Spanish-language radio stations in the market. And then Piolin, which is our mid-day show, is #4 against Spanish-language radio stations in Los Angeles. And again, the Piolin show is, I think, in 10 of our markets is #1 in its time period.

So we're pleased about a lot of the improvements we made, that we've made in programming in 2019. As I said earlier, we've taken about $8 million out of our cost structure for the unit. And we think that's going to be -- certainly, that's going to contribute greatly to increased cash flow in the business. Plus we also, as part of that reduction in expense, we adjusted our strategy around our national sales effort. And we've engaged with Eastman, and they will be -- they're managing all of our national radio sales effort. Not only do we believe this will -- not only will this result in a sales -- in expense savings, but also more importantly, we believe that we're going to see increased revenue in our radio business -- or audio business over the next 4 quarters.

Michael, Jeff here. I'd like to also mention that on a core pace basis -- or core performance basis, we did improve each quarter of the year as our ratings did gain some strength in...

Got you. And on the -- you had a legal issue with one of your stations. I think it was performance royalty. Can you give an update on that?

Well, the performance -- it's a matter that's being litigated. And that's all I'll say. It's been -- it's in litigation and -- it's non-material.

But regardless of -- yes, regardless of the outcome, we're not expecting any scenario of the outcome to be material to our operations.

And you have insurance for that, basically, is what I think, right?

That's correct.

Okay. And then just in terms of the recent ownership changes at Univision, can you give us any thoughts about how that might impact you at all?

Well, I'll just make a brief comment. Chris or Jeff have other comments to make. But it's too early. We don't know much about the new leadership, although, we'll certainly learn more as time goes on and probably meet with them. But look, I think it's probably a positive step in the right direction here for Univision. We greatly depend on them for their -- for our programming. And so anything that will improve -- and we believe, any step that will improve that programming delivery, we think, is good. So more to come.

(Operator Instructions) Our next question comes from Gordon Hodge with Tracker Research.

Just had a question, just to clarify, the $8 million of expense that's come out of the audio cost structure, was that actually realized last year? Or is that -- I assume that's more of a run rate given the changes with Katz or shifting to Katz. Is that fair to say?

No, no. Majority of that $8 million of cost reduction is a result of programming contracts that we've negotiated or renegotiated.

Great. Okay.

Look, we realized, beginning that.

That's realized then, yes. Okay, excellent. And so just thinking about the shift to Katz. So the way that would work is you'll pay them a commission, basically...

A rep fee.

A rep fee, that's right. And then have you -- I presume there would be your national sales force would essentially either be reallocated somewhere else or disappear. Is that how it plays out?

That's correct.

Yes, I got it. Okay. So there -- so more expense probably coming out going forward? And then, of course, as...

So that $8 million that I referred to in expense reduction is -- includes the...

Includes that. Okay. You guys have some of that in there?

Right.

Okay, perfect. Got it. That's what I just wanted to clarify. And then -- so anyway, it sounds encouraging. The pacing sounded -- it certainly sounded encouraging. Even down 1% with TV on a core basis, it still sounded pretty good. Is there, in that number, much of an increase on the retrans side? It wasn't a significant increase...

Oh, that pace is just advertising.

Just ad? Okay. Okay. And then just as your Board kind of gets together and thinks about the dividend, which I know you approved for March, and then thinks about buybacks and other ways to play capital in what has become a very uncertain time, I'm just wondering whether you sort of weather the dynamics that you think about in terms of having cash as sort of a safety cushion if things -- if all hell breaks loose or vice versa. Are you -- because you have plenty of cash or just sort of how do you think about the balance of things? And how much do you have left on the buyback that you could execute if you wanted?

I'll just comment briefly on the dividend. I think it will remain as it is. Really, I feel...

Yes, it's a great yield. That's for sure.

Exactly.

Terrific yield.

And just to kind of add to your comment about how we see the future, we're confident about the year. We're off to a really good start in the first quarter. We have made a number of changes throughout 2019, not only in our media group or broadcast business, but also in our digital business. And we continue to fine-tune our management team. Just we're on the process of adding new management talent in McAllen, Texas, which is one of our most important Latino markets. So we're certainly pleased with what we've done there. We've done a lot of work by many people in terms of getting that operation to operate at its optimum capability. So again, I'm pleased with all the work we've done. It was certainly difficult, but we're through it, and we'll continue to fine tune. But the first quarter looks very strong. And then of course, we'll see what happens as we go through the year.

Right. And just to reiterate, we do have a stock buyback program in place. And what we're trying to do is take a balanced approach between returning capital to shareholders and just paying down debt and then scoping out the landscape for opportunistic -- well, opportunities as they may arise. So we're not going full bore into any direction just because you want to be -- err on the side of caution a little bit.

Yes, that's a good point by Chris. We're going to continue to be -- take a balanced approach to work through the future here, be it acquisitions, be it stock buyback, et cetera.

The stock buyback, refresh my memory, there was an authorization, are we through that authorization? Or is it we still have a ways to go yet?

We still have a ways to go. We've got a plan in place and we'll refresh that. The window opens up next week and we'll refresh that next week, and we'll keep that program running.

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

Thank you, Ailee. We look forward to reporting our first quarter earnings results in early May. We thank all of you for participating in our fourth quarter and 2019 earnings conference call.

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