U.S. Markets closed

Edited Transcript of EVC earnings conference call or presentation 7-Nov-18 10:00pm GMT

Q3 2018 Entravision Communications Corp Earnings Call

SANTA MONICA Nov 8, 2018 (Thomson StreetEvents) -- Edited Transcript of Entravision Communications Corp earnings conference call or presentation Wednesday, November 7, 2018 at 10:00:00pm GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Christopher T. Young

Entravision Communications Corporation - Treasurer & CFO

* Walter F. Ulloa

Entravision Communications Corporation - Chairman & CEO

================================================================================

Conference Call Participants

================================================================================

* Michael A. Kupinski

NOBLE Capital Markets, Inc., Research Division - Director of Research and Senior Media & Entertainment Analyst

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Good day, and welcome to the Entravision Communications Third Quarter 2018 Earnings Conference Call. (Operator Instructions) Please note, this event is being recorded.

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

--------------------------------------------------------------------------------

Walter F. Ulloa, Entravision Communications Corporation - Chairman & CEO [2]

--------------------------------------------------------------------------------

Thank you, Danielle, and good afternoon, everyone, and welcome to Entravision's third quarter 2018 earnings conference call. Joining me on the call today is 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 list of risk 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 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 third quarter results were in line with our expectations, with solid growth achieved by our digital segment, partially offset by decreased revenues in our television and radio segments compared to the prior period. Our balance sheet continues to be solid with approximately $234 million in cash and marked up securities on the books and total debt of $297 million.

Turning to our consolidated financial performance. Total revenues decreased $74.6 million compared to $334.6 million in the prior year, as we recorded our FCC auction results in the third quarter of last year. Consolidated operating expenses were up 2% and consolidated adjusted EBITDA was $11.3 million.

Turning to our television segment. Television revenues from advertising and retransmission consent were down 4% during the third quarter due to lower advertising sales and slightly lower retransmission revenues. National advertising revenue was down 2%, while local revenue was down 7% compared to last year's third quarter period. Political revenue for our television segment totaled $1.5 million versus $2.1 million in the third quarter of 2014. Excluding political, core TV advertising revenue was down 10%. Retransmission revenue declined 1% to $8.4 million during the third quarter versus $8.5 million in the prior year. The decline is primarily due to the absence of dish, retransmission related revenue this year as Univision continues to be dark on the dish platform nationwide. Revenue generated from spectrum usage rights totaled $1.2 million, arising primarily from spectrum leasing initiatives, which began earlier this year, compared to $263.9 million in the prior year, period when we booked our results from the FCC broadcast auction.

Automotive advertising was down 8% for our television segment and represented 32% of our total advertising revenue. We saw solid growth in 6 of our top 10 auto clients including San Diego Toyota dealers, Central Florida Honda dealers and Gulf Coast Honda. Services retail and political were the only top 10 television advertising categories that generated growth during the quarter. Overall, we added 49 new advertisers who spent more than $10,000 during the third quarter on our TV platform, which totaled approximately $1.9 million in advertising revenue. Notable new brands returning to our spot markets in the third quarter included Blue Cross, Blue Shield of Florida, realtor.com and Lexus dealers.

Turning to our ratings performance. In the July 2018 sweeps were dealt 18 to 49 in early local news, our Univision television stations finished ahead of their Telemundo competitor in 14 of 17 markets where we have head-to-head competition. Additionally, our early local newscast are ranked #1 or #2 against English and Spanish language competitors in 11 markets. Univision's Premios Juventud award show in July 2018 was among the top 10 broadcast TV primetime programs, regardless of language for the night among adults, 18 to 34, in 13 of our markets and among adults, 18 to 49 and 25 to 54, the show ranked among the top 10 in 11 of our markets.

Turning to our audio division. Audio revenues were down 7% during the third quarter compared to the prior year. Local revenues were down 9%, while national revenues were down 3% over the prior year period. Political revenue for audio division in the quarter was $276,000 versus $339,000 in the third quarter of 2014. Automotive advertising increased 13% for our audio segment, with growth in all 3 auto tiers. Tier 1 increased by 403%, Tier 2 was up 26% and Tier 3 was up 3%. We saw growth in 5 of our top 10 auto clients, including increased outspending by Paul Blanco Good Cars, Northern California Toyota dealers, Nissan North America and the Ford Motor Company.

Beside auto, finance was another top -- was another positive top 10 category that experienced growth in the quarter, increasing 30%. Services, health care, travel, and leisure, and retail, 4 of our top 10 categories for audio, delivered disappointing results in the quarter, compared to the third quarter of last year. Overall, our audio business added 24 new advertisers to spend more than $10,000 during the third quarter, which totaled approximately $650,000 in advertising revenue. Notable new brands in the third quarter included Nissan in North America, Mitsubishi and VW Electrify America.

Looking at our audio division ratings performance.

Among Spanish language stations, the Erazno y La Chokolata show is ranked #1 in 8 of the 9 markets released for summer 2018 among Hispanic adults 18 to 49. For Hispanic adults 18 to 34 and Hispanic adults 25 to 34, the show ranked #1 in 7 markets. The May relaunch of the fan favorite, Jose network in our Los Angeles and Riverside San Bernardino markets is a continued success. Looking at summer 2018 in data, Riverside San Bernardino, Jose ranked as the #1 radio station regardless of language during morning drive, mid-day, afternoon drive and total week among adults 18 to 49 and adults 25 to 54. On our Tricolor network, morning drive and mid-day programming ranked as a top choice among young Latinos. During mid-day, La Plebe ranked #1 or 2 among Spanish language stations in 7 out of 8 markets among Latino adults, 18 to 34. For morning drive, our stations ranked #1 or 2 among Spanish language stations in 5 out of 8 markets among Hispanic adults, 18 to 34. El Show de Piolin anchors for our mid-day slot on La Suavecita network across the 6 Piolin markets released summer 2018, the adults, 18 to 49, (inaudible) audiences is up 24% from the same time last year, and up 47% among adults, 18 to 34, compared to last year.

Now let's move over to our digital business. For the third quarter, digital revenues increased 31% versus the same period last year due to solid double-digit organic growth. We will continue to explore opportunities to invest in digital businesses that exploit secular shifts in the media industry. Not only do we see an attractive opportunity for return on capital, these businesses promote an innovative culture within Entravision. For example, our Headway unit lost to digital out-of-home solutions in Mexico, which programmatically connects screens in airports and shopping centers to deliver real-time advertising solutions powered by big data. We ran a very successful campaign with Coca-Cola and are looking at a promising budget commitment for the product in the fourth quarter. We also are seeing record revenue figures in our digital business unit, ScrollerAds, which had its best historic month in September, delivering great results for advertisers. The recent acquisition of Smadex, a demand side platform, is showing early signs of success. Also Smadex is hitting on all the marks in terms of the goals set for the unit. The most exciting news is of the synergies between the demand side platform and Headway are generating incremental value for our programmatic mobile app solutions. Our goal is to evolve with digital trends in our industries. For instance, the spend in digital audio has increased 500% over the last 8 years, surpassing the amount of advertising dollars spent on terrestrial audio, which is why we fully committed -- we are fully committed to strengthening our audio strategy. During the third quarter, we delivered $6.8 million hours of digital audio streaming entertainment to over 1 million fans across the country, expect to hear more exciting news about digital audio in the upcoming reports. To complement, our content efforts on own platforms, we continue to develop our distribution on social media channels, helping us to stay close to our local communities. During the third quarter, we have seen our fan base surge 26% to 11.8 million followers from 9.4 million followers in the same quarter of last year as well as an increase in the engagement rate across our top properties. Meanwhile, we will continue to strengthen our digital platforms to 3 key pillars, high-quality content, distribution to leading platforms and the advertising solutions in key formats, video, display and audio. This approach allows us to provide the most powerful set of Latino data and digital services to our advertisers.

Turning out to our pacings for the fourth quarter. Television revenues excluding retrans are currently pacing plus 27% in the third quarter, including political. Our audio advertising revenue is currently pacing plus 1% in the third quarter including political. Digital revenues are currently pacing plus 25%. In summary, our third quarter results were largely in-line with our plan, and we remain on track in executing our strategy to further build on our unique audience reach and targeting capabilities, while proactively managing our cost.

Before I turn the call over to Chris, I want to comment on our political strategy or success in this past year. This will be a record midterm election for Entravision. As of yesterday, we booked approximately $12 million of political advertising for the year. That's more than 30% from our 2014 political advertising revenue, and more importantly, plus 14% over the 2016 presidential election cycle. What has become clear in 2018 is that both political parties value the Entravision platform as a means of reaching the increasingly important Latino voter. Entravision's footprint is strategically located in battleground states and districts, making Latino voters that much more critical to competitive races in Florida, Nevada, New Mexico, Texas and key parts of California. We are pleased with this outcome and are extremely excited about our prospects in the upcoming presidential cycle of 2020. Finally, I want to mention that earlier today, we announced that Mario Carrera has decided to step down as Entravision's Chief Revenue Officer. Mario has been a member of the Entravision team for 15 years. He served as our Chief Revenue Officer for the past 6 years, which included this most recent political season, during which Entravision achieved our highest political revenue ever for a midterm election. Mario has decided to move on to a new stage in his life after 15 years with the company. I want to thank Mario for his service and dedication to Entravision, and we wish him the best in the future. We began a search for Mario's successor, and Mario will remain with Entravision until we identify his replacement.

I will now turn the call over to Chris to take us through the numbers.

--------------------------------------------------------------------------------

Christopher T. Young, Entravision Communications Corporation - Treasurer & CFO [3]

--------------------------------------------------------------------------------

Thank you, Walter, and good afternoon, everyone. As Walter has discussed, net revenue for the quarter was $74.6 million compared to $334.6 million in the same quarter of last year, which included our FCC broadcast or auction proceeds of $263.9 million. Operating expenses increased 2% to $44.1 million, and consolidated adjusted EBITDA was $11.3 million. For the quarter, revenues from advertising and retransmission consent in our TV segment were down 4% versus last year. The decrease was primarily attributable to decreases in both advertising and retransmission consent revenue. We generated retransmission consent revenue of $8.4 million for the 3-month period ended September 30, 2018, compared to $8.5 million in the same quarter of last year. Radio net revenue for the quarter was down 7% compared to the prior year. National revenue was down 3%, while local revenue was down 9%. Digital net revenue for the quarter was up 31% over last year. The increase was primarily due to the strong performance at our Headway digital operations. Revenue from spectrum usage rights declined from $263.9 million to $1.2 million in the third quarter of last year. The decline is primarily the results of our SEC broadcast auction results being recorded in the prior year period. Cost of revenue in our digital media segment was up 34% compared to last year. The increase was primarily attributable to strong organic revenue growth at our core Headway media operations. Consolidated operating expenses increased 2% year-over-year. The increase was primarily due to the increase from our digital segment during the quarter, partially offset by an 8% decrease in radio operating expenses. Corporate expenses for the quarter decreased 16%. The decrease was primarily attributable to expenses associated with the FCC auction recorded in the prior year period, which -- expenses did not recur in 2018, partially offset by an increase in salary expense and noncash stock-based compensation expense. Income tax expense was $1.4 million for the quarter, while cash taxes paid were $0.5 million. Earnings per share for the quarter were $0.02 compared to $1.71 in the same quarter of last year. Cash interest expense for the quarter, net of interest income was $2.8 million compared to $3.3 million in the same quarter of last year. Cash capital expenditures for the quarter were $6.6 million. Excluding cash capital expenditures expected to be reimbursed by the FCC, we anticipate that our capital expenditures will be approximately $12 million during the full year of 2018.

Turning to our balance sheet. As of September 30, 2018, our total debt was $297 million, and our trailing 12-month consolidated adjusted EBITDA was $44.3 million. Cash and marketable securities on the books was $234 million as of September 30. Net of $75 million of unrestricted cash to books, our total leverage, as defined in our 2017 credit agreement, was 5.01x as of 9/30. Net of cash and marketable securities, our total net leverage was 1.42x.

That concludes our formal remarks. Danielle, we'll turn it over to you where Walter, Jeff and I will take your questions.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Michael A. Kupinski, NOBLE Capital Markets, Inc., Research Division - Director of Research and Senior Media & Entertainment Analyst [2]

--------------------------------------------------------------------------------

I was wondering, can you break out for us, how much political is going to be in the fourth quarter? I know you gave us the total of $12 million -- I'm sorry, do you still...

--------------------------------------------------------------------------------

Christopher T. Young, Entravision Communications Corporation - Treasurer & CFO [3]

--------------------------------------------------------------------------------

So it's approximately $6.9 million for TV and approximately $1.6 million for radio, gets you to about $8.7 million.

--------------------------------------------------------------------------------

Michael A. Kupinski, NOBLE Capital Markets, Inc., Research Division - Director of Research and Senior Media & Entertainment Analyst [4]

--------------------------------------------------------------------------------

Got you. And then also, could you describe a little bit about -- Chris, I think in the last call, you were talking about some effects on the border cities, the immigration issues. Have those economies stabilized at all? Or what are you seeing in terms of just the economies in those markets?

--------------------------------------------------------------------------------

Christopher T. Young, Entravision Communications Corporation - Treasurer & CFO [5]

--------------------------------------------------------------------------------

I'll say that they have improved somewhat over the year, but they're still difficult markets, Michael.

--------------------------------------------------------------------------------

Michael A. Kupinski, NOBLE Capital Markets, Inc., Research Division - Director of Research and Senior Media & Entertainment Analyst [6]

--------------------------------------------------------------------------------

Got you. And in terms of the expansion plans for Headway, I know, obviously, it sounds like you're moving into -- getting influence in Mexico. What are the other expansion plans for Headway at this point?

--------------------------------------------------------------------------------

Christopher T. Young, Entravision Communications Corporation - Treasurer & CFO [7]

--------------------------------------------------------------------------------

You're on mute there. Here you go.

--------------------------------------------------------------------------------

Walter F. Ulloa, Entravision Communications Corporation - Chairman & CEO [8]

--------------------------------------------------------------------------------

Michael, it's Walter. I was on mute there. Expansion plans for Headway. Well, we -- as you know, we acquired Smadex, which is a mobile performance machine learning and artificial intelligence company that specializes in area I just described. And that is going quite well. We're very pleased with the way -- with that integration. We started immediately after we closed on the transaction back in June. We're also looking at other opportunities. We continue to be interested in content, video, data, research, inside social influencers, emerging talent, branded content, performance, of course, is something that we're paying a lot of attention to and building everyday a stronger expertise in attribution and other marketing-related platforms. So we continue to look at opportunities in digital, but I think most of our focus is around the 2 -- our 2 core digital businesses, which is Headway and Pulpo. And so we're looking at how we can strengthen these 2 business units by perhaps bolting on a product or a company that brings a product that's going to enhance the performance of the overall business unit. So that's kind of a general answer to your question in terms of what we're looking at.

--------------------------------------------------------------------------------

Michael A. Kupinski, NOBLE Capital Markets, Inc., Research Division - Director of Research and Senior Media & Entertainment Analyst [9]

--------------------------------------------------------------------------------

Got you. And final question, can you give us an update on the M&A environment? And is the company now just focused on looking at digital rather than looking at TV acquisitions at this point?

--------------------------------------------------------------------------------

Walter F. Ulloa, Entravision Communications Corporation - Chairman & CEO [10]

--------------------------------------------------------------------------------

No. I mean, I'd say we're looking at a lot of digital opportunities, but if the right television opportunity came along, we'd look at it. By that, I mean, a television product that is located in one of our high-growth Latino markets, that would bolster the existing cluster. We certainly did that in Palm Springs and that's going well, with the addition of the NBC affiliate to our existing Univision. And UniMas affiliates, and then of course we have our radio cluster there as well. So that has worked out nicely, but it's finding opportunities like that, that would enhance our television business that we continue to seek and see if there's -- see what's out there. And then of course, radio's (inaudible) of how we look at any opportunities going forward.

--------------------------------------------------------------------------------

Operator [11]

--------------------------------------------------------------------------------

(Operator Instructions) This concludes our question-and-answer session. I would now like to turn the call back over to Mr. Ulloa for closing remarks.

--------------------------------------------------------------------------------

Walter F. Ulloa, Entravision Communications Corporation - Chairman & CEO [12]

--------------------------------------------------------------------------------

Thank you, Danielle. Thank you, everyone, for participating in our third quarter 2018 earnings results. We look forward to meeting with all of you in March when we -- March of 2019 when we will announce our fourth quarter and full year 2018 earnings results. And so we look forward to speaking to you then. Thank you.

--------------------------------------------------------------------------------

Operator [13]

--------------------------------------------------------------------------------

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