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Edited Transcript of EVC earnings conference call or presentation 7-Nov-19 10:00pm GMT

Q3 2019 Entravision Communications Corp Earnings Call

SANTA MONICA Nov 25, 2019 (Thomson StreetEvents) -- Edited Transcript of Entravision Communications Corp earnings conference call or presentation Thursday, November 7, 2019 at 10:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Christopher T. Young

Entravision Communications Corporation - CFO & Treasurer

* Walter F. Ulloa

Entravision Communications Corporation - Chairman & CEO

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Conference Call Participants

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* Michael A. Kupinski

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

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Presentation

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Operator [1]

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Good afternoon, everyone, and welcome to Entravision's Third Quarter 2019 Earnings Conference Call. (Operator Instructions) Please also note today's event is being recorded.

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

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

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Thank you, Jamie. Good afternoon, everyone, and welcome to Entravision's Third Quarter 2019 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 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, on this call, we'll 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 adversely impacted by revenue declines in our audio and digital business segments compared to the prior year. However, our television division revenues did remain constant despite nonrecurring political in the prior year period due to increases in revenues from spectrum usage rights and retransmission consent revenue.

Looking beyond the general business environment, our balance sheet continues to be solid with approximately $158 million in cash and marketable securities on the books versus a total debt of $244 million.

During the quarter, we also -- we were also active in buying back our stock with approximately 470,000 shares repurchased at an average price of $2.84 per share. We also continue to return capital to our shareholders through our quarterly dividend.

Now turning to our financial performance. Revenues decreased 8% to $68.8 million in the third quarter. Consolidated operating expenses were down 2%, and consolidated adjusted EBITDA was $9.1 million compared to $11.3 million last year.

Turning to our television segment. Television revenues were flat during the third quarter compared to the prior year period. Television advertising revenue was down 1% during the third quarter primarily due to lower national sales impacted by the absence of $1.5 million in political revenue in the prior year. Excluding political, national advertising revenue was up 2%, while local advertising revenue was down 4% compared to last year's third quarter period. Retransmission revenues were up 4% during the third quarter compared to the same quarter in the prior year.

Revenue generated from spectrum usage rights totaled $2.7 million during the third quarter versus $1.2 million in the prior year primarily from nonadvertising revenue related to a service agreement with a local telecom operator as well as the spectrum leasing initiatives or multicast.

All in, excluding political revenues in the prior year period, total television revenues were up 5%.

Automotive, our largest advertising category, was down 4% for our TV segment and represented approximately 32% of our total television advertising revenue. You saw an increase of 2% in Tier 2 expenditures that were offset by declines in both Tier 1 and Tier 3. The growth in Tier 2 was a result of increased spending by Toyota, Ford, Hyundai, Volkswagen and Audi.

Beyond automotive, top 10 advertising categories that generated growth during the third quarter were services, which increased 3%; travel and leisure increased 16%; health care grew 3%; and quick-service restaurants were up 14%; while increased spending from Jack in the Box, Pizza Hut, Del Taco and McDonald's.

Overall, we added 32 new advertisers who spent more than $10,000 during the third quarter, which totaled approximately $607,000 in advertising revenue.

Notable new brands in the third quarter included Now Optics, Car Care Council, [Zuech], Chevy West Zone and Floridian International Adjusters.

Turning to our ratings performance. Our Univision television stations built upon their marketing leadership in July 2019. For adults 18 to 49 in early local news, our Univision television stations finished ahead of their Telemundo competitors in 14 of 17 markets where we have head-to-head competition. Additionally, among adults 18 to 49, our early local newscasts are ranked #1 or 2 against English-Spanish competitors in 10 markets. Our late local news are ranked number #1 or 2 against English and Spanish competitors in 8 markets.

During a full week, our Univision and UniMás stations combined have a cumulative audience of 4 million persons 2 plus compared to Telemundo's 3.2 million persons 2 plus. We have 25% more viewers than Telemundo in our Univision television footprint.

During the weekday prime time, when compared all -- comparing all stations, we had a higher ratings in at least one of the big 4 networks in 10 markets among adults 18 to 49 and in 15 markets among adults 18 to 34.

The telecast for Univision's Premios Juventud award show on July 18 was among the top 10 broadcast TV primetime programs for the night among adults 18 to 34 in 17 of our Univision and television markets regardless of language. Among adults 18 to 49 and 25 to 54, the show ranked among the top 10 in 13 and 11 of our markets, respectively, regardless of language.

Turning to our audio division. Audio revenues were down 6% during the third quarter compared to the prior year. Local revenues were up 2%, and national revenues were down 19% in the quarter. Excluding political, core radio revenues were down 5% in the third quarter.

There were 2 key areas that contributed to the decline in our radio division. The first is Los Angeles, where we combined KLYY along with KSSE and KSSD to form a superstation, which based on Nielsen audio simulcast rules, can be combined into one set of call letters. Based on this change, we saw a decline in national revenue. With a change in format, national agencies need to see results, usually 6 to 9 months prior to purchasing the station.

On a local basis, we have seen revenue improvement in each quarter of 2019 and positive pace starting in Q2 and continuing in Q3. We are pleased to announce that our Jose station continues to be a top-ranking radio station in Los Angeles, a highly competitive market.

For the month of September, in Hispanic adults 18 to 49, KLYY ranked as the #2 Spanish language radio station in the metro during morning drive, and the #1 Spanish language radio station in afternoon drive. Jose also ranked as the #3 Spanish language radio station in prime among Hispanic adults 18 to 49. With this continued success, we expect to see improved results in the fourth quarter and 2020 with our Los Angeles radio cluster.

The other area that contributed to our national sales decline was our radio network. Our network nationwide ratings, which are released 2 times a year, saw declines. These declines led to lower revenues for Q3. Our affiliate stations, along with our owned and operated stations, have seen an increase in ratings that will be reflected in the spring release will deliver to the industry in late summer.

Besides the ratings increase, we've also added a number of stations to our lineup that will help us strengthen the overall ratings of our audio network. We recently presented our Entravision network audio portfolio at a series of high-level meetings with the top national audio agencies in New York in advance of the 2020 network buying season. Our presentation focused on our value proposition of unique coverage, top syndicated personalities and our digital audio technology via AudioEngage.

Service is our largest advertising category for audio. It was the only category that saw an increase in spending in the third quarter, improving by 5% over the prior year period. The increase in services came from increased spending by Matian Law Firm, Freeway Insurance, Pacific Gas and Electric and Inmigrantes Primero. All other categories were down.

Overall, our audio business added 28 new advertisers who spent more than $10,000 during the third quarter, which totaled approximately $541,000 in advertising revenue.

Notable new brands in the third quarter included Khorshidi Law Firm, The JLF Firm, DCH Toyota of Torrance and Bank of America.

Looking at our audio division ratings performance for summer 2019, among Spanish language radio stations, Erazno y La Chokolata show is ranked #1 in 6 of our 6 markets released for summer among Hispanic adults 18 to 49, including ties; and #1 in 5 markets among Hispanic adults 25 to 54. Across our 7 O&O stations, Erazno y La Chokolata show reached more than 563,000 Hispanics 18 to 49. Other high-profile shows, including El Genio Lucas and El Show de Piolin, anchor our morning drive and midday spots on La Suavecita network and on Jose in Los Angeles and Riverside.

For summer 2019, Piolin ranked as a #1 or 2 Spanish language midday show in 5 of our 6 markets released among Hispanic adults 18 to 49 and Hispanic adults 25 to 54, including ties. And the show El Genio Lucas was #1 among Spanish language stations in 5 of -- out of our 6 El Genio markets among Hispanic adults 18 to 49 and Hispanic adults 25 to 54.

Now let's move over to our digital business. For third quarter, digital revenues were $17.6 million, which represents a decrease of 21% versus the same period last year. The decrease is due mostly to the shift of performance market to programmatic, as customers are looking for more transparency and control.

With that trend in mind, we are developing our programmatic demand solutions, Smadex, which is currently generating $2.1 million on a monthly basis and has been evolving consistently over the last few quarters. We expect to continue to see double-digit growth for this unit.

Other digital business units also experienced double-digit growth during the third quarter led by our programmatic unit with an 85% increase versus last quarter, followed by our audio and video units with a 27% increase over last quarter.

Our overarching digital strategy comprises of 4 key components. Number one, bolster the double-digit programmatic growth with strategic integrated products; our demand-side platform, Smadex, is front and center of our marketing solutions, where we are also strengthening scale and inventory through our reach, stabilizing our performance solutions with expansion to untapped markets.

Number three. Put in -- we put in place a seasoned and experienced improved line of management. We've overseen our Lat Am and United States operations, while helping foster growth in key markets such as Mexico and U.S. national sales.

Number four. We are focused on client return on investment and creating value while strengthening gross margins. Our digital division continuously focuses on increasing gross margins, currently at 44% gross margin versus 38% in the same period last year.

We decided to merge all Entravision digital operations into one business unit in the third quarter. We believe that the synergies between these digital groups present significant opportunities for growth and innovation. We are confident that the combined know-how of our digital specialists will help create a united front that will boost our performance in 2020.

As I mentioned before, the merger of our digital units is a step forward to a more consistent and efficiently aligned product offering. I'm excited to say that we are already seeing great results in one of our business units, digital audio. We've been offering our streams and podcasts under our AudioEngage brand since the beginning of 2019, and the outcome has been very positive.

Revenue increased 41% when compared to Q3 of 2018, led by a 60% growth in programmatic. Results are even more encouraging when looking at year-to-date figures with a 55% increase in revenue and 100% growth in programmatic deals.

Our podcast consumption has also grown significantly when compared to the third quarter of 2018, reaching 2.7 million downloads, which represents a 600% increase when compared to last year.

We heard the industry loud and clear when it comes to digital audio needs. That's why we are developing new audio solutions to keep fostering this growth. We'll share more about this business unit and new projects in the quarters to come.

And connecting with our communities is at the core of Entravision's purpose as a company. As a result of our local efforts, we distributed over 3,500 stories and videos to millions of Latinos, including 185 million video views throughout our various digital touch points. This represents a 60 -- [76%] growth versus -- in the third quarter versus the previous quarter and 113% growth versus prior year.

We also delivered 9.6 million audio streams to our fans, which represents a 16% growth versus prior year. This increased engagement will help us boost our unique value proposition for both consumers and clients in 2020.

Now turning to our fourth quarter pacings. It's important to remember that we generated approximately $8.7 million in political revenue in the prior year's fourth quarter. That said, our total television revenue is pacing minus 19%. Excluding political, our TV business is currently pacing minus 4% in the fourth quarter. Our audio business is currently pacing minus 12% in the fourth quarter. Excluding political, our audio business is pacing minus 7%. Digital revenues are currently pacing plus 7% in the fourth quarter compared to the prior year period.

In summary, our third quarter results were largely driven by continued softness in our digital and radio businesses, while our TV results were flat over the prior year period. We continue to work on executing our strategy to further build on our unique audience reach and targeting capabilities while proactively managing our costs.

Starting in the third quarter, we made several important management changes in our broadcast and digital business units. As a result of these management changes, we are seeing steady improvement in our broadcast and digital units in the fourth quarter, and we expect this improvement to continue to strengthen in 2020.

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

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

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Thank you, Walter, and good afternoon, everyone. As Walter has discussed, net revenue for the quarter was down 8% to -- at $68.8 million compared to $74.6 million in the same quarter of last year. Operating expenses decreased 2% to $43.3 million, and consolidated adjusted EBITDA decreased 19% to $9.1 million.

For the quarter, revenues in our TV segment were flat at $36.4 million. During the third quarter last year, we generated $1.5 million in political, which did not return. This shortfall was offset from an additional $1.5 million in spectrum usage rights revenue, which totaled $2.7 million during the quarter. Retransmission consent revenue for the quarter was $8.8 million and was up 4% over the prior year period.

Radio net revenue for the quarter was down 6% to $14.8 million compared to $15.8 million in the same quarter of last year. The decrease in our radio segment was primarily due to a decrease in national advertising revenue related from World Cup, slightly offset by an increase in local revenue.

Digital revenue for the quarter was down 21% to $17.6 million compared to $22.4 million in the same quarter of last year. The decrease was primarily due to a growing trend of digital advertising moving over to programmatic platforms in recent months, both domestically and more recently in international markets.

Operating expenses decreased 2% to $43.3 million from $44.1 million in the prior year period. The decrease was primarily due to a 4% decrease in our radio division, and an 11% decrease at our digital division arising from certain expense control measures the company undertook in April of last year, partially offset by a 3% increase in operating expenses at our TV division arising primarily from an increase in fees due to networks related to retransmission consent agreements at our English language TV stations.

Corporate expenses for the quarter were down 2% to $6.8 million compared to $6.9 million in the same quarter of last year. The decrease was primarily due to a decrease in noncash stock-based compensation. Income tax expense was $5.9 million for the quarter, while cash taxes actually paid was $440,000.

Earnings per share for the quarter were negative $0.14 compared to $0.02 per share in the same quarter of last year. This was primarily due to an impairment charge related to our digital goodwill. Excluding the impact of this onetime noncash charge, EPS was $0.02 per share.

Net cash interest expense was $2.5 million for the quarter compared to $2.8 million in the same quarter of last year. Cash capital expenditures for the quarter were $7.2 million compared to $6.6 million in the prior year period. Excluding capital expenditures expected to be reimbursed by the FCC, we anticipate that our capital expenditures will be approximately $17.5 million during the full year of 2019.

Turning to our balance sheet. As of September 30, 2019, our total debt was $244 million, and our trailing 12-month consolidated adjusted EBITDA was $50.7 million. Cash and marketable securities on the books was $156.9 million as of September 30.

Net of $75 million of unrestricted cash in the books, our total leverage as defined in our 2017 credit agreement was 3.3x as of September 30. Net of cash and marketable securities, our total net leverage was 1.72x.

This concludes our formal remarks. Walter, Jeff and I will now take your questions. Jamie, we'll turn it over to you for the queue.

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Questions and Answers

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Operator [1]

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

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

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First of all, in terms of the TV pacings for the fourth quarter, I was wondering if you can give us a little bit more color on what you're seeing in core, particularly auto, of course, which is a big category for you. If you can just give us some thoughts on the categories.

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

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Michael, auto for the fourth quarter is pacing at a minus 7%. There has been some softness primarily arising from the strike activity that recently got settled, but that has had a negative impact on our fourth quarter business. Right now, auto is a minus 7%.

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

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Got you. And then in terms of -- what are your expectations for political in the fourth quarter? Because the thought is that there might -- you might get a little political in the fourth quarter, especially with the early primary votes in California and so forth. I was wondering if you can just give us some thoughts on political.

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

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Well, the political -- real political event for us in the fourth quarter is actually first quarter. It's going to be the California primaries. And that's because you had got such a big part of the constituency mailing their ballots in, they're going to start advertising early. And we still feel that December will be a pretty hot month for us as far as the California primaries are concerned. So we don't really have much, per se, on the books as we sit here today. But we do expect that amount could be material. We'll also have a primary early on in Nevada, that also could yield some pretty interesting results. And we're already starting to see that money trickle in as we speak.

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

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Got you. And at least -- for at least your thoughts at least for now, with the TV pacing down 19%, you're not factoring in much political into that guidance, I suppose?

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

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Yes. That's just the pace, and we've got no real political factored into that minus 19%, that's correct.

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

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Yes. And we haven't -- Michael, we have not -- we're not forecasting any political dollars in Q4 as well. But we are seeing signs of political activity in some of the states where we operate. Certainly, Nevada will be an early primary. California has moved up to March now, Texas as well in March. So even though we don't have any -- we don't have any significant revenue on the books yet in political, we expect to see some activity in December. But again, nothing forecasted.

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

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Got you. And I know, Walter, you had, in the past, indicated that you'd like to see digital as a significant portion of the company and your recent stumble in the digital area. Has that changed your mind about the prospect of investments in this area? What are your thoughts in terms of the growth of the business? Are you optimistic that you can turn this around and really start to see a lot of traction? And in terms of having a lot of cash there, what are your thoughts in terms of where you might seek M&A opportunities?

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

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Okay. We continue to be positive and bullish about our digital businesses. We have had some missteps this year, but I believe strongly that we corrected. We made that whatever corrections we had to make, including management changes. Certainly, I'm pleased with the pace for Q4. I think we have a much better reporting throughout our digital platform as it relates to weekly information, monthly information, the people that we have running our different units, particularly our sales operation. So I continue to be -- to believe that we're on the right track as it relates to digital. As you know as well as I or better, most of the new ad dollars are all going into digital. So that's where the growth is, and that's where we expect to continue our focus.

Developing products which are, I'll call it, say, special or particular to the Latino market, is something that we also continue to work on. Using our expertise in technology around digital and transferring that expertise to the U.S. via the Latino market is something that I'm continuing to talk to our team about every day.

As it relates to M&A activity, I mean, we -- I would say, we would probably look at M&A opportunities with an eye on television and digital, maybe first, and then we look at radio opportunities, second or third. I mean, certainly, Univision television opportunities would be something that we're interested in. Beyond that, I don't see us moving into general market, not -- certainly not the way -- or because of the fact that general market has continued to consolidate, and there are already 2 or 3 major consolidators.

So -- and then digital, we're always looking at digital products. We've got 2 or 3 that we're looking at right now. And we want to make sure that they are not only a cultural fit but a strategic fit. And I'm certainly much more, I'll call it -- we are much more assertive about looking at digital products now that we have our digital business unit well organized.

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Michael A. Kupinski, NOBLE Capital Markets, Inc., Research Division - Director of Research and Senior Media & Entertainment Analyst [11]

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And a final question. You talked a little bit about the ratings of the stations. I was wondering, the ratings for Univision network overall. Has that stabilized? And are you seeing at least some stabilization of the ratings slide for the network itself?

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

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Yes, we are. We're starting to see improvement in Univision ratings. I mean we look at certainly network, but we pay more attention to our markets, and we're seeing improvement in our markets in terms of the ratings performance.

So that's -- that gives us some confidence that Univision is on the right track here. We knew that they would -- they'd bounce back, they always have. They've been the leader in Spanish language programming for 50 years. So occasionally, they've had some setbacks, but we believe they've regained their focus. They're doing something interesting. They're retooling old classic novellas that were hugely popular 20, 30 years ago, and they're updating them and making them shorter in terms of the chapters and more, I'll call it, more in touch with today's audience.

We've seen increases. And just to mention a few, we've seen increases in Univision prime time ratings in San Diego; Washington, D.C.; Tampa; Denver and Las Vegas. And this increased rating in the 10:00 p.m. time slot certainly has had a positive impact on our local late news offering.

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Michael A. Kupinski, NOBLE Capital Markets, Inc., Research Division - Director of Research and Senior Media & Entertainment Analyst [13]

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And I'm sorry, I do have one more question. You indicated earlier that in earlier calls that your -- some of your markets were being affected by -- especially your border markets being affected by the economies and maybe some of the immigration issues that you were -- that we were seeing out of Washington. Are -- has those markets stabilized or started to come back? Or are they still suffering?

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Walter F. Ulloa, Entravision Communications Corporation - Chairman & CEO [14]

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No, they've come back. I'll say that they're led by San Diego, in particular, had a great performance in the past few quarters and even earlier. El Centro is doing well. El Paso is performing well despite the tragedy of -- that occurred there in the summer. But it has bounced back and is on track. We've got an excellent manager there in El Paso. So that certainly helps the overall performance of the -- of our media cluster.

We have seen some softness in McAllen with our television and radio business, but we're doing some things to strengthen that and providing more support to the management team down there and obviously, giving it more attention. We do want to turn that market around. It's a very important market for us. It's one of our largest media markets. So we certainly want to make sure that it's performing at the highest level.

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Operator [15]

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(Operator Instructions) And ladies and gentlemen, at this time, I'm not showing additional questions. I'd like to turn the conference call back over to management for closing remarks.

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Walter F. Ulloa, Entravision Communications Corporation - Chairman & CEO [16]

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So thank you, Jamie, and thank you, everyone, for participating in our third quarter earnings call. We look forward to speaking to all of you in the New Year and report our fourth quarter results for 2019 and as well as our pacings for Q1 of 2020 and also our year results, total 2019 results. So thank you. Talk soon.

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Operator [17]

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