U.S. Markets closed

Edited Transcript of UVN.N^C07 earnings conference call or presentation 8-May-20 3:00pm GMT

Q1 2020 Univision Communications Inc Earnings Call

NEW YORK Jun 9, 2020 (Thomson StreetEvents) -- Edited Transcript of Univision Communications Inc earnings conference call or presentation Friday, May 8, 2020 at 3:00:00pm GMT

TEXT version of Transcript

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

Corporate Participants

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

* Peter H. Lori

Univision Holdings, Inc. - CFO

* Robert Entwistle

Univision Communications Inc. - Senior VP of Finance & CAO

* Vincent L. Sadusky

Univision Communications Inc. - CEO & Director

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

Conference Call Participants

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

* Aaron Lee Watts

Deutsche Bank AG, Research Division - Research Analyst

* Avi Steiner

JP Morgan Chase & Co, Research Division - Executive Director and Senior Analyst

* Jason K. Kim

Goldman Sachs Group Inc., Research Division - Senior Analyst

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

Presentation

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

Operator [1]

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

Welcome to Univision's First Quarter 2020 Earnings Call. I would now like to turn the call over to Robert Entwistle, Senior Vice President, Finance and Chief Accounting Officer. Go ahead, Mr. Entwistle.

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

Robert Entwistle, Univision Communications Inc. - Senior VP of Finance & CAO [2]

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

Thank you, and welcome, everyone. This morning, we issued an earnings press release, which, along with our reporting package and a transcript of today's call, will be on our IR website, investors.univision.net.

Some of the information discussed today will contain forward-looking statements. These statements involve risks and uncertainties, including those highlighted in our press release, that may cause actual results to differ materially from these statements. Univision is not obligated to update forward-looking information discussed on this call, except as may be required by law. Unless otherwise stated, the information we are providing in our call this morning relates to the company's continuing operations, reflecting the sale of the English language digital assets completed in April 2019.

We will refer to adjusted OIBDA in our remarks today as EBITDA. The non-GAAP measures used on our call today include core revenue, core advertising revenue and adjusted core OIBDA, each as adjusted for political and advocacy advertising. The press release contains definitions and reconciliations of our non-GAAP measures to the most directly comparable relative GAAP measures. Unless stated otherwise, we are providing year-over-year comparisons. And TV ratings are presented as adults 18 to 49 in primetime, unless stated otherwise.

Joining me today are Vince Sadusky, CEO; and Peter Lori, CFO. I will now turn the call over to Vince.

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

Vincent L. Sadusky, Univision Communications Inc. - CEO & Director [3]

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

Thanks, Bob. Good morning, everyone, and thank you for joining our first quarter earnings call. These are truly unique times. And on behalf of everyone at Univision, our thoughts go out to those impacted by COVID-19 and all the heroes who are fighting the virus across the country and world. I'd like to thank our incredible news programming and technical teams, who are working tirelessly to continue to bring our audience the content they have come to rely on now perhaps more than ever.

In Q1, Univision's operating momentum continued, driven by outstanding TV and digital consumption. Ratings grew by 18% across our portfolio during February sweeps, making Univision the fastest-growing portfolio of television stations in any language. Our local news had more viewers than most local ABC, NBC, CBS or FOX competing stations. And our digital video consumption was up nearly 50% during the first quarter. The work we have done to improve our news and entertainment programming as well as our digital content has resulted in an industry-leading growth position.

Prior to the crisis, demand for advertising was strong. However, given the amount of uncertainty and financial strain on businesses across the country, there has been a clear interruption to the advertising environment as a result of COVID-19, which negatively impacted Univision advertising in March and will significantly impact advertising in the second quarter. Despite the impact on advertising, revenue in the first quarter increased by 8%. And EBITDA increased by 23%, the most significant EBITDA increase in more than 4 years. The first quarter included record political advertising, as political parties and candidates are recognizing the importance of the Hispanic vote in the upcoming 2020 elections.

During 2018 and 2019, we renewed carriage agreements with each of our top distributors, meaning that over 40% of our revenue is secured through long-term arrangements. We are a valuable content partner to distributors as we directly serve the high-growth, aspirational Hispanic community and have been one of the few network groups to increase viewership.

Despite the uncertainty created by COVID-19, I believe that Univision's resilient business model, operational tailwinds and growing target demographic will help weather this period of uncertainty.

In response to the significant negative impact the crisis will have on advertising, we initiated a series of restructuring actions that will lower our operating expense, excluding the PLA, by at least $125 million versus our 2019 cost base. We also expect to lower our capital expenditures by 50% versus last year. Also, the largest component of our programming cost is associated with content we receive from Televisa through the PLA. The program license agreement is a variable cost structure. So as network advertising is negatively impacted, the PLA costs will decline proportionately, benefiting EBITDA. Additionally, while we and other networks are dealing with delays in production and live sports, we can leverage the large library of Televisa content to ensure continued original programming across primetime.

In addition to our unique business model, we have significant operational momentum that has only increased since the start of COVID-19 due to our strong news and entertainment content. Univision and UniMás will both achieve ratings growth at the conclusion of the '19/'20 broadcast season later this month with a combined growth of 15%. And our share of Spanish language viewing is at its highest point in years, and we are winning decisively across all key day parts and all hours of primetime.

Our local station ratings are also trending positively. Univision finished with the top local news in 6 key markets in February sweeps, beating out both English and Spanish competition. In the same period, our aggregate audience across the top 9 markets outdelivered all other networks.

Refocusing on our core digital assets continues to pay dividends across our national and local assets with another quarter of operational and revenue growth. Our digital assets reached all-time highs in unique visitors and video views in March.

Lastly, our U.S. Hispanic target demographic is a major driver of population and economic growth for the U.S. Post COVID-19 surveys also indicate that Hispanics remain significantly more optimistic about their financial future versus non-Hispanics. Univision has a unique 50-plus year relationship with this community. Our content is generating audience growth. And as advertisers work to prevent declines during this health crisis and look to grow coming out of it, Univision offers a unique opportunity.

While these are indeed uncertain times, and there will undoubtedly be challenges in the coming months, our unique business model, continued operational momentum and resilient growth demographic makes me very optimistic about Univision's future.

Finally, I'm continuing our work to ensure a smooth transition to the next ownership group led by Wade Davis, and we're engaged with the regulators and expect the deal to close at some point later this year.

With that, I'll turn the call over to Pete to give you more detail on the financials.

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

Peter H. Lori, Univision Holdings, Inc. - CFO [4]

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

Thanks, Vince, and good morning, everyone. Just to amplify on Vince's comments regarding our response to the challenges of COVID-19, the company's business continuity protocols have maintained uninterrupted services to our viewers and customers, and our financial reporting systems continue to operate effectively.

In the first quarter of 2020, revenue increased by 8% to $660 million, while core revenue increased by approximately 5% to $635 million. Income from continuing operations was $12 million compared to $37 million for the same period last year. EBITDA increased 23% to $251 million, while core EBITDA increased 15% to $231 million. Advertising revenue in the quarter decreased approximately 2% to $329 million, while core advertising revenue, which adjusts for political and advocacy, decreased approximately 8% to $303 million.

Media Networks advertising revenue decreased by approximately 2% to $280 million, while core advertising revenue decreased 8% to $259 million. Ratings and price growth achieved in the quarter were more than offset by declines in demand at our networks and local television businesses due to live sports cancellations and lower volume commitments in March due to COVID-19. Political advocacy advertising increased $17 million, driven by a record political quarter, and core advertising revenue in our digital business was up 25%.

Media Networks non-advertising revenue increased $55 million to $329 million, driven by subscriber fees, which increased 19%, reflecting the renewal of distributor contracts and associated rate increases. Content licensing and other revenue was $47 million in 2020 compared to $35 million in the same prior period due to the timing of content delivery.

Radio revenue remained flat at $51 million, while core radio advertising was down 7%, reflecting declines in ad spending, primarily in the retail sector. Advertising results at both Media Networks and Radio were impacted at the end of the first quarter by COVID-19 due to postponement of sports and the impact on overall advertising demand. Looking ahead to the second quarter, we anticipate advertising will materially weaken from the first quarter due to further postponement of live sports and lower demand from advertisers adversely impacted by the health crisis.

Direct operating expenses related to programming, excluding the PLA, decreased 17% to $124 million, driven by decreases in sports programming costs of $15 million due to disruption of live events from COVID-19 and entertainment programming costs of $11 million, primarily due to co-productions that did not occur in 2020, partially offset by higher news programming costs.

PLA costs for the first quarter increased approximately $10 million due to higher revenue. SG&A increased approximately $19 million, primarily due to investments in marketing and other contractual increases in 2020.

In the first quarter, due to the economic impact of COVID-19, the company recorded a noncash impairment charge on its Radio FCC licenses and other intangibles of approximately $75 million. Investing activities for the first quarter of 2020 include capital expenditures of $8 million compared to $25 million in the same prior period.

During the quarter, we drew down on our revolving credit facilities by approximately $443 million to ensure liquidity. This leaves approximately $638 million still available on our revolving credit facilities. At March 31, 2020, cash and cash equivalents on our balance sheet was approximately $650 million. We believe that the company has ample liquidity to meet the current economic challenges caused by COVID-19.

On April 28, we closed on a $370 million 9.5% senior secured notes due 2025. The notes will mature on May 1, 2025. Coincident with the closing, we issued a redemption notice for our $358 million 6 3/4% senior secured notes due 2022, which is the only piece of our debt capital structure that becomes payable on the change of control.

Despite the economic headwinds caused by COVID-19 that all media companies are facing, the company's business model is extremely resilient. As Vince mentioned, we've renewed our major distributor contracts, which represent more than 40% of our revenue, and our PLA costs moved in tandem with Media Networks revenue. Further, in April, we initiated a series of actions to reduce 2020 operating expense, excluding PLA, by at least $125 million compared to 2019. These actions will result in a restructuring charge of approximately $15 million in the second quarter.

With that, I'll hand the call back over to Bob for questions.

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

Robert Entwistle, Univision Communications Inc. - Senior VP of Finance & CAO [5]

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

Thanks, Pete. Operator, we're ready to begin the Q&A portion of the conference call. First question, please.

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

Questions and Answers

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

Operator [1]

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

Your first question comes from the line of Aaron Watts with Deutsche Bank.

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

Aaron Lee Watts, Deutsche Bank AG, Research Division - Research Analyst [2]

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

Good to hear from you. Wanted to focus my questions, I think, on the current and -- kind of current environment and the outlook. Maybe I'll start, Pete, with a question about what you're seeing in the ad environment now across the network, TV, radio, digital. And maybe you can also touch on some themes you're seeing month-to-month as well, like how March looks versus April versus maybe what you're seeing early nods on May and June.

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

Peter H. Lori, Univision Holdings, Inc. - CFO [3]

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

Okay. Thanks, Aaron. So as we mentioned, the advertising environment is difficult for everyone. And we do expect that advertising will materially weaken from Q1 into Q2 just given the postponement of live sports and lower demand from advertisers due to the effects they're experiencing from the health crisis. Keep in mind, too, that in the second quarter last year, we had a major soccer tournament with the Gold Cup. And this year, in the second quarter, we were scheduled to have the Euro Cup tournament, but that was been -- has been postponed until 2021. So there was major soccer money in the second quarter of last year, which we'll not experience this year. And we will also not experience likely much of any live soccer whatsoever. But we did hear earlier today that the Bundesliga, which is one of the smaller events, is returning in mid-May. So in the second quarter last year, revenue from that Gold Cup tournament and from the recurring soccer made up approximately 20% of our Media Network advertising revenue, which we will not enjoy this year, given literally no soccer besides Bundesliga, which is a very small event, expected for the remainder of the quarter. So -- and with that said, it is worth pointing out that we typically amortize soccer and production expense on our P&L when the gains or events air on our network. So there will be an offsetting expense benefit.

Outside of soccer, the entertainment and news advertising is experiencing double digit declines in pacing, generally I would expect in line with what you're probably seeing in the rest of the advertising marketplace. In terms of our individual businesses, as you might expect, radio is the most severely affected, followed by local television and then our national network and digital businesses. And from a category perspective, as you'd expect, the studio money, the money from restaurants, retail, parks and auto are all severely affected.

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

Aaron Lee Watts, Deutsche Bank AG, Research Division - Research Analyst [4]

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

Okay. Got it. Are you seeing any kind of cadence where some green shoots of improvement looking further out? Or is it just a lack of clarity at this point?

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

Peter H. Lori, Univision Holdings, Inc. - CFO [5]

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

Well, it's really a lack of clarity. I mean there's still money on the BOB in the back half of the quarter. And we'll see how that evolves as the quarter develops, and -- but that said, it's really just -- it's just a difficult environment for everybody. And so it's going to be a tough quarter from an advertising perspective, for sure.

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

Aaron Lee Watts, Deutsche Bank AG, Research Division - Research Analyst [6]

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

Okay. And on the -- maybe more so on the network side, are you being able -- having an ability to defer some of that advertising to later in the year rather than see it just go away completely?

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

Peter H. Lori, Univision Holdings, Inc. - CFO [7]

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

Yes. We're definitely working with our network advertisers to reexpress their advertising buys into the later part of the year. And that's especially prevalent for the soccer advertisers, which there's a lot of pent-up demand, both from an audience and an advertiser perspective, that we would expect once soccer recommences.

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

Vincent L. Sadusky, Univision Communications Inc. - CEO & Director [8]

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

Yes. And I'll just add in, Aaron. To add to Pete's comment, which is absolutely correct, what we've seen is, yes, entertainment programming on the network side, in particular, given a lot of the -- the second quarter is made up of upfront commitments, has been least impacted with the exception of sports. And of course, we do have a lot of sports. And as Pete mentioned, we had a major soccer tournament that's been postponed, that is going to take place in 2021. The good news, though, is, yes, the cost of sports for so many networks, us included, is significant. So putting off that amortization, even though sports is having the most significant impact on us by not having sports in the second quarter versus having a lot of sports last year, from an EBITDA impact, it's not all that significant versus the negative impact on ad revenue.

Local stations, where they don't have an upfront, more significantly impacted, and, of course, radio, which is not a terribly significant portion of our business, most impacted. We have seen -- the sales teams have been working very closely with the big ad agencies and our -- and marketers and our direct clients as well to move money out as they get more clarity, right? So everything from -- obviously, movie theaters are closed. There's not a lot of people going into auto dealerships. Other businesses on the services side have actually been fine and actually seeing -- seen an increase. But by and large, the majority of the businesses just have a lot of uncertainty. So we've been working to move those commitments into Q3 and Q4 across all of our advertising avails, but sports as well.

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

Aaron Lee Watts, Deutsche Bank AG, Research Division - Research Analyst [9]

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

All right. That's helpful context. If I could just squeeze in 2 more, and I appreciate the time. One, on the cost side, Pete, the $125 million of savings, in addition to your kind of variability on the PLA, how should we think about that flowing in through the numbers? Will we see the benefit of that in 2Q? Or is that something that's going to land more for the back half of the year?

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

Peter H. Lori, Univision Holdings, Inc. - CFO [10]

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

No. We've -- you'll see it pretty ratably over the 3 remaining quarters in the year. So it will be spread pretty evenly, and we'll experience that benefit beginning in the second quarter.

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

Aaron Lee Watts, Deutsche Bank AG, Research Division - Research Analyst [11]

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

Okay. And last one for me. Vince or Pete, any underlying subscriber themes you can call out or cord-cutting trends as we move through these kind of unprecedented times and what your expectations might be coming out of it? And that's it for me.

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

Vincent L. Sadusky, Univision Communications Inc. - CEO & Director [12]

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

Yes. I mean, everybody has seen the numbers that have come out from the MVPDs, and there's been commentary from other broadcast in cable networks. I'm not sure we can really add much to the numbers that have come out. Clearly, the -- this difficult economic time has had a negative impact on those businesses. I thought -- just a couple of things. One is I thought it was interesting that the digital MVPDs that had largely offset the declines in the traditional MVPD services are struggling as well. But for us, it's interesting. I think -- I really think we've got a unique positioning in the marketplace for 2 reasons. One is we are increasing our viewership, and it's pretty amazing. I mean, just last week, or this week, you look at the overnight ratings every night, we're a couple of nights in the #2 or #3 network from total viewers in the demo. So we continue to build off of that momentum we had going pre-virus. So that's a great thing. And again, we've said it over and over again, our -- the Hispanic community that we serve is aspirational. They've historically under-indexed in paid television. So I do believe that they are an attractive target audience for MVPDs to convert that over into paid television consumers. So I think the kind of the growing ratings and the nature of our consumers is something that continues to make us, I think, attractive in -- regardless of what the overall increases or decreases are in subscriber counts. And we are underpenetrated in the digital MVPD area as well. So I do think there's continued opportunity as we continue to tell our story, which is absolutely true, of viewership and high growth.

In the meantime, we're, I think, becoming even more relatively attractive to advertisers, certainly more so than strictly cable channels that are only distributed through the cable systems, right? For us, we've got -- we are a broad -- true broadcast network, including over the air. And it seems -- it's interesting. A lot of the non-Hispanic, but just general market consumers that have, for now anyway, I'm sure just purely due to economics, have cut the cord, have gone to over-the-air broadcast. So if you want your commercials to be seen across the widest swath of America, in the big markets, which is where we are, in New York, Chicago, L.A., Miami, the markets that matter, yes, I think we're also a really terrific value proposition from the advertisers.

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

Operator [13]

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

Your next question comes from the line of Avi Steiner with JPMorgan.

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

Avi Steiner, JP Morgan Chase & Co, Research Division - Executive Director and Senior Analyst [14]

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

Welcome, Bob. A couple of questions here, a bigger picture, a couple of smaller. Maybe first, Vince, yes, I don't think Upfronts are taking place as they used to with all the kind of glitz and glamor. What does that mean, if anything, for Univision and its networks and kind of thinking about next year, broadcast season anyways?

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

Vincent L. Sadusky, Univision Communications Inc. - CEO & Director [15]

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

Yes. So for us, I mean, as you can imagine, we -- having the momentum we've had both linear and digitally with both our entertainment networks being up this year as well as growth in sports, we were pretty excited about having an Upfront and beginning to build off or continue to build off the momentum we had last year and having a good increase in the Upfront. We thought that we had real opportunity to tell our story and bring on board even more advertisers into our world, into our networks. But unfortunately, that's not going to take place. And obviously, it's going to impact everybody across the industry. I think our view is such that, well, there's not going to be a physical Upfront, but we're going to make sure that we just get the good hard data out there around our value proposition to brands.

So yes, we're going to do a couple of different things. Our originally scheduled date of May 12 for our physical Upfront, we've invited the advertising community and have had a terrific response, where it's going to be essentially a data-driven conversation around what we can offer up and how well we've done and the lack of clutter and all those great things, I think, that make us an incredibly attractive value proposition. And then in June, we'll follow it up with more of a traditional, here's the content that you'll see on our air and the investments we're making over the next year.

And similar to what you've heard from other networks, there's varying views from the advertising community. Some are interested in locking in some really good rates in the Upfront. And positions, especially given the back half of this year, will -- a lot of inventory will be consumed by political advertising. And others are saying it's just too early to say. I can't -- I'm not going to commit a lot of money in the Upfront. So, yes, we're there. And obviously, the advertisers are a key partner for our business. So we're willing to work with -- in our sales teams, who've spent a lot of time having conversations with in helping our advertisers and potential advertisers through this process.

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

Avi Steiner, JP Morgan Chase & Co, Research Division - Executive Director and Senior Analyst [16]

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

Great. That's very helpful. And somewhat relatedly, can you talk about, a little bit anyways, maybe what Televisa programming is available? Filming in the kind of traditional English-language world hasn't really been able to take place. So it's kind of unclear what new programming we'll have, but you have this distinct advantage where you have a partner in Televisa that you may have a bunch of available programming. So whatever light you can shed on that would be terrific.

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

Vincent L. Sadusky, Univision Communications Inc. - CEO & Director [17]

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

Yes. Sure thing. I think we've been hard at it, as you know, working with Televisa to collectively have the programming they produce perform better in the states. We're really seeing that in the last couple of quarters. In addition, we complemented the PLA programming with acquired programming as well as internally produced programming. So we had, in Miami, our relationship show on the UniMás network. It airs 2 hours a night, 5 days a week, produced in Miami. Ratings were absolutely terrific, best ratings that UniMás has seen in years. On certain nights, UniMás, with that program, would actually beat Telemundo in their time slot. So all that has been put on hold, but the -- all the live productions, the live reality stuff. But the great news is we've built up our library of Televisa programming by running the best Televisa programming and then complementing it with acquired shows as well as being able to utilize the reality programming. So now we can lean into the PLA during this tough time period. And I've heard what some of the other networks are doing. But for the most part, they're going to struggle. The longer this crisis goes on, they're going to really struggle with original productions, especially given the ramp-up time it takes to kind of restart and get original episodes in the can. So we're -- I mean, we're in terrific shape. We have something like a year's worth of available PLA first-run and acquired originals in our -- in the can. So for the foreseeable period to getting through this crisis, we'll -- we're in great shape. We'll be continuing to air originals.

And the other thing is we also air more daily live programming, news, news talk shows, variety shows, than any other network. And those daily talkers and news programs, we continue to produce that. And our team's done a great job of continuing to produce really high-quality programming on a daily basis throughout the process. So we're in great shape. And the PLA programming and acquired programming has done a really good job on the weekends as well where we don't have the soccer matches. So we're -- obviously, yes, we'd love to get sports back and that -- and it looks like that's going to come back in the second half of the year. But in the meantime, we've got a lot of original stuff, and we keep filling our slots with originals.

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

Avi Steiner, JP Morgan Chase & Co, Research Division - Executive Director and Senior Analyst [18]

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

Great. A couple more, and this has been super helpful and great to hear that differentiation on the programming. Just on the point earlier about virtuals to Aaron, have those conversations begun, going back to all the ratings and programming success you seemingly have? Or is that something that when this calms down, so to speak, or normalizes, do you think you're in a good position to have those and hopefully crack into that tier?

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

Vincent L. Sadusky, Univision Communications Inc. - CEO & Director [19]

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

Yes. I think that's right. I think everybody's in crisis mode right now. And for us, yes, as we mentioned in the past, we were so busy with the traditional MVPDs, renewing deals that kind of -- we had an unprecedented number of deals that termed out over the last 18 months. But we've begun to have some conversations. The big folks really are Hulu and YouTube. And I think on a go-forward basis, I feel very good about our prospects, just given the fact that the programming has performed so well. And again, just forget about the Spanish world, just in terms of sheer numbers and delivery. So I do think that we will engage with those entities post-pandemic when things kind of get back to normal and people are kind of focused on normal business conversations. Again, both -- Hulu, in particular, has gone through, yes, as you know, an awful lot of change. But I do think that if anyone wants to win in the Hispanic space, it's clear to me you can't do it unless you have Univision.

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

Avi Steiner, JP Morgan Chase & Co, Research Division - Executive Director and Senior Analyst [20]

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

Perfect. Last one for you, Vince, and then I want to sneak one in on the finance side. But political expectations in this new world, anything changes at all, more relevant, less kind of handholding, shaking hands, kissing babies? How does that impact Univision?

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

Vincent L. Sadusky, Univision Communications Inc. - CEO & Director [21]

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

Yes. It's interesting. I -- our first quarter was record results. I think that was a combination of this new political team that we've had that's very capable as well as the focus and work we did in this area to produce proprietary research and really spend a lot of time with the campaigns to get them to understand the Hispanic consumer. We're willing and have certainly helped on the creative and the messaging side just given this is our business. We understand it better than anyone. Part of the investments we made a few years back was in our internal agency, Univision Brand Labs, to help out with all aspects of understanding the consumer, providing support for commercial entities whenever they need it. But in particular, the political candidates have really -- and their camps have really gravitated towards that offering. So first quarter, terrific results, record results. Second quarter, what we're seeing is a slowdown, which is, I guess, a, first anticipated. Second quarter typically is slower. But clearly, with the postponement of primaries, it's kind of -- folks have hit the pause button on political.

The good news is our kind of agency advocacy, non-candidate money has been super strong in the second quarter. The various governments have gotten campaigns out, information and awareness campaigns in states and municipalities and nationally. And clearly, we're a huge outlet, and we have a very dedicated audience as well that needs to understand the messaging and need for information. So that's been great for us as the kind of the direct political money has slowed in the second quarter.

Third and fourth quarter, similar to, I think, what you've heard other networks say. The fundraising looks intact despite the crisis, and we think it's going to be full steam ahead in a really vigorous race. And I think the success we saw in the first quarter was earlier than ever and greater than ever before in terms of focus and dollars directed towards Univision. And I think there's a clear understanding in order to win major races around the country. And certainly, the national race, you have to get the Hispanic vote, which has become really significant. So our confidence level on political for the back half of the year remains very strong.

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

Avi Steiner, JP Morgan Chase & Co, Research Division - Executive Director and Senior Analyst [22]

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

Perfect. Pete, I didn't want to ignore you. One quick question, and it was good to hear the liquidity comfort comments. Can you just refresh us on any covenants we should be aware of maintenance-wise? And thank you all for the time. Stay healthy.

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

Peter H. Lori, Univision Holdings, Inc. - CFO [23]

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

Thanks, Avi. Really, none of our maintenance covenants are in effect. We do -- at the level we've drawn down on our bank revolver, there is no covenant in effect. We've only drawn slightly less than 25% of the revolver, and you can see we've got nearly $640 million of availability left. Having said that, even in our most draconian forecast, we expect to be covenant-compliant. So if we did need to draw on that, we would. We don't anticipate that we will. And so hopefully, that answers your question.

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

Operator [24]

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

We have almost reached our allotted time for questions. Your last question will come from the line of Jason Kim with Goldman Sachs.

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

Jason K. Kim, Goldman Sachs Group Inc., Research Division - Senior Analyst [25]

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

Quick clarification question to start. Of the $125 million of cost-cutting initiatives you're implementing, does it include the decrease in amortization related to your sports content costs or reducing your content purchases? And then, I guess, how much of it is tied to non-programming costs in terms of thinking about the various line items?

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

Peter H. Lori, Univision Holdings, Inc. - CFO [26]

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

Okay. Yes, that's a good question. So first, these will -- these cost savings will be realized this year. So it's $125 million of realized savings, taking our expenses ex-PLA down below 2019. Of the $125 million that we're committing to, approximately 1/3 is related to the postponement of the Euro Cup into later periods. So that's really postponed into 2021. 30% of the savings really are from other third-party-related reductions, non-programming reductions, so other spending that wasn't -- isn't going to affect our air anyway in any way. And about 20% is related to the employee actions, the significant employee actions that we took earlier in the month. So that's really kind of the bulk of the savings. There are some other minor savings related to some programming that -- live programming that we're not able to produce right now. But really, we've kept the costs on our grid intact so that we can deliver a good experience to our audience along the lines that Vince suggested.

And in terms of -- so the other recurring soccer, this does not reflect any savings from the recurring soccer, which is an extreme significant amount of cost for the year. And there will be certainly some benefit realized from that perspective, as Vince alluded to, as soccer -- recurring soccer also looks like it's not going to occur, at least in the second quarter, other than that 1 minor event that I mentioned earlier.

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

Jason K. Kim, Goldman Sachs Group Inc., Research Division - Senior Analyst [27]

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

Okay. That's helpful. And then are there any rebate issues with respect to your distributors from fewer soccer games being played? And then on the flip side of that, are there provisions on the -- with your contracts that you have with the leagues or teams regarding payments you make to them if the games are canceled?

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

Peter H. Lori, Univision Holdings, Inc. - CFO [28]

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

Okay. Well, first, on the MVPD covenant side, we over-deliver significantly on our covenants, and we do not anticipate there being any covenant issue with respect to the soccer being not available right now. We -- we're not like barely making it. We way over-deliver, and we expect that we'll be delivering on that. And we work constructively with our soccer partners on the soccer side, and we have constant dialogue and communications with them. And I just said that there are constructive relationship for both companies, and we're going to -- we value that relationship very much and look forward to the return of soccer.

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

Jason K. Kim, Goldman Sachs Group Inc., Research Division - Senior Analyst [29]

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

Okay. Great. That's good to hear. And then a strong increase in subscriber fees in the first quarter. Do you still have contracts? Or do you have contracts that start to kick in after the first quarter began that could benefit your 2Q results as well? Or should the trends largely reflect the overall pay TV subscriber performance from here on out?

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

Peter H. Lori, Univision Holdings, Inc. - CFO [30]

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

Yes. I'd say the trends -- we talked about the double digit rate increases, and you have to kind of trend that forward and then make your own assumption about what's going to happen with the broader MVPD ecosystem, our pay-on subs move in tandem with the broader MVPD ecosystem. And there's no -- that double-digit rate increase is the one you can kind of use going forward for the rest of the year.

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

Jason K. Kim, Goldman Sachs Group Inc., Research Division - Senior Analyst [31]

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

Got it. And then the last question is sort of a big picture question. So last time we had a major recession, the ad market changed pretty dramatically on the way out as advertisers used the downturn to try different things, to rethink how they allocate their dollars. I know we're still in the midst of all this downturn today, but I'm curious to hear your thoughts if you think there will be a similar sort of seismic changes to how people allocate ad dollars and then how Univision can take advantage of the environment.

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

Vincent L. Sadusky, Univision Communications Inc. - CEO & Director [32]

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

Yes. It's a great question. I do agree there was a significant shift in really the utilization of digital marketing for the Great Recession of '08, '09. And I think, at that point, the consumption was increasing dramatically to digital. So you were in a heady growth phase where the ad dollars were kind of moving in that way. And I think it was deemed that digital could have been more cost-effective if used in a complementary way to traditional media. I believe where we are today, a decade -- more than a decade later, a lot of those decisions have already been made. And I think going forward, you'll see a return to, I think, the traditional media, that -- in a similar mix that you saw previously because I think traditional media will be an even better value for a while as the economy starts to recover. So I just think, look, everybody's tried a complete mix. I can't tell you how many CMOs I've talked to that have gotten a new position over the last decade and decided they were going to go almost all digital and ended up bringing either them or their successor, brought -- had a smarter marketing mix that accounted for both traditional, digital, linear, et cetera. And I think that's been pretty well proven by kind of the biggest and smartest marketing companies that a mix makes great sense.

Having said that, we have been very focused on and growing our digital consumption significantly. And the issue, arguably, we had going to the recession was, at least since I've been here, we've been playing catch-up, trying to catch up to our significant quarterly growth we've had in both long-form and short-form videos. So you're seeing some pretty terrific increases in our ad revenue associated with digital, but still much lower than the increases in consumption. So I think we're positioned to take advantage of any type of shift that may take place in advertiser decisions. But digital's no longer cheap. So I don't think you have the same dynamic at play that you had in '08, '09. I think companies will continue to make their individual decisions about allocations, and I'm not convinced that this crisis is going to cause any kind of shift in medium.

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

Operator [33]

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

I would now like to turn it back over to management for your closing remarks.

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

Peter H. Lori, Univision Holdings, Inc. - CFO [34]

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

Hey, everyone, thank you for joining the call. And I just want to -- I was a little remiss at the beginning of the call not welcoming Bob Entwistle to the call. And also, I want to thank Jon Stranske for the excellent work he did in charge of our Investor Relations and wish him well as he transitions from the company. He's done a very professional job for us. Thank you, everyone, and stay healthy and safe.

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

Operator [35]

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

Thank you. This concludes Univision's First Quarter 2020 Earnings Conference Call. You may now disconnect. Speakers, please hold the line.