Entravision Communications Corporation (EVC) Q4 2012 Earnings Report, Transcript and Summary

Good afternoon, and welcome to the Entravision Communication's Fourth Quarter and Full Year 2012 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Mr. Walter Ulloa. Please go ahead.

Thank you, Amy, good afternoon, everyone and welcome to Entravision's Fourth Quarter and Year End 2012 Earnings Conference Call. Joining me today is Chris Young, our Executive Vice President and Chief Financial Officer. Before we begin, I must inform you that this conference call will contain forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ. Please refer to our SEC filings for a list of risks and uncertainties that could impact actual results. This call is 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 certain 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 in a Form 8-K. Our fourth quarter results capped off an outstanding year for Entravision on all fronts. We generated a double-digit increase on our net revenues for both the fourth quarter and full year as we benefited from a more than 100% gain in our political revenue, as well as increased contributions from our core advertising business and retransmission consent revenue. At the same time, we continued to demonstrate improving operating leverage in our model as we grew our free cash flow substantially. Our operating results were among the best in the broadcasting business in 2012, highlighting our focus on providing advertisers and marketers with a comprehensive multimedia platform to reach Latino audiences and communities. The solid positioning of our television, radio and digital assets in the nation's most densely populated markets as well as Latino markets, as well as our ongoing efforts to extend our revenue streams and attract more add dollars while carefully managing our costs are keys to our success. Specifically, our consolidated fourth quarter revenue was just under $64 million, up 28% over the fourth quarter of 2011. And our revenue for the full year was $223 million, up 15% over the previous year. We were able to convert a significant portion of this growth into gains in our EBITDA and free cash flow. Our focus on cost management resulted in an increase in EBITDA for the fourth quarter of 77% And a 39% increase in consolidated EBITDA for the full year. We also generated $15.6 million in free cash flow in the quarter, up from $3.3 million in the fourth quarter of 2011. For the year, our free cash flow rose 218% to $34.8 million from $11 million last year. These gains have allowed us to strengthen our financial position considerably. We ended the year with a leverage ratio of 4.3x, a major decrease from 6.7x in 2011. As Chris will outline in a moment, we closed the year with $36 million in cash in our balance sheet, increasing our financial flexibility as we reviewed strategies to decrease our overall debt levels, invest in our business and maximize returns for our shareholders. I will review outlook in a moment. But first, let me touch on the operating highlights of the fourth quarter. First, at our television division, we increased total revenue during the fourth quarter by 33%. Excluding retransmission fees, our television revenue grew 35%. Excluding retransmission and political revenue, core TV revenues increased 10% compared to the fourth quarter of last year. Our core results were well ahead of the television broadcasting industry, where core revenues dropped 4% during the fourth quarter. In fact, these core revenues marked the fifth straight quarter in which our core television revenue categories have outpaced the revenue growth of the television industry. This industry-leading core revenue growth by Entravision -- by the Entravision Television Group points to a notable rebound in advertising dollars aimed at the Latino market and flowing into our Univision and UniMás affiliate group. This strong performance in our core television business reflects an ongoing improvement across our markets and advertising categories. During the fourth quarter, local revenues was up 6% while national revenue finished up at 69%. Excluding political billing, local television revenue grew 1% while national revenue increased 20% in the quarter. Automotive has remained strong for our television unit. Auto was up 26.5% during the fourth quarter, which was the 11th consecutive quarter of double-digit automotive spending growth. This growth continues to be broad-based, with 7 of our top 8 auto brands demonstrating year-over-year growth. This balanced growth and momentum has continued during the first quarter. For the year, we saw double-digit percentage investment gains from all 8 of our top 8 auto brands. The automotive category in our television business increased by 34% in 2012 over 2011. Moving now to other television advertising categories. During the fourth quarter, we experienced double-digit growth in 5 of our top 10 categories: automotive; telecommunications; media product; and brand names; and, of course, political were the category drivers in the fourth quarter of 2012. Our current pacings for our television business indicates this balanced performance across our advertising categories has continued during the first quarter. Through February, 5 of our top 10 advertising categories are up over last year, including automotive, retail, telecom, product brands and grocery stores. Political spending for our television operations during the quarter was approximately $7.8 million compared to $300,000 during the fourth quarter of 2011 and $3.4 million in the fourth quarter of 2008, the last comparable presidential election cycle. Total political advertising for our television business was $14 million in 2012, compared to $6.1 million in 2008. As we indicated earlier this year, we were able to more than double our political revenues in 2012 as compared to the 2008 presidential election. Total consolidated political revenue for the company in 2012 was $16.6 million versus $8.1 million in 2008, the comparable presidential election cycle, 105% increase in political revenue for Entravision over the 2008 presidential election. We added 21 new advertisers who invested $10,000 or more in our television business. New clients for our television division in the fourth quarter included Bank of America, First 5 California, JetBlue Airlines, Price Rite Supermarkets and Vonage. Turning to our ratings performance. Our Univision affiliates accelerated their ratings leadership position in the November 2012 sweeps. Among all adults 18 to 34 regardless of language, 7 of our Univision affiliates ranked #1 or 2 sign-on to sign off, adults 18 to 34. Additionally, 6 of our Univision affiliates are either #1 or 2 among all adults 18 to 49, regardless of language. Six of our UniMás television stations were the #2 ranked Spanish-language television station in their markets in adults 18 to 34, 7 are ranked #2 among adults 18 to 49. During our prime time novela, Entravision television stations are either #1 or 2 in 5 markets, adults 18 to 34. In the early Entravision network newscasts, 13 of our affiliates are #1 or 2, adults 18 to 34, regardless of language; and 12 of our Univision affiliates are #1 or 2 in early local news; and 7 are number 1 or 2 in late local news, adults 18 to 34, again, regardless of language. At our radio division, revenues increased 16% in the fourth quarter. Based on the recently released revenue data from the RAB, we outpaced the industry by 12 points. Local revenue increased 3% and national revenue grew 45%, compared to the fourth quarter of 2011. National revenue grew significantly in each month of the quarter. We experienced an increase of 56% in October of national business. November finished up 27%, and we continued this positive trend in December, with a 54% increase in national revenue for our radio group. Among other drivers, we're benefiting from the continued build out of our radio network. Net political revenue in the quarter was $1.6 million. Core revenues for our radio group increased 6% in the fourth quarter over last year, when political revenue is excluded. For the full year, our radio division increased 6% -- increased revenue 6% compared to 2011. According to the RAB, the radio industry finished with a 1% increase in total revenue for the year. We experienced a 28% increase in political revenue for 2012 compared to the 2008 presidential elections, with over $2.5 million booked compared to $2 million in political revenue in 2008. Excluding political revenue, our core net revenue grew 2% over 2011. According to the RAB, the radio industry core revenue, excluding political, was up 1%. We recorded revenue growth in 8 of our top 10 categories in the fourth quarter. The auto category, which was our second largest category in the quarter, ended with a revenue increase of 8%. For the full year, the automotive category grew 25% in our radio group. In addition to the growth in automotive advertising, our top ad categories by spending for our radio group during the fourth quarter were services, retail, telecommunications, health care, finance and travel and leisure. Services, our top category for the quarter, increased 5%, led by increased spending from State Farm Insurance. Retail saw a 9% increase, which was propelled by our top spending advertiser for the quarter, Walmart, and our third largest retail advertiser, Sears. Telecommunications increased 48% in the quarter, with increased spending by AT&T, Verizon and TracFone, a first-time advertiser. Health care increased 4%, and the finance category experienced an increase of 66% due to an increase in spending by JPMorgan Chase and Wells Fargo. For the full year 2012, our top 5 advertising categories in our radio group were services, automotive, travel and leisure, retail and telecom. Top advertisers for Entravision Radio for the year were McDonald's, Anheuser-Busch, Walmart, State Farm Insurance, T-Mobile and AT&T Mobility. During the fourth quarter, we added 51 new radio advertisers who spent more than $10,000, which amounted to approximately $1.4 million in revenue. New advertisers included Kraft, Mars, Hershey's, Interjet airline and a number of political packs, propositions and candidates. As many of you are aware, Entravision entered into a syndicated radio program in agreement with one of the hottest Mexican regional recording artists, Jenni Rivera, who died tragically in a plane crash in Mexico on December 9. The last broadcast of Contacto Directo was a memorial service broadcasted and webcasted live on December 19. Our content team is in the process of replacing the show with another syndicated program that will be hosted by another well-known Mexican regional star. We have also entered into 2 other syndication -- syndicated radio programming agreements, one with Oswaldo Diaz, our very talented afternoon drive host of the Erazno y La Chokolata show, which airs on 34 stations nationally. And we've also partnered with Sony Latin for a weekend Mexican regional countdown show Las Super 20 de State Farm, which airs on 42 stations across the country. In May 2011, Entravision launched its new radio network, which we've recently branded as Entravision Solutions Network. Our Spanish language regional network in less than 2 years has become the #1 Spanish-language radio network in coverage and ratings. We currently reach 94% of all U.S. Latinos between the ages of 18 to 49. Our network revenue increased 136% in Q4 2012 compared to the 2011 comparable quarter. For the year, our network revenue increased 166%. Over the past year we have been able to increase our network affiliate base to 315 radio stations nationwide, an increase in affiliates to our new radio network of 110% since the beginning of 2012. Top advertisers on the network in 2012 included Walmart, Sears, O'Reilly Auto Parts, AutoZone, Macy's and Home Depot. Entravision's Los Angeles radio cluster increased total revenue 16%, outperforming the market by 8 points for the quarter of 2012, according to Miller Kaplan. This revenue growth was driven by a combination of political revenue as well as local and national advertising. National revenue posted strong year-over-year fourth quarter gains led by KLYY and KDLD, our 2 Mexican regional formats. National revenue increased 25% in the fourth quarter, and that momentum is continuing as we move through the new year. The strategy that was implemented early on to identify growth accounts and the hard work of Entravision Solutions and our national sales managers continues to pay positive revenue dividends. Local sales continued to pull strong gains with an increase of 14%, which was spurred on by direct business and the dominance of KLYY as a direct response leader. Combined local and national digital revenue increased 56% year-over-year in our Los Angeles business by integrating key local event activation, as well as by selling new products such as ENTRALEADS. ENTRALEADS is the first bilingual digital lead generation product that delivers to national and local advertisers not just clicks or site visits, but consumer -- but customer calls, texts, e-mails and store traffic. This digital product connects businesses with Latino consumers at the precise moment they are searching and are motivated to purchase a product. The performance of this digital project is so terrific that we guarantee results to our advertisers. ENTRALEADS is also a great complement to our radio business. For the year, our Los Angeles customers saw a 6% in total revenue, outpacing the market by 5 points. We continue to focus on intensive cold-call strategies, training, our newer sales products and new business initiatives. ENTRALEADS provides our staff with an additional channel of distribution, which allows us to target existing and new advertisers for additional revenue growth. The revised amendment in structure with Karl Meyer being promoted to Executive Vice President of Western Region, promoting Matt Cardenas to Senior Vice President, Integrated Marketing solutions for the cluster and separating the operations from sales has allowed both of these key executives along with their sales staff to concentrate 100% of their time on generating revenue for our Los Angeles cluster and the Entravision Western Region. For the fall 2012 radio ratings our radio stations continue to be ranked among the leaders in adults 18 to 34 against all competitors regardless of language. In the full week, Monday through Sunday, 6 a.m. to 12 midnight, 19 of our radio stations are in the top 10 in their markets regardless of language. Let me turn briefly to our Digital business. We have continued to leverage our strong brands and sales force to deliver attractive integrated marketing solutions. Now our clients can connect with their audiences across all key media and digital channels as we offer new attractive multi-platform advertising opportunities. We continue to make significant progress with our digital initiatives, which continues to grow fast and currently account for 2% of our total revenue and 3.5% of our local revenue. Fourth quarter was a new record, our best interactive revenue quarter ever. Our interactive revenues have grown year-over-year for 18 straight quarters, including a strong growth of 62% during the fourth quarter over the same period last year and an annual growth of 42% during 2012 over 2011. Our online video platform continues to generate increased viewing and consumer engagement. Video consumption across our digital network increased 63% during the fourth quarter. We published 9,000 local news stories online across our markets during the quarter and more than 35,000 over 2012. Our increased editorial content is resulting in increased views as well as driving strong 100% digital audience growth in 2012 over the previous year. We now have more than 1 million monthly unique visitors to our website. Our radio live streaming operations also showed solid performance. We now average monthly 600,000 unique streamers with an average session length of 1 hour. In the fourth quarter, we streamed 3.6 million hours and a total of 15 million hours in 2012 of our radio content. Our mobile presence continues to grow. Our Latino mobile communities have over 300,000 subscribers, a growth of 163% over 2011. Mobile revenues increased 166% during the fourth quarter and 187% over 2011 as usage trends remained at record levels. During the fourth quarter, we sent over 4 million text messages to our mobile audience and 11 million text messages during all of 2012. We are also driving increased engagement across social media, as our radio and television station websites continue growing their Facebook and Twitter audiences. We finished the fourth quarter with more than 600,000 total followers on our social media channels, which is up 63% over the fourth quarter of 2011. Turning to our pacings, as we look at the current quarter we continue to see positive trends across our business. We do not provide guidance but we can tell you that our unaudited actual core revenue growth through February has our television business at a plus 7% increase and our radio business is pacing at plus 5%. Our consolidated pace through February is plus 6% revenue growth. Please note that this core pace excludes any retransmission revenue and political revenue, although we have practically no political revenue on the books through February of 2012. We are encouraged by our pacing through February. Before turning the call over to Chris for the financial review, I want to reiterate that the advertising environment in our markets has clearly improved as our results demonstrate. Our early pacings in the first quarter remain positive thus far, and we're optimistic about the prospects for our core business in the year ahead. We believe the presidential election process demonstrates the power of the Latino population not only on Capitol Hill, but also to the overall advertising industry. Our audience continues to grow not only in total numbers and in proportion to the nation's population, but also in regard to influence. It is important to note that the Latinos increased their share of the national vote in the 2012 presidential election from 9% or $9.3 million to 10% or $12.3 million Latino voters, a 32% increase in the Latino voter turnout from 2008 to 2012. Entravision and Univision and community organizations, like Mi Familia Vota, contributed significantly to this record Latino voter turnout in November through voter registration and get-out-the-vote campaigns, voter education messaging, countdown to the elections, expansive news coverage, rides to the polls and special election programming. Additionally, the Latino vote demonstrated it was the x factor in the 4 swing states where Entravision operates important powerfully media clusters, including Colorado, Nevada, Florida and Virginia. The Latino voter turnout increased by an average of 2 percentage points in these key swing states from 2008 the 2012. Advertisers of all sizes are increasingly recognizing that our audience can't be ignored. In order to grow market share, more and more brand and advertisers must address the Latino population. And our diversified platform represents an ideal conduit for reaching this important audience. We have never been in a better position to capitalize on this increased interest. Our broadcast properties remain market leaders in some of the largest and fastest-growing Latino markets in the nation. Additionally, we are making notable progress in building our digital assets and moving forward with our integrated 360º service approach under the Entravision brand. And finally, we're benefiting from a diversifying stream of revenues, including our revitalized core broadcast revenues, our growing and powerful radio network and our complementary digital assets. While the presidential political cycle has passed, we are now focused on attracting our share of advertising dollars tied to the Affordable Healthcare Act. We operate in the states where there are a significant number of uninsured Latinos, and they will be considerable to ad dollars spent on educating and informing the millions of Latinos who are eligible for health insurance through the Affordable Care Act. For example in California, there are 6.9 million residents eligible for healthcare insurance under the Affordable Care Act. Approximately 2.8 million of these individuals are Latinos and reside in Entravision media markets. In addition, health care providers, drug companies and states will all need to advertise their products to the newly insured. We're a natural platform for delivering this information. So it should be a long process, and we expect to begin to see revenues serve as an important new category in the second half of the year. In addition, we are focused on proving our resources aimed at attracting ad dollars from Mexico to our Spanish -- our robust Spanish-language media assets along the U.S.-Mexican border. Given our leading presence in the nation's border markets and our success in attracting television viewing and listening to the audiences in Mexico, we believe we have a terrific opportunity to help Mexican advertisers reach the more than 8 million Mexican citizens living along the U.S.-Mexican border. The ongoing growth of Latino population, improved debt environment, the diversification of our revenue resources and our progress in building an integrated platform are all drivers of our optimism going forward. As we seek to grow our business in the year ahead, we will remain focused on controlling our costs and supporting healthy free cash flow generation. And we will continue to study strategic uses for our cash, including further reducing our debt, investing in our business, returning cash to shareholders and seeking selective acquisition opportunities that strengthen our platform and expand our ability to track ad dollars. At this time, I'll turn the call over to Chris Young for our review of our financial performance.

Thank you, Walter, and good afternoon, everyone. As Walter has discussed, net revenue for the quarter was $63.8 million, up 28%. Operating expenses increased 5% to $33.7 million, and consolidated adjusted EBITDA increased 77% to $25.3 million. Net revenue for the year was $223.3 million, up 15%. Operating expenses increased 4% to $130.1 million, and consolidated adjusted EBITDA increased 39% to $76.9 million. As we announced in our 8-K filing during the fourth quarter of 2012, we entered into a new credit facility consisting of a 4-year $20 million term loan and a 4-year $30 million revolving credit facility. The new credit facility replaces our $50 million revolving credit facility. Proceeds from the term loan facility and cash on hand were used to repurchase $40 million in the aggregate principal amount of the company's 8.75% senior secured first lien notes, due 2017, pursuant to the optional redemption provisions in the indenture covering the notes. The redemption price for the redeem notes was 103% of the principal amount plus all accrued and unpaid interest. Approximately $324 million in principal amount of the notes remains outstanding. Also, during the fourth quarter of 2012, we declared and paid a special cash dividend of $0.12 per share to shareholders of the company's Class A, B and Class U common stock. The total amount of cash disbursed for the special dividend was $10.3 million. Net revenue for the quarter was up 28% to $63.8 million compared to $50 million in the same quarter of last year. Television net revenue was up 33% to $45.4 million for the quarter compared to $34.1 million in the same quarter of last year. Radio net revenue was up 16% to $18.4 million for the quarter compared to $15.8 million in the same quarter of last year. The increase in our TV segment was primarily attributable to an increase in political revenue, core advertising revenue and retransmission consent revenue. The increase in our radio segment was primarily attributable to an increase in both political and core advertising revenue. Excluding retransmission and political revenue, core TV advertising revenue was up 10% for the quarter, versus the TV industry core revenue of minus 3.9% for the quarter. That's based on TVB. This is this the fifth consecutive quarter where our core TV revenue has significantly outperformed that of the television industry. Excluding political revenue, core radio advertising revenue was up 6% for the quarter. Net revenue for the year was up 15% to $223.3 million compared to $194.4 million in 2011. TV net revenue was up 19% to $156.8 million for the year, compared to $131.5 million in 2011. Radio net revenue was up 6% to $66.4 million for the year compared to $62.9 million in 2011. The increase in our TV segment was primarily attributable to an increase in political revenue, core advertising revenue and retransmission revenue. The increase in our radio segment was primarily attributable to an increase in both core and political revenue. Excluding retransmission in political revenue, core TV advertising revenue was up 8% for the year compared to the TV industry, which was up 1.5% for the year. Excluding political revenue, core radio advertising revenue was up 2% for the year. Retransmission consent revenue for the quarter was $5.1 million compared to $4.3 million in the same quarter of last year. Retransmission consent revenue for the year was $20.2 million compared to $17.1 million in 2011. Operating expenses for the quarter were $33.7 million, up 5%. Excluding noncash compensation expense, operating expenses for the quarter were $33.4 million, up 6%. The increase was primarily attributable to variable expenses relating to revenue and an increase in salary expense. Operating expenses for the year were $130.1 million, up 4%. Excluding noncash comp expense, operating expenses for the year were $129.2 million, up 4%. The increase was primarily attributable to variable expenses relating to revenue and an increase in salary expense. Corporate expenses for the quarter were up 28% to $5.4 million compared to $4.3 million in the same quarter of last year. Excluding noncash comp expense, corporate expenses for the quarter were $4.8 million, up 30% compared to $3.7 million in the same quarter of last year. Excluding noncash comp, the increase was primarily attributable to an increase in bonus expense, salary expense and interactive media related expenses. Corporate expenses for the year were up 15% to $18 million compared to $15.7 million in 2011. Excluding noncash comp, corporate expenses for the year were $16.2 million, up 13% compared to $14.4 million in 2011. Excluding noncash comp, the increase was primarily attributable to an increase in bonus expense, salary expense and interactive media related expenses. Broadcast cash flow margins for the television segment increased to 57% for the quarter compared to 46% in the same quarter of last year. Broadcast cash flow margins for the TV segment for the year increased to 51% for the year compared to 45% in 2011. Broadcast cash flow margins for the radio segment increased to 26% for the quarter, compared to 16% in the same quarter of last year. Broadcast cash flow margins for the radio segment for the year increased to 21% compared to 18% in 2011. Free cash flow, as defined in our earnings release, increased 376% to $15.6 million or $0.18 a share for the quarter compared to $3.3 million or $0.04 per share in the same quarter of last year. Cash interest expense for the quarter was $8 million. Free cash flow for the year increased 218% to $34.8 million or $0.41 per share for the year. Cash interest expense for the year was $33 million. Cash CapEx for the quarter was $2.9 million. Cash capital expenditures for the year was $9.4 million. Turning to our balance sheet. As of December 31, 2012, our total debt was $343.8 million and our trailing 12-month consolidated adjusted EBITDA was $76.9 million. Cash on the books was $36.1 million at 12/31/2012. Net of $10 million of unrestricted cash in the books, our total leverage, as defined in our new revolving credit agreement, was 4.3x as of 12/31/2012. This concludes our formal remarks. Walter and I will be happy to take your questions. And Amy, I'll turn it over to you.

[Operator Instructions] Our first question comes from James Dix at Wedbush Securities.

Just a couple of things. As you look forward to this year compared to 2012, what are you seeing in terms of the breadth of your category growth? Are you expecting your auto to continue to lead the way in terms of where you're going to be getting your growth from across both the TV and the radio platforms? Or do you think that's going to become a more balanced category growth as you look out over the course of the year? And then I had 2 follow-ups.

Well Jim, or James, as it relates to automotive, we had significant growth in 2012 both in radio and television, and what we're seeing at least, through February, is strong automotive growth. We don't expect automotive to be as strong as last year, but it continues to grow here in the first quarter.

Okay. And are there any categories just on the flip side, which you are expecting to grow more than last year?

Well, I'd just say that certainly, health care is a category we expect to see strong growth from in the second half of the year. But retail is doing pretty well. Services has always been an important category for us. Groceries is showing some strength. Telecom has bounced back, not the way we'd like it, but certainly it's showing some momentum. So overall, I think we're pretty pleased with what we're seeing in the first quarter.

And I think I'd just add to that, you had 8 out of our top 10 categories that showed broad-based growth during last year, and I think the expectation is to see that continue into 2013.

Okay, great. And then you mentioned, Walter, the health care and then in your opening remarks, the Affordable Care Act. Just in terms of conceptualizing that, I mean how much of that spending potentially is coming fairly directly from the government or government-sponsored initiatives and then how much of that you expect to be just increased competition among providers, whether it's insurance or others in that sector? I'm just trying to get a sense as to where that potential money is being sourced from that might be going to campaigns that would show up on your stations starting the second half and then going beyond.

Well, let me just say, James, it's hard for us at least at this point to quantify what the opportunity looks like. But we believe it's big. We've always spent a lot of time on this and not only in the fourth quarter of 2012 but in the first quarter of 2013. In fact, we have a team of people right now in Washington meeting with the key members of the Department of Health Services that is going to execute this plan. But not only do you have each state that will have to create a market for health insurance for those people that are eligible and that don't have health insurance, but in the case where the state won't provide it, but at least up till now, looks like most states are going to move forward. Florida was saying they weren't going to do it. As you know, that's an important market for us. But the federal government has said that if the state won't do it, we'll step in. Now I will tell you that -- and I mentioned California in my remarks, but Texas is similar to the percentage of uninsured in that state. The numbers are big. But as they are in Colorado and Nevada and Florida, in every state we operate in, there's a significant population of Latinos that are underinsured or have no insurance. And they're eligible for insurance under the Affordable Care Act. So it is a large amount of money that's going to be spent to educate and inform the public in all the states in our country about the Affordable Care Act and a number -- in the states we operate, there's a significantly Latino population. That will be a significant number of Latino residents of these states who will be eligible to submit their application for health insurance. In addition, you've got the healthcare companies themselves that are going to be advertising their services. I know of one at this time who is in discussions with 2 of our important markets, and they'll probably be begin advertising or messaging in the third quarter of this year. And the numbers that are being talked about are significant. And that's just 1 or 2 markets that I'm referring to. But you've got the drug companies. They're going to be out there advertising, we believe, and any other provider of health care that deems it necessary to promote their products. So we can't tell you what the number is in terms of what the opportunity looks like, we might be able to have a better -- we should have a better grip on it on our next call. But we believe it's a big opportunity. And we're also working, as you might expect, we have an important task force working on this within Entravision. We're also working with Univision and their teams and we're all working together to maximize the opportunity.

You've also got on top of that, immigration reform, which is on the table, on the first -- front pages of the news, and that's working its way through the process. And that messaging could also benefit us down the year.

Well, not only that, but then if there is comprehensive immigration reform, then a lot of the people who are eligible for legal status will also be eligible for health care insurance. So -- there's a lot of interesting opportunities here that are moving forward. So we continue to focus on these opportunities and we expect to have good news for investors.

Great. And my last one, just turning the attention to the balance sheet, maybe for you, Chris. As you look forward to the rest of the year, what are your options in terms of potentially buying an additional debt or refinancing? Are there any windows that we should be thinking about as you look to address the balance sheet further in 2013?

Well, our bond indenture becomes fully callable on August 1. There is a way to go ahead into the market and call those bonds earlier. It becomes much more expensive, but it is possible. The high-yield market as most people who follow it know, is very active. And the terms right now are very favorable. So we're looking at it very carefully. 8/1 would be a date that we're looking at as far as a possible refinancing, if not sooner. So we're watching the market carefully and we'll keep everyone updated.

Okay so you have an option to refinance earlier than that?

We could go out to the market earlier. There's a provision for indenture.

It would cost more?

Right. You'd just have to prepay the interest along with a slight premium. So that's an option. It's an expensive option, but the market is hot, both the term loan B market and the high-yield market. Univision had a successful refi about 1.5 weeks ago. Salem's out of the market this week. So we're watching Salem and we're watching the market, and we'll make our decisions very carefully in the near term on that front.

Our next question comes from Michael Kupinski of Noble Financial.

I just wanted to chat a little bit about the telecom category. Obviously, in 2011 that kind of fell off. It didn't really come back I don't believe until starting to see some light in the third quarter, if I recall. It's kind of nice to see that come back in the fourth quarter. I was just wondering, is that momentum in the telecom category continuing? And if you can just paint that in relation as a category to where it was in terms of the peak for that category going back a few years.

Michael, we don't have the exact numbers from the past years, but we did see telecom as a category begin to drop significantly in 2010. And then it continued on to 2011 and most of 2012. We did see the category bounce back in the fourth quarter with telecom being up 36% in our television business and 48% in our radio business versus the fourth quarter of 2011. So that is certainly good to see, and it gives us at least the belief that we'll start to see this important category begin to improve. But it's still early to determine just how well we're going to do this year with telecom.

And on the expenses in both the TV and radio are just a little tad higher than what I was looking for. And I guess, as you mentioned, there's a variable cost in there certainly, because the revenues were a little bit better than I expected as well. So it goes to say that certainly you've had some conversation, sales commissions and things like that, that are going to be a factor there. Were there anything else in the numbers, like did you have an increase in the headcount? Any expenses related to some of your digital initiatives? Anything else in there that, looking forward, that we might need to adjust for our numbers?

Yes, Michael, there is an ongoing effort in the digital space to build out our group in that space. So there is an expense track on that front. We did announce also earlier, just a couple of weeks back, the promotion of a new level of management at the regional level who will be focused on market clusters and multiple markets, I should say. Historically, what we've tried to do from the top down is just manage every market individually, and this is the way we see of giving more attention to the revenue generation of regions as opposed to just at the single market level. So you've got a new layer of management in there that's going to have a slight impact on expenses, and I think that's the uptake [ph] part also what you saw in Q4. But the bulk of the expense increase for the fourth quarter in both divisions was the ramp-up in revenue.

Michael, just to add to what Chris said. We did, as you said, as you pointed out, we did reorganize our businesses, and we created regions to better manage our businesses. And in doing that, we promoted a number of people, gave them more responsibility. With that came new positions and even an increased compensation for the people that we promoted. And the goal with this new model is to separate operations from revenues so that our executives, certainly at the highest levels, are spending 100% of their time focused on revenue. And we're using this new structure to manage operations centrally through corporate and, therefore, relieving what we formerly referred to as our general managers who are now Senior Vice Presidents of Integrated Marketing Solutions and getting their focus 100% on revenues. So we will see expenses drift up a little bit. But by the same token, we saw revenues grow substantially as well in the fourth quarter.

On a core basis.

I'm just going to say that we believe our core growth in the fourth quarter was as good or better than any of our competitors, be it in Spanish or English.

Yes, that's for sure. And in terms of the headcount in the fourth quarter, what were the FTEs in the fourth quarter versus the year earlier? Do you have that?

Oh, off the top of my head, it's about 900. We're going to issue our K next week, and that number will be in our K as of 12/31. I'll give you the page number if you want once it's published.

And then also on your digital initiatives. Do you have a dedicated sales staff for that? Or is that just getting off the ground at this point where you're really not focused on that -- kind of having a dedicated staff?

What we've done is we've gone from having a dedicated staff initially as we introduced these new digital products to an integrated staff as we start the year. So we started to integrate better, actually in the fourth quarter, all of the products that we're offering to our advertisers across our entire platform. And we're pleased to see what -- the results. I talked about ENTRALEADS. I think that's going quite nicely. The Los Angeles team has embraced that product, and it's just doing -- creating wonderful growth using its radio platform and integrating ENTRALEADS with it. And across the country, we're promoting this product. So again, it's an integrated effort.

And then in terms of your corporate expenses, just a little bit of a jump there, was anything in there, like a true up in terms of bonuses and accruals, and things like that, -- if you can just give us some thought about how we should look at that number going forward in terms of a run rate?

Yes, the bulk of that number, Michael, was a bonus accrual for the quarter. That bonus accrual was about $850,000 and then the management reorg that we referenced before was about $0.5 million, and that's by and far the bulk of that corporate expense increase. Looking forward to next year, that corporate expense will be flat to down, low single digits, as far as your models are concerned.

I just want to add that in 2011, our bonuses were relatively low. And of course, this year we had a very strong year, so we felt it was important to reward the people who worked so hard to create our success.

[Operator Instructions] Our next question comes from Aaron Syvertsen at Sidoti.

I apologize if this is already asked, but do you have a number of what your political numbers were in 2010 and then kind of what you expect to see in 2014 after the record year you just had?

2010 political for TV was $5.1 million. For radio it was $1.9 million. All in it was about $7.1 million net-net.

We don't have -- yes, $7.1 million was the number for 2010, consolidated. We haven't again, sat down to put the numbers to what our goals might be in 2014. But I think it's safe to say here on this call that we're going to be looking at, at least plus 20% in 2014. And that is -- that number is being driven by the great success we had in 2012 and the increasing awareness around the power of the Latino vote.

Sure. Was there from one -- between Obama and Romney, kind of what party seemed to -- you get the majority of the revenue from?

Well, what we can tell you is that the Obama campaign outspent the Romney campaign. But what I think is the more important data is that the Obama campaign started in the second quarter and ran all the way through the election. And so they were laying in their messaging every week. Whereas the Romney campaign didn't start really until late third quarter. And of course, they were very heavy in the fourth. But different strategies. And of course, we know how it turned out.

Sure. And then just one more question for me. On the pretty significant increases in free cash flow. Kind of just looking ahead on what your primary uses of cash will be, whether it's still going to be a focus on delevering or there are some other options that could be a possibility.

Well, I think our first priority is we'd like to reinvest that free cash flow in our business. And if there are acquisition opportunities that are accretive to our current position, we'll take a hard look at those. We've always been pretty determined to get leverage below 5x. We're there now. We're in an odd year, which means that there will be some leakage with respect to that leverage, possibly as we try to overcome the political that we saw last year. But I think the first priority of that free cash flow is to reinvest in the business. Then we'll continue to look at debt reduction possibilities and then shareholder-friendly activities.

Yes, to Chris' point, we want to invest in our growing core business and, of course, create new growth drivers. And we invest in our growing core business by increasing the training of our revenue executives and sales teams as well as bringing stronger executives into our company.

The next question comes from John Kornreich at JK Media.

Yes, I have a few. Just real quick, at least I think they will be. Walter or Chris, should we plug in maybe $1 million for political this year?

John, that's fine. We're still trying to get our arms around the number. And if you want to plug in $1 million, we're okay with that.

We're in February and it's going to be a long year in the political front. So we honestly don't know, but that's probably a good place to start.

Okay. Chris, what did you say the cash was at the end of the year?

Cash was $36 million and change.

And the leverage number you gave of $4.3 million is using gross debt, right?

No, it's using just $10 million of our debt. So our new credit facility allows us to take $10 million and net it against the gross debt to get that $4.3 million. Otherwise it's $4.5 million on a gross basis.

Okay. So using $10 million against the gross?

That's right. It used to be we could net $20 million. Now we can only net $10 million.

Okay. When you report your $6.1 million of taxes on the income statement in the press release, that's all noncash, right?

Noncash. That's right. That's just a noncash expense. [indiscernible] NOL so we won't be cash impaired.

What is the NOL?

Well, the NOL is about $290 million at the federal level.

Okay. I won't ask that question again. The retrans of $20.2 million -- the next presumed bump will be 2015. So with the next 2013, '14, I would think it may be up $1 million [indiscernible]?

Retrans next year or this year should be about $21 million.

Okay. And then next year could be $20 million [indiscernible].

Yes, I'm not going to go on next year, but we'll stick to $21 million.

Okay. But '14 is still part of the 5-year agreement?

Yes it is.

Okay. I was guessing that overhead, you did that. The call price on the bond is 100?

The call price is 106.5 in August.

Okay. Right. Okay. Any soccer money this year to speak of?

Yes. We've got 2 tournaments, Copa de Oro and Confederaciones. One is in June, and one's in July.

I thought there was something going on right in this quarter.

Well, we have our Mexican soccer league, the Primera Liga or Liga Primera, that we run games, plus the national team, the Mexican national team. We're broadcasting those games as well, qualifying games.

I thought there was something very big going on because ESPN is playing it up very big. Messi versus Ronaldo and -- no?

It's just one game. That's in Barcelona probably and -- yes, yes. You're right.

Okay. So nothing really meaningful this year?

Well, The Copa de Oro is a big tournament, Confederaciones are important tournaments. Yes, so nothing like World Cup, which we'll have next year.

Okay. Utah had the great year that L.A. had. Yet entire radio divisions, excluding political, was up 2% for the year. So that would almost suggest that x L.A. radio didn't have a very good year?

Well, I mean I would answer that by saying that we had a slow start in radio, and we started to really turn it on in the second half. And by that, I mean our core business. And I think the results in the fourth quarter suggest that we're on the right track with that business. And based upon what I said about first quarter and 5% core revenue growth through February, I don't think there are too many radio companies with that kind of number.

Okay. I think you said in the fourth quarter, local core was up 1% and national was up some humongous number.

I think I said to you the local core was up 1% and national core was up 20% for television.

That's TV, right.

And consolidated was up 10% core.

But the local of 1% I would think suffered from inventory displacement from the political.

That's a pretty good assumption, yes. I mean, I think we did just a tremendous job over all of managing inventory given the fact that we grew our political by over 100%. And it was crunch time between August and November. But I think we did terrific work there in managing the inventory, and local may have -- probably was squeezed by political and national.

And remember, when...

But when I look at your first quarter pacings numbers of TV, up 7%, I mean, is it the same kind of thing -- 0 local and 15% national?

Actually, it's funny you bring that up. It's actually local is what's stronger and much stronger than national.

It flipped.

It flipped, which I'm a little -- we're a little surprised to see, but we'll take the growth.

Okay. And finally, I think I noted in an SEC filing that Walter and Chris together bought close to 400,000 shares. Was that due to the expiration options?

No. Those are options that just vested, and that were granted. So it's all -- it's not us being active in the market buying shares. It's just part of the company.

I see, okay. I misread that. Okay. And 2 suggestions for the future. One, especially at year end reporting, you should have a balance sheet on here, on the press release. And two, on Pages 3 and 5, you basically have the 3-month numbers and the 12-month numbers. But when it comes to Page 4, segment breakdown, you don't. And it will be helpful so we don't have to -- 20 minutes before the phone call have to dig into our numbers. It will be helpful to have the 3-month numbers for the segments, which you have, revenue and expenses, and the 12-month.

Okay, John, we'll take that under advisement.

John, you always give us good advice so we listen very carefully.

It's just a matter of saving us some time. You have the numbers, anyway.

Yes, right. Right now we'll look at that. We want to make it easier for everybody, to the people who read our press release.

Chris, you're going to be at DB and Walter is not, right?

We will both be there.

We will both be there, John. Will you be there?

I will definitely be there.

I look forward to seeing you.

Our next question comes from Davis Hébert of Wells Fargo.

Most of mine have been answered. So I was going to ask you about the balance sheet and taking out those notes, but I think you have that pretty well covered. I guess the only follow-up I might have would be, are you partial to bank debt only or bonds? I mean, how do you balance like covenants versus not having covenants? I mean, I just kind of wanted get your thoughts there.

Well, less covenants from our perspective is always more flexibility. So that's kind of our focal point right now. Term loan B market seems to have that optionality in hand. So we're looking at it. And again it's going to be a function of what the market has to offer so.

Okay, fair enough. And then on M&A, you mentioned you guys are interested in acquiring additional assets. Where would English-language TV stations fall under that umbrella? Because we've seen or we've seen and heard that a lot of stations are on the block right now. I just wanted to know your appetite for that kind of acquisition.

Well, we -- from time to time a number -- I mean, a lot of information comes through our doors in terms of potential acquisition opportunities. We're very careful at what we look at. It has to be accretive. It has to be assets that are complementary to our existing clusters. As for English-language assets, we do operate a few in some of our markets, particular our border markets. So we have 2 Fox affiliates, one in McAllen and one in Laredo. I think what's important to note about those 2 assets and those 2 markets is that they are 90% Latino. So it doesn't matter what language you're speaking in, there you're speaking to the Latino community. So it would have to be that kind of an asset -- English-language asset that fits one of our high-density Latino markets, and of course, it has to fit the financial criteria more importantly.

Okay, fair enough. And the retrans agreements. Univision currently negotiates that on behalf of Entravision. Correct?

Correct.

And that agreement, I believe it expires next year. Is that something you guys are looking to extend or just kind of cross that bridge next year?

Well, I think we'll just cross that bridge when we get there. Univision did renew 3 agreements in 2012. I believe it was Verizon, AT&T and DISH. And I believe one of those agreements runs beyond our proxy agreement with Univision. And so that agreement will be honored, certainly. But look, we believe it makes sense to continue to work with Univision. They're a great partner of ours. And we'll certainly address the proxy extension at the appropriate time.

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

Thank you, Amy, and thank you, everyone, for participating on our fourth quarter and 2012 full year call. We look forward to providing you with our first quarter results in May. And again, I want to thank all of you for joining us on our fourth quarter and 2012 investor conference call. Goodbye.

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