Entravision Communications Corporation (EVC) Q2 2015 Earnings Report, Transcript and Summary

Good day and welcome to the Entravision Communications 2015 Second Quarter Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Mr. Walter Ulloa, Chairman and CEO. Please go ahead.

Thank you, Carrie. Good afternoon everyone. Welcome to Entravision's second quarter 2015 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 the property of Entravision Communications Corporation. Any redistribution, retransmission or rebroadcast of this call in any form without the expressed written consent of Entravision Communications Corporation is strictly prohibited. Also, this call will include 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 Web-site and was filed with the SEC on Form 8-K. Now moving on to our review of the second quarter, we have reached the halfway point of the year and continue to see a positive with the progress we have made in executing our growth strategy as we expand our reach in audience across all media platforms and further advance our digital capabilities. Our reported results for the quarter, particularly for our television group, were negatively impacted by the strong World Cup advertising revenue we generated during the second quarter of last year. That said, our audio properties including our radio station group and network delivered another strong quarter and once again we believe we outperformed the broader radio market. Our digital revenues continued to expand and we remain focused on further strengthening our unique digital platform and delivering to highly targeted and engaged audiences to our advertising partners. We also continued to return capital to our shareholders through our quarterly dividend. Looking at our results, second quarter consolidated revenues were down – second quarter consolidated revenues were $59.9 million, down 3% year-over-year due to the impact of World Cup revenues in the second quarter of last year. Excluding the estimated impact of World Cup, political retransmission fees and the additional pool for digital revenue, our core advertising revenue was up 2% in the second quarter. Consolidated adjusted EBITDA was $16.8 million in the second quarter while free cash flow was $8.1 million and earnings per share were $0.06. Turning to our segment operating highlights, television revenues were down 16% during the second quarter primarily due to the impact of World Cup revenues last year. Local TV revenues were down 8% while national revenue was down [33%] [ph] during the quarter. Excluding the impact of World Cup spending, political and retransmission revenue, core TV advertising revenue was down 5%. The automotive category was down 19% during the second quarter in our television business due mostly to strong World Cup related auto advertising last year. Excluding the impact of World Cup, our auto revenue in the second quarter was up 4% over the prior year. Looking ahead, we expect auto and Tier 2 automotive in particular to rebound in the second half of the year. While our performance across other key advertising categories was affected by World Cup last year, we did see growth in several advertising categories including the auto aftermarket up 25%, travel and leisure up 24% and finance up 8%. During the second quarter we added 38 new television advertisers that spent $10,000 or more, which generated approximately $737,000 in advertising revenue for our television business. Notable top new advertisers included Presbyterian health plans, The Solar Corporation, eBay Classifieds, Cacique Cheese and CalSurance. Turning to ratings, our Univision television service continues to operate from a position of strength in their respective markets and continue to be the dominant Spanish language television station in their respective markets based on the May 2015 sweep. In early local news for adults 18 to 49, our Univision television affiliates finished as the number one television station in 12 of the 14 markets where we operate. In the late local news in the same demo, our Univision television stations finished number one in nine out of 15 markets. In weekday prime, our Univision affiliates combined average of 3 rating among adults 18 to 49 while Telemundo averaged a 2.6 rating. In weekday prime, our Univision ratings are up from last year. Ratings have increased [3.4%] [ph] among Hispanic adults 18 to 34, 13.6% among adults 18 to 49 and 3.1% among Hispanic adults 25 to 54. Our total reach in markets where we subscribe to Nielsen is 2.6 million Hispanic persons 2 plus. That represents 26% of the total Hispanic persons 2 plus population in our market. Our nearest competitor, Telemundo, reaches only 1.8 million Hispanic persons 2 plus in our markets or 18% of the Hispanic persons 2 plus population. Looking now to our radio division where revenues increased 5% in the second quarter compared to last year with local up 3% and national up 9%, we achieved this top line growth despite the lack of $1.7 million of World Cup revenue this year compared to last year. Excluding the impact of World Cup spending and political in the prior year, core radio revenues increased 12.5% during the second quarter. This strong performance during the quarter places us in a position to continue outperforming the broader industry which was estimated to increase 1% during the second quarter based on Miller Kaplan estimates for the 12 markets to which we subscribe. Our Entravision Solutions Audio Network continued to generate strong results with revenues up 84% during the second quarter. The growth drivers for the ES Network include telecom, tune-in media, finance, auto repair and healthcare. Our audio network business is the leading platform to connect advertisers with Latinos across the United States. The key driver of our network growth comes from our industry leadership in content, including Erazno y La Chokolata, Alex El Genio Lucas and Eduardo Piolin Sotelo, an unprecedented trifecta in any language. Both Alex and Erazno have 100 [indices] [ph] at the top 150 U.S. Latino markets reaching over 5 million listeners weekly due to terrestrial radio, streaming mobile and social media. Erazno y La Chokolata, our top-ranked afternoon syndicated program, is aired in markets where 84% of the total U.S. Latino population resides. Alex El Genio Lucas, also a top rank leading performer, is airing in markets with an aggregate of 75% of the entire U.S. Latino market. And El Show de Piolin continues to significantly increase its network reach across the United States. This 1-2-3 punch-line of Erazno, Piolin and Alex Lucas has proven that Entravision Audio Networks represent the best Latino talent in Spanish language radio today. This powerful audio content offering continues to resonate with our advertising partners as our Entravision Solutions Network logged in a total of 35 advertisers during the second quarter, an increase of 21% from the same period in prior year. The list of top network advertisers making investments in our network this quarter included Sprint PCS, Sears, Macy's, JCPenney, O'Reilly Auto Parts, Wells Fargo and many others. New radio network advertisers included Budweiser, Kentucky Fried Chicken, Mexico Tourism and T-Mobile which is now the official telecom sponsor of the Piolin show and our 18th annual [indiscernible] life music festival which is held in late July. Our radio division as a whole recorded revenue growth in eight of our top 10 categories in the second quarter, including services up 13%, automotive up 16%, travel and leisure up 18%, retail up 11% and telecom plus 20%. Automotive which is the second-highest revenue generating category, as I mentioned, was up 16% from the quarter primarily due to a very healthy 25% increase in local auto dealership revenue. During the second quarter, we added 37 new radio advertisers who spent more than $10,000, which generated approximately $752,000 in advertising revenue. These advertisers included Los Angeles Immigration Attorneys, Superior King Groceries, Apollo College and Immigration America. In Los Angeles, our largest radio market, our radio station generated an impressive 12% revenue growth during the second quarter while the LA radio market as a whole declined 1% according to Miller Kaplan. Our strong performance in the LA market this quarter reflects the programming changes we made in the second half of last year as well as the recent addition of El Show de Piolin in January. Our Los Angeles radio station group generated 35% revenue growth during the second quarter while KLYY Jose up 50% and KSSC generating, our revenue increased up 18% compared to last year. We outperformed the LA market which was flat in the second quarter according to Miller Kaplan. We also outperformed our Spanish language peers which were up 1% during the quarter, again according to Miller Kaplan. This performance was even stronger when considering that both KDLD and KLYY broadcast the World Cup in 2014 last year. In Los Angeles, the leading Latino market in United States, both El Genio in morning drive and El Show de Erazno y La Chokolata in afternoon drive are both airing on Jose, our KLYY FM, and are among the top 10 radio stations regardless of language. Erazno is the highest rated program among Spanish language radio stations in its time period. Turning to our audio ratings performance, our stations continue to be ranked among the leaders in adults 18 to 49 against all competitors regardless of language. In 12 Entravision markets with Spring 2015 Nielsen Audio data, nine of our radio stations are ranked among the top 10 in their markets full week Monday through Sunday, 6 am to 12 midnight. In morning, six of our radio stations airing our El Show de El Genio on Jose stations and five of our radio stations airing El Show de Piolin are in the top 10. Our cornerstone afternoon drive program, Erazno y La Chokolata, is in the top 10 in eight markets. Entravision radio reaches nearly 3.5 million Hispanic persons 12 plus or 32% of the Hispanic persons 12 plus population in the markets Nielsen Audio has released so far this quarter. Now let's turn to digital, digital revenues were $3.9 million in the second quarter which represents 51% pro forma growth over the same period last year. Digital now accounts for approximately 7% of our total revenues and we expect that percentage to continue to grow in the coming quarters. Our digital revenue growth continues to be driven by our national and local fast growing unique portfolio of digital offerings on our owned and operated sites as well as our Pulpo audience platform. With Pulpo, we can target and reach Latinos nationwide with display, video, mobile and social across all devices and platforms and across all levels of acculturation which together with our traditional assets now allows Entravision to deliver the total U.S. Latino market for our advertisers. With Luminar and Pulpo, we have built a strong big data management platform which is delivering increased efficiencies with programmatic targeting and yielding optimization tools. Entravision now has a clear leadership position in data-driven marketing to connect brands with Latino consumers online and via mobile. Content remains key to our efforts to expand our digital revenues and our online social and mobile audiences. During the second quarter, we published over 13,870 local news stories and videos at our station Web-sites. In addition, we streamed over 5.5 million hours of audio in the second quarter. We also increased our unique monthly audio streamers to an average of 700,000 for the second quarter, 150% above the last quarter. We have by far the greatest digital Latino reach with an average of 2 million monthly unique visitors on our owned and operated sites. Also Pulpo, ranked by comScore's Hispanic ad-focused ranking, is the number one digital platform to reach Latinos in the United States across all levels of acculturation with 8.5 million monthly unique Spanish dominant Latino visitors and 16.4 million unique bicultural Latino monthly visitors. Entravision is now the largest media destination for digital Latinos in the United States. Period. During the second quarter, we also further extended our social media presence. We ended the second quarter with more than 5.6 million social media followers across all key channels. Turning to mobile, we all know we are in a world gone mobile and Latino is clearly over-indexed in mobile media consumption. We now reach 12 million unique Spanish dominant Latinos in mobile devices and 26.7 million unique bicultural Latinos in mobile devices through our Pulpo network. Digital and mobile first is our mantra. This focus on digital and mobile is paying off. We're happy to report that one-third of our digital revenue is already derived from mobile and continues to be the fastest growing revenue platform at Entravision. We are in the process of launching a mobile app centered around our radio personalities including Erazno, Alex El Genio Lucas and El show de Piolin, which will significantly increase our level of engagement with our audiences not only via streaming but also in social media, video and unique mobile content all in one platform. Mobile also includes our text and MMS operation. We sent over 1.5 million text messages during the quarter and usage levels continue to gain momentum. We are also hard at work increasing our content for mobile and then partnering with advertisers including McDonalds, GMC, Chevrolet, MetroPCS, Toyota, Jaguar Land Rover, Nissan, [indiscernible], Texas A&M, and many, many more. Approximately 32% of our text messages were MMS. All-in-all, our digital segment continues to expand its revenue streams and the strategic investments and targeted acquisitions we have made places us in a unique leadership position in the market and are delivering solid returns. We will continue to invest in digital businesses and talent. Today, we are delivering highly targeted and engaged Latino audiences across all media platforms and key demos at a time when the U.S. Latino population continues to expand both in numbers and influence. Turning now to our pacings, so far in the third quarter our television revenue is pacing positive mid single digits versus prior year which included World Cup advertising. However, we should note that included in this pacing is a $5.5 million revenue contract with a telecom company for services performed unrelated to advertising. This transaction is similar to a contract that we booked in the first quarter this year. Excluding this line item, our TV broadcasters are pacing in negative high single digits, primarily due to the difficult comparison from World Cup and political last year. Excluding the estimated impact of World Cup and political in the prior year, our core TV advertising revenue is pacing flat in the quarter compared to the prior year. Radio for the third quarter is currently pacing in the positive high single digits despite the impact of World Cup in the prior year. Excluding the estimated World Cup impact, radio is currently pacing in the positive mid-teens. Our digital business is currently pacing up over 50% compared to pacing at this point in the prior year period. In summary, our second quarter results demonstrate the benefits of our content investments in our audio business and the continued progress we are making expanding our total audience strategy and transforming Entravision to a leading multi-platform media company. While last year's strong World Cup revenues impacted our reported results, the underlying performance of our business remains healthy and our third quarter pacings to date are strong. Looking ahead, we are focused on continuing to connect advertisers and their brands with the targeted and engaged nationwide Latino audience that can be reached at home, on the Internet and on the go via mobile. Now I'll turn the call over to Chris Young, our Chief Financial Officer, for a review of our financial information.

Thank you, Walter, and good afternoon everyone. As Walter has discussed, net revenue for the quarter was $59.9 million, down 3%. Operating expenses increased 7% to $37.5 million and consolidated adjusted EBITDA was $16.8 million. During the second quarter of 2015, the Company declared and paid a cash dividend of $0.025 per share to shareholders of the Company's Class A, Class B and Class U common stock. The total amount of cash disbursed for the dividend was $2.2 million. The Company also announced today that the Board of Directors has declared a quarterly $0.025 dividend per share to shareholders of the Company's common stock payable on September 30, 2015. The total amount of the cash to be disbursed for this quarterly dividend will be approximately $2.2 million. As previously announced, we currently anticipate making cash dividends on a quarterly basis in future periods. For the quarter, TV net revenue was down 16% to $36.4 million compared to $43.2 million in the same quarter of last year. The decrease in our TV segment revenue was primarily attributable to the absence of World Cup and significant political advertising revenue in 2015 compared to 2014 and a decrease in national advertising revenue partially offset by increases in local advertising revenue and retransmission consent revenue. Radio net revenue for the quarter was up 5% to $19.6 million compared to $18.7 million in the same quarter of last year. The increase in our radio segment was primarily attributable to increases in local and national advertising revenue, partially offset by the absence of World Cup revenue 2015 compared to 2014. Excluding the World Cup, our radio revenues were up 12.5% compared to second quarter of last year. Our digital media segment generated $3.9 million in revenue for the quarter. Unaudited pro forma revenue for Pulpo in prior year period was approximately $2.6 million. Retransmission consent revenue for the quarter was $7.2 million compared to $6.8 million in the same quarter of last year. We expect retransmission consent revenue to be approximately $27.5 million for the year. Operating expenses for the quarter were $37.5 million, up 7%. The increase was attributable to increased operating expenses of Pulpo which we acquired in June of 2014. Excluding the impact of Pulpo, operating expenses were flat for the quarter. TV operating expenses excluding non-cash compensation expense were down 2% and radio operating expenses excluding non-cash compensation were up 4%. Digital operating expenses excluding non-cash compensation were $2.2 million. Corporate expenses for the quarter were down 4% to $5.1 million compared to $5.3 million in the same quarter of last year. Excluding non-cash compensation expense of $0.6 million, corporate expenses for the quarter were $4.5 million versus $4.8 million in the same quarter of last year, a decrease of 7%. Excluding non-cash compensation expense, the decrease in corporate expenses was due primarily to higher non-recurring expenses incurred last year related to the acquisition of Pulpo Media, partially offset by an increase in salary expense. Cost of revenue, consisting primarily of costs of online media acquired from third-party publishers at our digital unit, was $1.4 million for the quarter. Income tax expense was $3.5 million for the quarter, while cash taxes paid was $0.1 million. Given the elimination of our full valuation allowance in the fourth quarter of 2013, future income tax expense will run at approximately 40% of pre-tax income, although most of this expense will continue to be non-cash given our NOL offsets. Earnings per share for the quarter was $0.06 per share compared to $0.10 per share in the second quarter of last year. Free cash flow as defined in our earnings release decreased 51% to $8.1 million or $0.09 per share for the quarter compared to $16.7 million or $0.19 per share for the same quarter of last year. Cash interest expense for the quarter was $3.0 million compared to $3.3 million in the same quarter of last year due to less outstanding debt. Cash capital expenditures for the quarter was $5.6 million. Capital expenditures for the year is expected to be approximately $14 million. Turning to our balance sheet, as of June 30, 2015, our total debt was $338.4 million and our trailing 12 month consolidated adjusted EBITDA was $75.8 million. Cash on the books was $50.9 million as of June 30, 2015. Net of $20 million of unrestricted cash on the books, our total leverage as defined in our 2013 credit agreement was 4.2x as of June 30. This concludes our formal remarks. Walter and I will now be happy to take your questions. Carrie, I'll turn it over to you.

[Operator Instructions] Our first question comes from Michael Kupinski of Noble. Please go ahead.

Given all the investor concern over pay-TV subscribers these days, I was wondering if you can indicate if you're seeing growth in pay-TV subscribers in your market, and maybe you might use this opportunity to give us an update on the progress of your discussions with Univision regarding your retransmission proxy?

Based on the information we have, Michael, we have not seen any change in the pay-TV subscribers in our markets. We've looked at it here last couple of quarters and it seems to be a little changed or in the change in cable subscribers in our markets here certainly over the last two quarters. As far as our discussions with Univision, they continue. We extended the proxy agreement that we are currently under and we are negotiating with them to try to reach an agreement that is certainly beneficial to both parties.

And correct me if I'm wrong, but the Company will need to identify its participation in spectrum auctions in the October timeframe with the FCC. Has the Company determined at this time how many markets that it plans to participate in?

The short answer is, no, Michael. We continue to do work on that front and the rules got voted in today, so we're setting now on a March 29 auction date and we continue to work on what the right strategy is to maximize potential value, but we've not made that determination as of today.

Okay, I'll let others ask questions. Thanks.

[Operator Instructions] Our next question comes from Yehuda Miller of Cedarview Capital. Please go ahead.

I guess just following up on the last question, it seems like you touched upon the spectrum a little bit but at the East Coast IDEAS Investor Conference back in June, it seems like you guys spend a considerable amount of time talking about it. So if you just expand a little bit about I guess since then where you guys are in your path and seems like everything is pretty telegraphed to what the public is out there with respect to the final rule, so where you are sitting at this time without being definitive I guess?

I think the best way to answer that is we've got full-time staff working on this, we're running simulations, we're running scenarios and we are looking at the opportunities both from and auction participation standpoint as well as a potential hosting standpoint where you don't participate in the auction directly but you host with somebody else who potentially could participate in the auction. Going beyond that, as far as assigning a number potentially, I think at this stage in the game I don't think there's much point to that. I think what I would say is we continue to remain optimistic given the work that we've done to date about potential upside provided you've got the right scenario on the table. If it's 126 MHz clearing target, that's obviously good news for everybody in the industry. If it's an 84 MHz clearing target, it's not such a great news for the industry. And we have no control over that. All we have control over is just what our stations could potentially go forward both on hosting and on auction participation basis, and that's the work we continue to do. So there was another broadcaster earlier this week who quoted Greenhill figures and quite frankly Greenhill was months and months ago and light years ago as far as the work that we've done. So we're going to shy away from giving Greenhill numbers again and just continue to do the work.

That's well, does anything preclude you guys from like on the next call or the next two calls I guess before the auction and speaking about what your strategy is going to be or there's other kind of non-disclosures that you can't put out?

No, you will never hear about our strategy with respect to the auction because we are playing a game of poker with everybody else in the broadcast community. For us to kind of broadcast what our strategy is gives everyone the answers that they could strategize against us. So we are never going to make public what our strategy is specifically market by market.

Great. Thanks a lot, guys.

Next we will have a follow-up question from Michael Kupinski of Noble. Please go ahead.

I just have a couple of clarifying questions. In the pacing data for the radio, is there any political or advocacy advertising in the number? I was just wondering if you've already started to see some of that and if that's included in the pacing information you provided.

Michael, as of now we don't have any political or advocacy revenue in our pacing for Q3 for TV and radio, but it just heightens the fact of how well our radio continues to perform based on the pacing that we indicated. I will say though, I'll add to that just briefly, we do expect a robust political year. We think that the political season is going to start even earlier than 2011. In 2011 we had about $800,000 of revenue, TV and radio, in the second half of the year. As we approached the 2012 election, we were forecasting much stronger growth. This year we believe that the states that we operate, Colorado, Florida, Nevada, New Mexico, Virginia are going to become even more important in this election. The Latino electorate is, every day we read another article about the growing influence of Latino [border] [ph] electorate. So, a lot of interest in the Latino market. As it relates to the political elections, we're certainly in contact weekly with both major parties, Democrats and Republicans, about the national race as well as local races. And in California for example there's going to be an important senatorial race. It looks like right now the two candidates are two women, Loretta Sanchez, a Congressperson, and Kamala Harris, the state AG, and that's going to be probably decided by mid-year as to who the nominee is going to be for the Senate race and that's going to be an important election. We expect to see certainly a considerable amount of messaging to the Latino markets here in California to drive voters to the poll.

Thanks for the color there. And also, Walter, you indicated that auto advertising you are expecting to see come back stronger in the second half here. I was wondering what gives you the confidence that you are going to see that. And if you can remind me what the percentage of auto is as a percent of total revenues and what that was like maybe last year and see the comparisons from year-over-year?

Let me just say that our pacing for Q3 for automotive is quite strong, both TV and radio, and sales nationwide continue to be strong for the automotive sector. I believe the target this year now is about 17 million units, and then we've got another fact which is that the highest records of older cars on the road now, 11.5 years, than ever. So we continue to remain bullish. The Latino consumer is certainly important to this critical sector for our business, and like I said, we expect to see some healthy growth here in the second quarter. Total percentage of our total revenues for auto is about 23%.

And could you remind me what it was last year?

It was about 1.5 points lower. The breakout, it's 29% of total TV revenue right now and it's about 14% of total radio revenue, and that 29% is kind of at a point where historically I think our high point, high watermark was back in 2006, we hit 30%. So we're getting up there as far as the auto penetration is concerned, but radio seems to certainly be on the rise given the strength in the content. Radio at the high watermark was as high as 20%. So sitting at 14% there is room for growth there.

I see. Okay, thank you so much.

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

Thank you, Carrie. Thank you everyone for listening in to our second quarter earnings results. We look forward to talking to all of you in November when we report our third quarter earnings results. Thanks again. Bye.

Thank you. This concludes our conference. Thank you for attending today's presentation. You may now disconnect. Have a great day.