Entravision Communications Corporation (EVC) Q4 2022 Earnings Report, Transcript and Summary

Good day, and welcome to the Entravision Fourth Quarter and Full Year 2022 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Kimberly Esterkin in Investor Relations. Please go ahead.

Thank you, operator. Good afternoon, everyone, and welcome to Entravision's Fourth Quarter and Full Year 2022 Earnings Conference Call. Joining me today are Chris Young, Interim Chief Executive Officer and Chief Financial Officer; and Jeffery Liberman, President and Chief Operating 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 Entravision's 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 non-GAAP financial measures. The company has provided a reconciliation of these non-GAAP financial measures to the most comparable GAAP measures in today's press release. The press release is available on the company's website and was filed with the SEC on Form 8-K. I will now turn the call over to Chris Young.

Thank you, Kimberly, and good afternoon, everyone. We appreciate you joining us for Entravision's fourth quarter and full year 2022 earnings call. Before we begin, I want to note that it has been 2 months since the sudden and tragic passing of our Founder and CEO, Walter Ulloa. Walter's vision was to build a leading global advertising solutions, media and technology company. In pursuing that vision, Entravision built a strong leadership team that has transformed our media portfolio, expanded our geographic reach to 40 countries and achieved tremendous growth. During this period of transition, Entravision's Board of Directors has entrusted me with the role of interim CEO in addition to maintaining my duties as CFO. The Board is currently engaged in a search for the full-time CEO. We are moving forward, and we are as focused as ever on the successful execution of our long-term strategy to deliver value for our partners and shareholders. Let's begin by discussing our full year results, which were very strong. Total revenue of $956.2 million for 2022 was up 26% year-over-year and represented a new company record. Digital, which comprised 78% of our total revenue, increased by 35% compared to 2021. Television and radio segment revenues, which made up the remaining 22% of consolidated revenue, were down 1% and up 11%, respectively, year-over-year. Consolidated adjusted EBITDA was also a record $103.1 million for the year, up 17% over last year. Free cash flow totaled $63.3 million for the year or a conversion rate of 61% of our consolidated adjusted EBITDA. For the year, earnings per share were $0.21 compared to $0.34 in 2021. With such stellar annual performance, in February, our Board of Directors approved an increase in our dividend, doubling the dividend from $0.025 per share to $0.05 per share. This increase returns the quarterly dividend payment to pre-pandemic levels. With that as a background on the year, I'll now turn the call over to Jeff Liberman, Entravision's President and Chief Operating Officer, to speak further on the fourth quarter. Jeff?

Thank you, Chris. Like most of our management team, I've been part of Entravision for over 2 decades working side-by-side with Walter. Walter and I worked together since Entravision became a publicly listed company on the New York Stock Exchange in August of 2000. Having known Walter for such a long time, I can say with certainty, he would be proud of our financial results we are reporting today. Let's begin with our largest revenue segment, Digital, which similar to the full year, comprised 78% of fourth quarter's revenue. Digital revenue was $230.1 million for the fourth quarter, improving 30% year-over-year. Entravision now provides a full suite of digital marketing services in 40 countries, including traditional brand awareness solutions along with transactional performance-based services. In the United States, our digital solution complements our existing television and audio offering with results-driven services for local clients. These services include digital audio, lead generation, OTT digital video solutions and branded content production. Outside the U.S., Entravision has achieved strong results based on our unique and extensive audience reach and superior technology. By partnering with premier digital platforms such as Meta, Spotify, TikTok and Twitter, our solutions-based sales organization provides cutting-edge results for our clients in developing countries where these platforms have yet to have the reach they have established in the United States. All of our digital companies experienced growth. Smadex, our programmatic ad platform once again performed well during the quarter with revenue improving 29% year-over-year as we grew our business across multiple verticals, most notably gaming apps. Entravision Lat Am, which is our business previously known as Entravision Cisneros Interactive also delivered strong results for the fourth quarter, with revenue increasing approximately 7% over the prior year, driven largely by a commercial representation partnership with Meta. Entravision Asia known formally as MediaDonuts, saw revenue improved 72% year-over-year. Revenue growth was largely driven by success with Twitter and TikTok, along with the strong performance of our mobile user acquisition operation, now servicing 11 countries in Southeast Asia. Turning to Africa. Entravision Africa, known formally as 365 Digital, achieved a 92% increase in revenue for the fourth quarter compared to the prior year, driven by our TikTok relationship. Beyond enhancing our digital product offerings, we continue to broaden our sales leadership. In December, Smadex welcomed Phil Gontier as our Chief Revenue Officer. Phil is the former Head of Mobile for Twitter in Europe, the Middle East and Africa. He will continue to accelerate Smadex's global revenue growth by leading our sales team around the world. Let's now turn to the television segment which comprised 15% of revenue for the fourth quarter. Television revenue was $45.8 million in Q4, up 14% compared to the prior year's period, benefiting from strong political advertising revenue. Excluding the 3 discontinued Univision affiliates, Washington D.C., Tampa and Orlando, total television revenue was up 38% year-over-year. Excluding these 3 affiliate markets and the incremental political revenue, core television revenue decreased 9%; national core revenue decreased 21%; and local core revenue increased 3% year-over-year. Retransmission revenue for the quarter totaled $8.9 million, which was down 1% year-over-year, mainly due to the discontinued Univision affiliates. Operating cash flow margin for our television division was 50% for the quarter. Political revenue totaled $19.1 million in the fourth quarter, bringing our total political revenue to a record $32.1 million for the year. Out of this total, television generated $14.8 million of political revenue in Q4 and $25.2 million for the year. Lastly, our audio segment comprised the remaining 7% of fourth quarter consolidated revenue. Audio revenue totaled approximately $20.4 million for the fourth quarter, an increase of 26% year-over-year, again, largely driven by political ad revenue. Excluding incremental political revenue of $4.2 million in the fourth quarter of 2022, core audio revenue increased 2% versus the fourth quarter of 2021. Even more impressive was our audio operating cash flow margin, which was a record 43% in the quarter. I want to thank our entire team around the world for a strong fourth quarter and year, and we'll now turn the call back to Chris to discuss the quarterly financials and first quarter pacing in further detail.

Thanks, Jeff. Revenue for Q4 2022 totaled $296.3 million, an increase of 27% from the fourth quarter of 2021. As Jeff just mentioned in the segment breakouts, for our Digital segment, revenue totaled $230.1 million in the fourth quarter, up 30% year-over-year and up 20% on a pro forma basis as compared to Q4 of 2021. For our TV segment, total revenue was $45.8 million in the fourth quarter, up 14% year-over-year. Lastly, for our audio segment, revenue totaled $20.4 million in the fourth quarter, which was up 26% compared to Q4 2021. Operating expenses in the fourth quarter of 2022 totaled $57.2 million, up 19% from $48.1 million in the prior year period, primarily due to our variable expenses related to revenue growth and increases in salaries. Corporate expenses increased by 101% to $22.6 million for the quarter compared to $11.2 million in the same quarter of last year. The primary driver was severance expense incurred upon the passing of our late Chief Executive Officer, increases in noncash stock-based compensation and an increase in salaries. Consolidated adjusted EBITDA totaled $36.5 million for the fourth quarter, up 11% from $32.9 million in the prior year period. Free cash flow, as defined in our earnings release, was $19.3 million compared to $30.9 million in the prior year quarter or a conversion rate of 53% of adjusted EBITDA. Net income attributable to common stockholders was a negative $1.6 million compared to $3.9 million recorded in the prior year period. Diluted earnings per share for the fourth quarter 2022 were a negative $0.02 compared to a positive $0.04 per share in the same period last year. With that said, it is important to note that we incurred a total of $18.8 million in onetime charges that impacted net income in the fourth quarter and $27.7 million that impacted the full year. These charges included the following: an increase in fair value contingent consideration of $7.4 million for the quarter and $14.2 million for the full year, resulting from the outperformance of our various digital platforms compared to original expectations; $4.6 million in noncash charges related to the acceleration of Mr. Ulloa's unvested RSUs upon his death; $4.3 million in cash severance charges also primarily relating to Mr. Ulloa's passing; $1.6 million in noncash impairment charges relating to our broadcasting assets; and finally, foreign currency losses of approximately $900,000 in the quarter and $3 million for the full year. Excluding these onetime charges, adjusted EPS was $0.19 in the fourth quarter and $0.52 for the full year. Cash paid for income taxes was $5.5 million for the fourth quarter compared to $0.6 million in the same quarter of last year. For the year, cash paid for income taxes totaled $16.9 million in 2022 compared to $4.1 million paid in 2021. Net interest expense was $2.5 million for the quarter, up 57% from $1.6 million in the same quarter of last year. Cash capital expenditures for Q4 totaled $3.6 million bringing our full year capital expenditures to $11.5 million for 2022, up from $5.8 million in 2021. Turning to our balance sheet. Cash and marketable securities as of December 31, 2022, totaled $155.2 million. Total debt was $213 million, our total leverage, as defined in our credit agreement, was 1.3x as of the end of fourth quarter. Net of total cash and marketable securities, our total net leverage was 0.5x. Turning to our pacings for the first quarter of 2023. As of today, revenue from our digital segment is currently pacing at a plus 21% over the prior year. Our TV segment is pacing a minus 3% over the prior year period, with core TV revenue excluding political booked thus far in the quarter pacing at a plus 2%. Lastly, our audio segment is pacing a minus 3% over the prior year period with core audio revenue excluding political pacing at a minus 1%. All in, our total revenue compared to last year is pacing at a plus 16%. As we look ahead to the remainder of 2023, despite the prevailing choppy macroeconomic conditions, Entravision remains well positioned for another year of growth as we continue to expand our operations globally. With the benefit of a solid balance sheet, strong cash flow generation and a talented management team, you can expect us to continue to seek out opportunities that will further enhance the digital offerings we provide to our growing global customer base. Beyond acquisitions or strategic investments, you should also expect to see continued growth from our digital platform. Our strengthening relationship and overall business model with Meta in particular continues to be validated through the recently announced launch of operations for this platform in Honduras, El Salvador, Ghana, Iceland and Mongolia over the past 12 months. To summarize, 2022 was an amazing year of growth for Entravision that was unfortunately capped off by the sudden death of our Co-Founder, Chairman and CEO, Walter Ulloa. As we continue to reflect on Walter's loss, I want to take a moment to thank all of our stakeholders, including our employees, our Board and our shareholders for your support during this difficult time. A significant part of Walter's legacy was his installment of highly talented leaders across all of Entravision's business platforms, and through their leadership, we will continue to succeed. With that, we'll open up the call to questions. Operator?

[Operator Instructions] The first question today comes from Michael Kupinski from NOBLE Capital Markets.

Congratulations on a great quarter. A couple of questions. Chris, can you update us on -- now that you've rolled up some of the earn-outs, are there any additional possible earn-outs that may be coming up for some of the past acquisitions?

There are earn-outs that are coming up as far as payments are concerned. We'll have about a $30 million payment in April. And in addition to that, there will be something in the low single digits as far as the payment is concerned, also in April. And then that's it for the year.

Got you. And then can you talk a little bit about the M&A environment? I know that you have been making acquisitions. Can you talk a little bit about that?

Yes, it's been busy on that front. I mean we've got a pipeline that's pretty robust, and we continue to work through it. And again, you're not talking transformative, you're talking about smaller deals that will be complementary to our existing digital portfolio.

Got you. And then if you want to just chat a little bit about Cisneros, we see some deceleration in the rate of revenue growth there. Can you just kind of give us an update on what's going on with Facebook, Latin America? And I know it sounds like you're adding some additional markets there. Can you just kind of give us a flavor of what -- and maybe some color on what's going on?

I mean it's still in growth mode, right? So Cisneros Lat Am in Q3 did plus 10. Q4, they did a plus 7. We're looking to do a little better than plus 7 in that pace that we gave after Q1. So it's still a relatively stable region of the world for Facebook. And of course, we've got the new markets that we're also working on that will be incremental growth on top of that.

And Chris, I don't know if you can give us this, but if you can just chat a little bit about pacing is obviously still very strong, 21% first quarter. What's driving that? Is it some of the new markets? And if you can just talk to us a little bit about what percentage of the new markets are driving the 21% growth.

Sorry, I didn't mean to talk over you. The new markets aren't really contributing to the growth. If you took that plus $21 million and factored in -- if you took the plus 16 pace that we talked about and factored in the acquisitions on a pro forma basis, that looks more like a plus 11. But it's clearly -- we've got a minus 3 on the broadcast side. We've got a plus 21-ish on the digital side. It's all about digital carrying through the growth right now. We've got a broadcast environment that's choppy, National has gotten soft on us. Local is still pretty resilient. With that said, we're still pushing ahead. And -- but clearly, digital is driving the show as far as our growth is concerned at this point.

Got you. And then my next question was about national. If you can just kind of give us a flavor of national versus local in your core TV and audio as well.

Yes. For TV, local is a plus 1, but national is minus 18. And from all the channel checks that we've been doing, we're hearing the same numbers coming out of other folks in the space. So look, if you look at our top 3 category for broadcast, you got auto, which is pacing at a plus 10 for Q1; services, minus 3; and health care, plus 22. And then everything else is kind of a mixed bag. So -- but clearly, look, this is a government-sponsored slowdown that this economy is seeing. And national, it's not that atypical for national to pull back because those branding campaigns are the first ones that go out with the tide, but local remains resilient.

Got you. And then can you kind of give us a little thought about expense growth in the quarter?

Yes. The expense growth in the fourth quarter, you're talking about radio is a little bit higher than usual because we are in the process of moving the radio folks here to corporate, so that drove it. And then TV was plus 5. You've got variable expenses associated with the revenue growth, while you've got variable expenses on both sides associated with the revenue growth.

And can you talk about how we should look at that in terms of the run rate going into the first quarter?

Yes, that will be a function of the revenue, right? We don't like to generally guide on expense, but there will be -- radio will look a little higher than usual because of that move that we're doing. TV will be a bit more subdued. And then digital is just purely a function of the revenue growth. So digital, you should expect to see double-digit growth on the expense front.

The next question comes from Edward Reily with EF Hutton.

The recent dividend increase is interesting. Just maybe wondering if you could talk about capital allocation priorities for 2023?

Yes. The dividend increase was just getting it back to pre-COVID levels. I think what we're going to do going forward is allocate capital towards M&A. That's kind of where it needs to be. Dividend is kind of where it needs to be as well. So the -- and we'll observe and monitor the debt accordingly with our operations. But we've got plenty of cash. We're going to generate plenty of free cash, and we're going to work to applying that to continued M&A opportunities.

[Operator Instructions] The next question comes from David Marsh with Singular Research.

With regard to the M&A landscape, could you talk about your focus with regard to M&A? Is it new markets? Is it more focused internationally? Could you just talk about the landscape and what opportunities that you are seeing presenting themselves at this point?

Sure. Digital, international complementary to our existing digital footprint, not necessarily thinking geography by geography. In this day and age, technology is such that it could be in a different geography, but it's complementary to our existing infrastructure. So -- but that's our focus. We've got a lot of smart folks out of our Barcelona office who are helping us out with some opportunities that we're working on. And again, they're going to be complementary to our existing digital footprint. Not much along the lines of stuff here in the United States. There are 1 or 2 deals in the U.S. that we are looking at as well, again, on the digital landscape, but nothing really on the broadcast front at this time.

Anything in particular that might be on the table for divestiture here in the next 12 to 18 months?

No. It's steady as she goes as far as our asset base. So nothing that we're looking to sell.

And then just turning to the advertising side. I mean obviously, political will be down significantly from the first half of this year certainly and maybe even to the third quarter. But obviously, a big election year next year. Do you see political coming back? Are you starting to get some interest in terms of political ads for the back half of the year at this point already?

Yes, David, we are already starting to see some small buys that are coming through right now. We had a really robust political year last year. And we are anticipating that the presidential election year is going to be as good, if not better than what we delivered last year as we go forward. And we are going to see a ramp-up of that digital spending through each quarter of the year, but mostly in the fourth quarter coming this year.

And California has got a Senate race coming up. The primaries for that are going to be really interesting. And that's something that we should expect to see in the second half of the year. It could be hyper, hyper competitive.

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

Thanks again for joining us today. We look forward to sharing our progress with you on our Q1 earnings call in May. Betsy, with that, we'll sign off. Thank you all for your time. Appreciate it.

Thank you.

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