Q1 2023 Entravision Communications Corp Earnings Call
Good afternoon, and welcome to the Entravision first quarter 2023 earnings conference call.
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I would now like to turn the contrary Kimberly estrogen with Investor Relations. Please go ahead.
Thank you operator, good afternoon, everyone and welcome to Entravision is first quarter of 2023 earnings Conference call. Joining me today are Chris Young interim Chief Executive Officer, and Chief Financial Officer, and Jeffrey Lieberman, 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 enter it and SEC filings for a list of risks and uncertainties that could impact actual results. This call is the property of Entravision communications.
<unk> 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 their 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 Christiane.
Thank you Kimberly and good afternoon, everyone. We appreciate you joining our first quarter 2023 earnings call in the first three months of the year Entravision saw the continued strength of our digital businesses combined with the resiliency of our television and audio segments.
Revenues for the quarter totaled $239 million, an increase of 21% year over year and ahead of our previously disclosed pacings, a plus 16% for our consolidated business.
This performance is particularly impressive given the current difficult macro economic conditions, along with the anticipated year over year headwinds from decreased political spend in our broadcast business.
These results are also a strong testament to our ability to evolve our business and adapt to the rapidly evolving technology media and entertainment industries.
I want to thank our entire team and Entravision for your hard work this past quarter in making this growth possible.
For the quarter digital comprised 82% of total revenue and was up 28% as compared to the prior year period.
<unk> accounted for 13% of revenue and declined 2% year over year, while audio made up the remaining 5% of revenue and declined 3% year over year.
As Jeff will speak about shortly going to TV and audio segments saw weaknesses on the national front as advertisers became more cautious with spending particularly in light of the recent regional banking crisis that said, our local TV and audio businesses remained fairly resilient, even without the benefit of political advertising.
During the quarter.
Consolidated EBITDA for the quarter totaled $13 million, a decrease of 28% year over year. This decline in our consolidated EBITDA is largely the result of both non returning political revenue at our broadcasting business, coupled with increased operating and corporate expenses, which I will cover in more detail later on the call.
In addition, during the quarter, we entered into a new $275 million credit facility extending the maturity of our debt to March 2028, while increasing the flexibility of our balance sheet, we remained well capitalized and with this new facility combined with our free cash flow generation. We continue to have significant dry powder to be opportunistic on the <unk>.
Syed.
Speaking of free cash flow during the first quarter free cash flow totaled $3 9 million or a conversion rate of 30% of consolidated EBITDA also the company's board of directors approved a five cent dividend, which is in line with our prepaid debit levels.
Let's begin our discussion with our largest revenue segment digital which comprised 82% of first quarter revenues digital revenue was $196 5 million for the first quarter, improving 28% year over year.
Entravision provides a full suite of digital marketing services in 40 countries, including traditional brand awareness solutions, along with transactional and performance driven services.
In the U S. Our digital solutions include digital audio lead generation over the top digital video solutions and branded content production capabilities that complement our existing television and audio offerings with results driven services for local clients.
Outside the U S. Entravision client centric philosophy extensive audience reach and superior campaign performance technology generated strong results for our clients, we partner with Premier global marketing platforms, including meta Spotify tick tock, and Twitter as well as providing branding services and performance solutions for more.
Than 4000 clients in emerging high growth economies.
These platforms have reported layoffs in the U S. But we continue to add sellers as needed pushing forward our growth path in new markets across the globe.
Latin America and Asia in particular led the revenue growth for the quarter. In addition, we also saw our mobile user acquisition business grow 40% due to our industry focused approach client retention strategies and best in class technology.
In terms of regions that contributed to digital revenue growth, our Latin America business unit improved 15% year over year, largely driven by our exclusive commercial representation partnership with meta are and our Asia business revenue grew 35% year over year, mainly driven by success with Tictoc along with strong performance.
Our mobile user acquisition operation.
We are now serving 11 countries in southeast Asia, including our latest addition in Mongolia.
We also see growing demand for our digital advertising services in Singapore, the Philippines, and Vietnam, Our mobile user acquisition programmatic demand side platform <unk> declined 11% versus the prior year period, mainly due to decreased revenue in the crypto and Fintech verticals. However, we remain optimistic.
As the other industry verticals, such as gaming and online gambling are ramping up their AD spend also following the end of the quarter and April Entravision converted an outstanding loan and acquired a majority stake in ads Mirai, a leading social commerce and E Commerce marketing service provider, which is headquartered in Barcelona for the quarter on <unk>.
Pro forma basis, <unk> revenues improved 94% compared to the prior year period. This investment in Asmara strengthens Entravision client centric solutions portfolio, we believe that commerce and retail related marketing will play a critical role in the future of advertising ads Mirai Optimizes digital catalogs for online retailers.
And the fashion wellness beauty and education verticals.
Moreover, <unk> provides technology solutions that empower clients to connect to its payment accounting logistics and most importantly, social commerce strategies by leveraging a SaaS model brands can optimize campaign investment while also having access to real time campaign performance data, we look forward to scaling <unk> operations throughout <unk>.
Our regions overtime.
I'll now turn the call over to Jeff Lieberman to speak further to our television and audio business segments Jeff.
Thanks, Chris, Let's turn to our television segment, which comprised 13% of the revenue for the first quarter TV revenue was $33 million in Q1 down 2% compared to the prior year period, largely due to national advertising revenue declines and the declines in political revenue as compared to the prior year's quarter.
Core television revenue increased 2% National core revenue decreased 8% in local core revenue increased 2% year over year retransmission revenue for the quarter totaled $9 6 million, which was up 5% year over year operating cash flow margins for the TV segment was 34%.
For the quarter.
Following the failure of Silicon Valley Bank, we saw a number of national TV advertisers pause their marketing efforts. Although this slowdown for our national TV business was not as drastic as the effect of the 2008 2009 financial crisis. The softness in National advertising has continued into April .
With that said, we expect to see improvement in the second half of the year with an open Senate seat in California, We anticipate this race to heat up in the late summer early fall, we should see a boost in political revenue, helping improve national television advertising dollars for the year.
Lastly, our audio segment comprised the remaining 5% of first quarter consolidated revenue.
Audio revenue totaled approximately $12 2 million for the first quarter and decreased 3% year over year.
Again, largely driven by the lack of political AD revenue as compared to the prior year's first quarter local audio was down 1% for the quarter, while national audio declined 6% on a core basis, excluding political total local and national revenue were all down 1% overall Spanish language radio.
Has been performing better than the general market and while our national clients are being very cautious based on the current economic conditions. We expect increased political spending in key states, such as California, Arizona, Colorado, New Mexico, and Texas, which will help support our national sales, particularly in the back half of the year.
I will now turn the call back to Chris to discuss the first quarter financials and second quarter pacing in further detail Chris Thanks, Jeff as we already covered the segment's revenues, let's jump to operating expenses for the quarter operating expenses in the first quarter of 2023 totaled $52 6 million up 20% from $43 9 million.
In the prior year period. This increase was primarily due to several factors first we had expenses attributable to our recent adds Murray and Jackup digital investments, which did not contribute to our financial results in the comparable period last year second our rent expense was significantly higher than the prior year. As we are currently in a temporary office.
Space until we combine our offices here in Santa Monica.
Third there was an increase in noncash stock based compensation as a result of the annual <unk> Grant being done in Q1, this year compared to Q4 in the prior year.
Fourth variable expenses were up associated with the increase in digital advertising revenue.
Excluding the expenses related to ads Murray and Jackup digital expenses were up approximately 13%.
Corporate expenses increased by 20% to total $10 5 million for the quarter compared to $8 7 million in the same quarter of last year, which is mainly a result of noncash stock based compensation given the annual RSC Grant timing I just mentioned an increase in professional service fees and an increase in audit fees.
Consolidated EBITDA totaled $13 million for the first quarter down 28% from $18 1 million in the prior year period free cash flow as defined in our earnings release was $3 9 million in the quarter or a conversion rate of 30% of consolidated EBITDA compared to $18 1 million in the first quarter in the prior year.
Diluted earnings per share for the first quarter 2023 were <unk> consistent with the same period last year cash paid for income taxes was $100 for the first quarter.
Net cash interest expense was $3 million for the first quarter compared to $1 2 million in the same quarter of last year cash.
Cash capital expenditures for Q1 totaled $6 8 million the increase compared to the same quarter of last year is mainly due to the build out of our new headquarters in Santa Monica, which is expected to be complete by the end of the second quarter as we combine our two Los Angeles area offices into one we expect cash capex to total roughly $15 million for.
The full year.
Turning to our balance sheet cash and marketable securities as of March 31, 2023 totaled $179 8 million total debt was $212 8 million, our total leverage as defined in our credit agreement was one seven times as of the end of the first quarter net of total cash and marketable securities our total net.
Leverage was <unk> three times.
Turning to our pacings for the second quarter of 2023 as of today revenue from our digital segment is pacing plus 25% over the prior year factoring in our ads Murray and Jakob digital revenue generated in Q2 of 2022, our digital segment on a pro forma basis is pacing plus 14%.
Our television segment is pacing minus nine 5% over the prior year period with core TV advertising, excluding political booked thus far in the prior year quarter pacing at a minus 1%.
Lastly, our audio segment is pacing a minus 5% over the prior year period with core audio excluding political book, thus far in the prior year quarter pacing at a minus 1% as well.
All in our total revenue compared to last year is pacing at a plus 18% on a pro forma basis. Our total revenue is currently pacing at a plus 10%.
To close out our prepared remarks, while we remain cognizant of the current macroeconomic environment, our double digit topline growth in the first quarter, coupled with a solid balance sheet and strong free cash flow position us well for the remainder of 2023.
We continue to seek out opportunities, including acquisitions that will further enhance our offerings and strengthen our ability to compete in the international markets Latin America and Asia are both proving to be very strong contenders for continued growth Africa is showing solid pockets and strength in our mobile acquisition business continues to outperform.
TV and audio remained resilient and while national advertising will continue to be a headwind in this difficult economy Entravision is in a great position to benefit from increased political spend in the second half of the year.
Thank you for your time. This afternoon. We appreciate your continued support of Entravision and we'll now open up the call to questions operator.
We will now begin the question and answer session.
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At this time, we will pause momentarily to assemble our roster.
Our first question will come from Michael Kaplinsky with Noble capital markets. You May now go ahead.
Thank you for taking the question first of all congratulations on a solid quarter.
Couple of questions. It seems like your Latin American digital business was better than expected was there anything special about the quarter with Facebook there.
It was just that Michael It was Facebook Facebook is on a fund turnaround, particularly what we're seeing in Latin America, and we were really pleased about it. So you have seen Q3 for Latin America, Latam, we did a plus 10% year over year Q4 was plus 7% we were little worried about getting into Q1.
They turned out a plus 15% in Q2s looking.
The pace along the same lines. So Facebook is back they've tweaked the model they've enhanced the technology and they have refocused their efforts and we've been pleased to see the growth to come back and Thats terrific.
And then if we could just turn to <unk> because that was surprisingly weak as you mentioned coming off of a very strong 2022 performance.
You indicated that you think that's going to turn so is that is that more of a second half story or do you think it's going to show some.
Better revenue trajectory.
In the second quarter can you just kind of any color there yes.
<unk> had some tough comps they did a ton of business with the crypto space in the Fintech space in the first quarter and second quarter of last year, obviously, those two verticals have been really hit by the macro.
Turned down so we're expecting once we cycle through those tougher comps that second half of the year will be a better story for semantics.
Got you and then just turning to radio and TV.
Other broadcasters have indicated that auto has turned how big of a category I know I've asked this in the last quarter because we.
Got it.
I think hit a peak a couple of years ago in terms of auto as a category and it kind of fell off dramatically where are you at now with auto and are trending positive and audio auto at this point, yes, yes, Michael on the TV side, we are trending positive with auto we saw 12, 5% increase in first quarter we.
Also saw other categories improve in the first quarter also our retail was up 4% health care up 33%.
<unk>.
<unk> was up seven.
Gotcha, and then you talked briefly about the M&A environment I was wondering if you can just add some color on what.
What you see out there multiples whatever in terms of.
Just the overall environment and what you might be looking at.
Yes, there are deals out there that we're working on I'd say a handful.
Mostly digital.
There is some stuff in broadcast out there multiples havent really come down there is still a disconnect between what the sellers are looking for and what the buyers are looking to pay for it. So we'll see how that progresses during the year if the macro continues to be.
On a downward trend, but there are definitely deals out there that we're working on.
Chris can you just talk a little briefly about bigger.
Your leverage obviously you have one of the best balance sheets in the industry do you have any thoughts in terms of if you are looking at M&A what you're.
Your thoughts process might be in terms of leverage.
Sure. If it is a really compelling opportunity I think the three times kind of handle is what we're looking at.
Max out at.
Being mindful of the cash balance that we have we do have an undrawn relatively undrawn revolver that we can access, but we don't want to take our leverage above.
<unk> three times not not in this macro and again that has to be a pretty compelling opportunity I think for now we're looking to fund acquisitions through the cash balance that we have.
Joe I'll, let others ask questions. Thank you so much thank you Michael.
Okay.
Our next question will come from James Dix with industry Capital Research you May now go ahead.
Hey, guys.
It looks to me just read.
Revenue first it looks like it was a little stronger than I was looking for in the first quarter. It looks like your pacings are.
In line to maybe a little better I mean is your sense. How is your sense of how the year's unfolding versus what your expectations were.
Thus far across the three segments.
Well I'll answer that.
First with we were feeling really good about this year until the week after Silicon Valley Bank went down and that subsequent week that was the first week, we've experienced cancellations, where we actually went backwards with the pace.
And ever since then it's gotten gradually better but that really freak the market out, particularly on the national front. So we've been kind of taking things one week at a time ever since.
Im still an optimist I still think the balance of this year is going to play out like we like we planned it.
Again, we have to see that play through Latin America is doing really well Asia for US is doing really well broadcast has got.
The political overhang that not returning this year. So we'll just have to content through that and then national has been choppy and as National goes So does the broadcasting business. So we're just going to have to see how that plays out Jeff do you have anything.
At <unk>.
Add to that James is that I'm really proud of our local sales teams on both TV and radio.
<unk> been able to get to their numbers on in the first quarter and we do think that some central side of the business that we control more of that that will be strong throughout the year via our local sales force has been amazing through this whole process, they've been really resilient and very focused.
Led by Karl and his team.
Okay, Great just one follow up Jeff you mentioned.
On the audio side that Spanish is outperforming the market any sense of how the television advertising is doing versus the market EMEA. My assumption is the financial related pullback hit the general market is as much if not more Spanish, but just any color there might be helpful.
James There too I would say when we look at local we are ahead of the marketplace. When we look at National I think we're probably a little bit behind the marketplace. Because unfortunately, usually on advertisers when they pull back they pulled back there.
Multicultural advertising first before they go to the general market.
Oh, Okay great.
And then to add to that.
I thought I saw Paramount TV numbers, where they were give or take a minus eight for the quarter and certainly that wasn't what our TV did so.
If thats one bullet point for the comparison between drill Morgan Spanish, albeit.
Okay.
And then.
In terms of.
Uh huh.
I saw there was a change I think in the contingent consideration.
During the quarter.
Affected the.
Cash flow reconciliation.
Chris If you could just give an update it looks like the.
The non.
Noncontrolling interest that's around $14 million at the end of the quarter, what's the contingent consideration for the contingent consideration ended up being.
Adjusted to the upside and Thats because the performance of a couple of our digital platforms underperformed what the original expectation was so as that happens that adjustment gets made to that line item, which basically means we have to pay this out or less once the payment comes due.
But there's nothing there's no one silver bullet answer to that it was a handful of platforms that underperformed relative to relative to budget and.
That's a test thats done quarterly right, so that will ebb and flow every quarter as we go.
Okay. So just in terms of my balance sheet I should be reducing what you add for that.
By the amount that you showed in your income statement Thats exactly right James.
From the end of last year, Okay great.
And.
Again.
Yes, I guess the only other thing was just the outlook.
At <unk>.
I know Michael asked.
That a little bit.
Any particular things Youre looking for.
In terms of that business.
Or just kind of what I consider the legacy business at all going forward or is it just.
Largely a matter of just waiting out the comps on crypto and Fintech.
Their work, they're focused on the gaming industry.
They are hyper focused on the gaming industry and Thats, starting to really come online for them, but they do have those tough comps and I think those tough comps are going to outweigh what theyre doing with that gaming vertical until the second half of the year.
Okay.
Thanks, very much thanks, James I appreciate it.
Yes.
Again, if you have a question. Please press Star then one on.
Our next question will come from Edward Bryan Lee with <unk>.
You May now go ahead.
Hi, Thanks for taking my question.
Most of my questions are covered so I just have one.
On the move to the Santa Monica Office.
Just wondering how much maybe you're expecting to save from move.
The temporary offices you are in right now.
Oh versus the temporary offices, so the problem with that move that's come up is that move is now six months behind schedule in part due to COVID-19 related delays in getting permits and whatnot. So that line item alone is going to cost us probably an incremental million and a half and rent for the first half of the year that was <unk>.
<unk>, it's unfortunate but it is what it is we're just cycling through that.
Once we get everyone back under the same roof, we're looking to save at least call. It a half a million bucks a year.
And rent expense.
Plus.
What's the right thing to do to bringing everybody under the same roof, where both here in L. A we've been hearing for for decades, and we just felt it was time to to bring everybody together here in L. A so it's the right move from an operation standpoint, it's the right move from a financial standpoint.
Yes.
Got it.
Thank you.
Okay.
Our next question will be a follow up from Michael Kaplinsky with noble capital markets.
You may now thank you.
Thank you just a quick question, Chris I know that you entered into some developmental markets with your digital agency business and I was just wondering if you can give us some thoughts about the profitability of those that you entered and maybe the growth trajectory of what Youre seeing and I know that incrementally it's not as big as maybe.
Your Latin American business, but maybe just kind of give us some thoughts about how those business and the trajectory of revenue and cash flow are looking for those developmental markets you entered.
Sure. So Mongolia is going really well so far it's ramping up it's tough to put a number on it on an annualized basis, but I'll try.
Maybe a $3 million to $4 million market by the end of the day at the end of year, one, but we're really pleased with it.
Ghana is the other market, it's a bit more challenging to operate in Ghana, It's probably a two $5 million to $3 million market as it stands today.
But we continue to work on that angle. The good news is these are really test markets for meta for us and as we execute in those markets.
The hope for US is obviously do more with meta going down the road.
And as we execute in these markets.
The expectation is that we'll be doing even more markets.
And I know Theyre pretty lean in terms of the operations. There are they are they already profitable or they are close to being profitable at this point.
Mongolia is profitable has been since day, one Ghana is not yet profitable probably won't be profitable for year I'd say in Ghana.
Gotcha, Okay, alright, thank you thank.
Thank you.
Our next question will come from David Marsh with singular research.
You May now go ahead.
Yes.
Hey, guys congrats on the quarter.
Quickly.
Can you just talk about the acquisition landscape and what some of the types of things that you might be looking at an interesting point.
Sure. We're looking at digital deals both domestic here in the U S and internationally.
Complementary to our existing digital platforms.
And there is a couple of broadcast opportunities here in the U S that we're looking at.
No.
Kind of in line with our existing broadcasting footprint.
Spanish language.
And that's what we're looking at.
Specifically within within Radian since Chris.
Just saw that.
I've been a couple of transactions recently.
D C based company acquired coupled.
Could you talk about valuation.
You are seeing in the relative attractiveness of those valuations.
Valuations for radio.
Yes.
Oh, I'd say valuations for radio a five to six times on a good day and I hope as you have enough synergies to make that a three or four times deal. Once it's all said and done but to be clear there are a handful of deals, but they've been tiny and it's hard to glean anything from any kind of valuation multiple with deals that <unk>.
Is that just really small deal.
There aren't a lot of buyers in the radio space right now as you can imagine.
Right.
Yes.
Yes.
Question is kind of my question in that.
Are you seeing.
Any potential like distressed sellers out there that might give you some opportunities to pick up some assets.
Fairly attractive valuations.
It is possible and the short answer to that is yes, but.
Look the opportunity has to be really compelling for us to put more capital for radio but.
But yes.
There are a few sellers out there are at least a few potential sellers out there who have got balance sheets that are burden and theyre looking for relief. So.
What we'll we'll look at all the opportunities that are out there, but again, it's got to be really compelling for us to put more capital on the radio.
Sure that makes a lot sense. Thanks appreciate it.
Thank you.
Okay.
This concludes our question and answer session I would like to turn the conference back over to Chris Young for any closing remarks.
Thank you Anthony and thanks, everyone for joining US today, we look forward to sharing with you our progress on our second quarter earnings call. In August I also hope to see some of you next week at the Es Hutton Conference in New York.
Everyone be well and we'll talk to you soon thank you.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.