Q3 2023 Entravision Communications Corp Earnings Call
Greetings, everyone and welcome to the Entravision third quarter 2023 earnings Conference call.
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As a reminder, today's conference call is being recorded its now my pleasure to introduce your host Kimberly Orlando Investor Relations. Thank you you.
May begin.
Thank you operator, good afternoon, everyone and welcome to the Entravision its third quarter 2023 earnings conference call.
Joining me today are Michael Christiansen, Chief Executive Officer, Chris Young 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 Entravision 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 express 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.
In addition, all pro forma figures noted throughout the prepared remarks include the contributions of various acquisitions to the prior year period.
Yes releases available on the company's website and was filed with the SEC on form 8-K I.
I will now I'll turn the call over to Chris Young.
Thanks, Kim and thank you all for joining us this afternoon.
Jeff and I will cover our third quarter financial performance and we will then turn it over to Mike to discuss central vision as key focus areas and capital allocation priorities.
Let's begin with an overview of our third quarter results on a consolidated basis, we had a record quarter advertising revenue of $274 4 million up 14% year over year slightly below our previously disclosed pacings, a plus 15%.
Our digital segment revenue was $231 5 million for the quarter up 23% year over year.
The main drivers were our commercial partnerships business with revenue up 19%, our mobile growth solutions business, which saw revenue increased 19% and various acquisitions, which did not contribute to revenue in the full comparable periods.
Both our programmatic and digital audio businesses were up modestly year over year.
On a pro forma basis digital revenues improved 18% compared to the prior year period.
During the quarter digital operating cash flow was approximately $10 3 million with a margin of approximately four 5%.
Next I'd like to highlight two new partnerships, we recently executed to further diversify our digital operations with match and Pinterest.
September Entravision was named the exclusive sales partner to match media the group the powers ads for brands, such as Tinder Okcupid and match across Africa.
Through our local team of experts on the ground in South Africa, we were able to more effectively assist customers to deploy their advertising investments more efficiently to drive sales growth.
Subsequent to quarter end in October we entered in an international sales partnership with Pinterest to offer advertisers outreach and campaign management in various countries, where pinterest has not been serving ads across South East Asia, Latin America Africa, Europe, and the Middle East we.
We look forward to partnering with these marquee brands and continuing to grow our portfolio of digital solutions.
I will turn the call over to Jeff to discuss our television and audio business segments Jeff.
Thank you, Chris Let me start with our television segment television revenue was $29 $6 million in the quarter down 17% compared to prior year period, primarily due to declines in political revenue as we face difficult comparisons versus last year, a strong political revenue performance of $6 4 million.
While we saw continued pressure on national advertising spending our local television business remained fairly resilient as our team has been doing a great job executing in a challenged environment.
On a more granular basis core television revenue increased 1% local core revenue increased 7% and national core revenue decreased 14% a year over year.
Retransmission revenue for the quarter was $8 $9 billion, which was flat year over year operating cash flow margin for our TV segment was 35 per second for the quarter.
We saw growth in the auto category of 14% in the quarter compared to the same period last year. This growth was propelled by tier two and tier three spending. Unfortunately this growth was offset by declines in media and entertainment and retail.
While softness on the National advertising front has persisted into October we expect to see improvement in political spending in the fourth quarter. The Nevada primary election is on February six and the political window for this primary opens on December 24th Besides Nevada, there will be key elections in states like California.
Arizona, Colorado, and Texas, which all have primaries in the first quarter of 2024.
Now, let's shift to audio audio revenue totaled approximately $13 $4 million for the quarter and decreased 19% year over year decline in revenue was driven by lower national and local advertising revenue as compared to the third quarter of 2022.
Which included non returning political advertising revenue of $1 $5 million on a core basis, excluding political total revenue was down 11% with local revenue down 11% and national revenue was down 10%.
Just on the current economic conditions as I said earlier, we expect political spending to increase which will help support our national sales efforts.
I'll turn the call back to Chris to discuss the third quarter financials and fourth quarter pacings in further detail Chris. Thanks, Jeff, let's begin by reviewing our expenses cost of revenue in the quarter totaled $199 3 million up 27% from $157 1 million in the prior year period and was driven by the <unk>.
Increase in our digital segment revenue.
On a pro forma basis factoring in recent acquisitions, which did not contribute to cost of revenue in the prior year period cost of revenue increased 23%.
Operating expenses in the quarter totaled $53 8 million up 9% from $49 3 million in the prior year period. This increase was driven by various factors, including higher noncash stock based compensation as a result of the timing of the annual RFU Grant being in Q1 of this year compared to Q4 in the prior year increase.
Increased expenses associated with higher digital advertising revenue higher salary expenses.
And the result of various acquisitions in 2023, which did not fully contribute to our financial results in our digital segment in the prior year period on a pro forma basis cash operating expenses increased 4% compared to the prior year period.
Corporate expenses increased by 40% to total $13 3 million for the quarter compared to $9 5 million in the same quarter of last year, which is mainly a result of the timing of the annual <unk> Grant I, just mentioned as well as in resi grant to our CEO and increases in professional service fees.
Consolidated adjusted EBITDA totaled $14 2 million for the quarter down 45% from 26 million in the prior year period. The decline was primarily driven by non returning political revenue at our broadcasting business and sales mix free.
Free cash flow as defined in our earnings release was $4 million in the quarter were conversion rate of 28% of consolidated adjusted EBITDA compared to $15 4 million in the same quarter of the prior year net.
Net cash interest expense was $2 8 million for the quarter compared to $1 9 million in the same quarter of last year.
Cash capital expenditures for Q3 totaled $5 million, we expect cash capex to total roughly $17 5 million for the full year.
Cash paid for income taxes was $2 3 million for the quarter compared to 4 million paid last year.
Diluted earnings per share for the third quarter 2023 were <unk> <unk> compared to <unk> 11 in the same quarter last year. Our board of directors also approved a quarterly five cent dividend.
Turning to our balance sheet cash and marketable securities as of September 32023 totaled $128 7 million total debt was $211 1 million, our total leverage as defined in our credit agreement was two one times at the end of the third quarter net of total cash and marketable securities our total net leverage.
Was one one times.
As we turn to our current pacings for the fourth quarter of 2023, it's important to note that we booked approximately $19 1 million in political revenue in the fourth quarter of last year that will not return this year.
$14 8 million of that was on television and $4 2 million of that was on radio with a balance of approximately $100000 being booked on digital.
As of today revenue from our digital segment is pacing plus 15% over the prior year factoring in acquisitions or digital segment on a pro forma pro forma basis is pacing plus 13%.
Our television segment is pacing minus 32% over the prior year period with core TV advertising, excluding political booked in the prior year pacing at a plus 1%.
Lastly, our audio segment is pacing at a minus 30% over the prior year period with core audio again, excluding political booked in the prior year quarter pacing at a minus 11% all in our total revenue compared to last year is pacing at a plus 4% on a pro forma basis. Our total revenue is pacing.
Currently at a plus 5% I will now turn the call over to Mike for concluding remarks.
Thanks, Chris.
So as you've heard from Chris and Jeff, We're working hard to finish 2023 with good momentum.
And we're in the process of building our plans for 2024.
2024, it will be a very important year for entravision, our priorities for the year will be.
First to maximize our political revenue.
We have a large audience nearly one in five of the 62 million Latinos in the U S or in our television and radio broadcast markets.
This is a critical audience for the 'twenty 'twenty four elections Congress the sand.
And presidential we cover five of the 20 closest states in the 2020 presidential race.
Second we're investing to increase our local news capacity, adding morning news in all of our markets and weekend news in San Diego, Las Vegas and Denver.
And then third we'll be very focused on improving the operating performance of our three of our three digital businesses Entravision digital services semantics, and Entravision mobile growth solutions.
For our capital allocation plans for 2024, our most important allocation is our dividend.
We are committed to the dividend.
Then after covering the dividend the balance will be reinvested in our business is we are making investments in adding AI and machine learning capabilities to our technology businesses, particularly <unk> and also applying those capabilities to how we manage and analyze all of our.
Businesses.
Again, 'twenty 'twenty four will be an important year for entravision.
However, I think it's important to remind everyone that all of our businesses are correlated with global AD spending and this will likely be a challenging year from an economic and geopolitical perspective.
So with that we want to thank you for joining us today and for your support of Entravision.
And now we'll open up the call to take your questions.
Ladies and gentlemen, we will now begin our question and answer session to ask a question you May Press Star and then one using a touch tone telephone.
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Once again that is star and then one to ask a question, we'll pause momentarily to assemble the roster.
Our first question today comes from Michael Pinsky from Noble capital markets. Please go ahead with your question.
Thank you. Thanks for taking my questions. Good afternoon, a couple of questions political advertising I noticed some presidential political advertising already being spent in Florida, which is kind of unusual at this time of the year, but.
Can you talk a little bit about political in the fourth quarter I know that you gave guidance in terms of your pacing is down 30% or so but you know.
What how much of that is political and then can you give us your thoughts about the level of political in 2024.
So Michael we're expecting somewhere between 300 and $400000 of political in the fourth quarter as I said in my remarks earlier, we do have some very key states that are coming up with <unk>.
Primaries in the first quarter of next year, especially in Nevada, which is a very contested race and that political window actually opens up on Christmas Eve. This year. So we're expecting to see a ramp up of political spend probably right. After the Thanksgiving break.
We move forward into the primary election in the state of Nevada, and Michael since we gave out pay so only as of today, that's obviously not 100% factored in we are running some presidential campaign.
Campaigns now.
But that pace is that reflective of stuff that they break late in the quarter.
And finally as Chris has mentioned by them is already spending in the Nevada market place.
Gotcha, and I know that you have several development metal markets in your digital business, but can you talk a little bit about the margins I know that you indicated in the past that the improving digital margins was a priority for the company was wondering if you could talk a little bit about the progress on that front and where do you anticipate margins to be.
Sure we did a cash flow margin for digital was four 5% and third quarter, that's down a smidge from four 7%.
In the second quarter, we are getting to get north of 5% in the fourth quarter right now the way the revenue is coming in we feel pretty comfortable with that number and then obviously, we're still going through budgets here for 2024, and so that that's going to be a work in progress, but obviously the goal is to continue to ramp that higher.
Gotcha, and then I know that in the winter.
When we talked a little bit about the Facebook and some of the changes that you had there do you indicated that there might be some additional markets that Facebook might.
Give you and I was just wondering if you if you kind of finish those discussions in other way.
And if you have if you can kind of give us some thoughts about what markets you're likely to get from Facebook and then also the market opportunity from those markets.
No no nothing to announce as of right now it's still a work in progress and we'll keep the market updated as that continues.
Gotcha.
And then on the broadcast side, the auto being a real key component to somewhat what's driving some of the the the core advertising is that the largest king.
Can you just kind of give us a flavor of what you're you're outside of the political on T V. What's driving the core revenue.
So auto was up 14% for the quarter, it's back some of our largest segment even with the strike.
What we're noticing is born out of auto manufacturers are stepping in to take market share as a way to win.
The weakness of the U S on the U S auto side with the strike that they're looking to capitalize on our unique situations, that's really what drove auto in the quarter to 40% for TV.
It's also you know that was tier two and tier three.
So thats you know the dealer associations and also the local local car dealerships in our marketplaces and you get asked from a category standpoint, Besides being positive in auto. We also just to get the services category go up a little bit in health care also.
Gotcha, and then Theres a lot the last question I promise.
There's a lot of distress broadcasters out there.
They're obviously not in a financial position like you are.
Is there any any thoughts in terms of M&A at this point or is the concentration still going to be on the digital or would you take a look in the broadcasting side.
2024, it's going to be about focusing on our own internal businesses.
The the work to expand and cover the the political opportunity. We think is going to take a lot of time and attention and money.
And then we want to improve the operating performance of the digital portfolio that we have today. So that's what we're focused on for 2024, we'll get through 2024, and then figure out where we go through that from there.
Thanks, Mike that's all I have thank you.
Thank you.
Our next question comes from James Dix from industry Capital Research. Please go ahead with your question.
Thanks very much.
Just looking at the topline for the moment I mean looking across your three segments.
How is how is demand in the quarter versus your expectations and then how is how is that looking in the fourth quarter versus your expectations I'm, just curious as to where youre seeing the variances versus what you thought and what what might be driving that.
Yeah, well the sales rep as James was up 19% in the quarter, we were pretty pleased with that that's really being driven by Latin America.
And so far that's that's come down a little bit so far in the quarter looking more at a low teens pace for fourth so thats come down a little bit.
Otherwise you've got a mobile growth and branding were both up double digits. That's generally in the 10% range. So then you've got our brand new unit adds marae, which was up close to 40%. So that should give you some color behind the digital moving parts.
Okay, Great and then I.
I think in the past you'd spoke.
Spoken about you know focus on organic growth initiatives.
As distinct from M&A and things like that.
My understanding was that was primarily on the digital side.
Any color you can offer on on what types of initiatives, you're you're thinking about in timing and things like that.
So in our you know as we said.
Pretty much all of our energy right now is on political.
It is a very big.
Piece of our business in 2024, we're also expanding our news capacity. So we're adding are adding news.
Several of our markets morning, and a weekend.
So that that's important and then.
Again, as I said earlier, focusing on improving the performance of our three core digital businesses.
Okay.
And then just speaking of political.
B for you Chris when when.
When you look at the core.
Like for last year for example, should we be assuming that all of that was incremental and how you're calculating it would almost seem to me like you were making some assumption that it wasn't all political and that's how we should think you'd be thinking about the base for calculating core growth now and I feel with.
I'd go with core growth at 100, the political being 100% incremental.
Okay.
That's okay.
So we should pull all of that all of last year's out in coming up with debates for assessing the pacings I think I think that's right, yes, Okay and then like for next year I mean, obviously.
Potentially much bigger year any thoughts as to how we should be thinking about or how youre thinking about the incrementally of that when kind of gauging. The return on the investments you're going to be making to get more political will.
Well certainly we're going to have some markets that are going to have crazy political and the expectation is that core is going to be down as a result, because you just cant jam that much political in such a short amount of time, so, but but again.
You know, it's just easier to think about this as being 100% incremental in the midterm election, we did a really good job managing our core versus political too and were.
All focused on doing the same thing in the upcoming election.
Okay, and then I guess finally, just internationally just.
Since your global just trying to get some sense as to like what what what countries and regions are have been outliers, you either positively or negatively in terms of your growth.
Yeah, I've got Latin America was up in third quarter, 18% Asia was up 24% Europe was up 19% Africa was down close to 30%.
And then in the U S on the digital side it was up 1%.
And then we also do some business in the middle East as well and that was up above Forex, but that's that's our jackup digital business in Pakistan.
Okay and are you seeing much change in terms of the you know the.
Mix of the growth across those geographies as you look towards the end of the year or is that should we be looking for somewhat something similar.
Yeah, I think as you look into Q4, I think all of those regions have come down a little bit Q4 versus Q3.
In general So maybe you could take it down a couple of points, but clearly, particularly with meta meta did in Latam something to the tune of I think Latam and they break out Latam Africa and the Middle East They were plus 30 for the quarter, we did a plus 18 so.
It's still the growth versus they did a plus seven or eight in the U S. So it's still in our markets Facebook meta is still the growth engine.
These regions and we expect that to continue.
Okay, great. Thanks, so much.
Thank you.
Our next question comes from Mike <unk> from Yes Hutton. Please go ahead with your question.
Oh, Yeah, Hey, guys. Thank you for taking my question just a couple quick ones I wanted to dive back in I guess to the that kind of sector level. You know you mentioned that auto services I think health care have all been.
Showing good trends I mean on the flip side of that is there anything standing out or any pockets of weakness that you're seeing or maybe even just kind of give us a sense of the variation between what you're saying at a top level, which I guess, maybe auto and in sectors that are underperforming.
Yeah. So you know from from.
The categories are not performing as we would like them to be it's really travel and leisure as the retail is also.
Restaurants.
So a lot of those have to do with the economic conditions that we're in.
Got it okay. Thanks, and then just to dive back into 2024 priorities more specific like capital allocation.
You know reinvesting to drive organic growth you mentioned expanding news capacity you mentioned AI, maybe you could talk just give us a sense of how you intend to use the AI or maybe just add a little bit more color into that and then you know in terms of just capex needs in 2024.
Historically high this past year as expected right and I mean kind of.
You're expecting that to really be the same in the next year come back down more towards <unk>.
Historical levels I guess.
Yes, Capex I'll cover Capex will be more normalized next year in the $11 million to $12 million range down from where it is this year because of the move that we did here in Los Angeles.
Hmm.
And then the AI question I think in a really in all of our digital business is AI and machine learning are now a critical part of the capabilities of the products that we deliver to our advertisers. So we have to.
We have to invest to be competitive in all of those businesses are at or even to establish some competitive differentiation. So that that's across the board having committed to making that investment, but we're also doing is saying can it apply to other areas of our business can we operate the company.
More efficiently and more smarter using those capabilities. So like every company. This is this is now a critical area of investment and we need to keep up.
Yes, I guess, it's regarding the internally with operational efficiencies.
Is this something you're just you're kind of looking into have you identified ways I guess, where you you believe that you can implement AI technology.
And find efficiencies and importantly, we are doing we are.
Implementing and improving in our tech businesses, So informatics and our mobile growth solutions, it's that that work has been underway for.
Probably more than a year at this point and we've definitely put more behind it in the last quarter and it'll be an important area of investment for us.
Again in 2024.
The application of that to broader entravision, including how we manage our broadcast businesses. That's that's just that's a new effort that'll be something that we do in 2024 again, if we're going to have this capability, we're going to use it in as many places as we can.
Right right. Okay. Thanks, and then Mike just.
You've been here for.
A few months that really had a chance to kind of.
<unk> under the Hood I know, it's a fluid process, but just I guess very broadly any any major learnings or surprises as you've had a chance to dive in here that you know you think it's worth sharing.
It's a great company with a lot of opportunity I'm more excited now after finishing my quarter and getting to know the people in the businesses and I'm very optimistic about what we can accomplish in 2024 so.
Anytime you go into a new situation, there's pluses and minuses in my case, the Plusses have definitely outweighed the minuses and I'm excited about the opportunity.
Great. Thanks, guys. Thanks. Thank.
Thank you.
And our next question comes from Chris Sakai from singular Research. Please go ahead with your question.
Yes, I am.
And for Dave Marsh.
Can you talk about.
For political ad spending.
Which which of the three segments.
We performed the best.
Yes, TV by far and away and I've said this publicly we've got an internal budget of about $40 million for political next year. It's a budget, we'll see how we do vis vis budget, but tv's should be good for about 30 of that radio should be good for the other 10, and maybe we'll do a couple of hundred Grand in digital but it is.
Really ATV driven process.
Okay, Great and then.
Can you just talk about any any potential acquisitions that youre seeing out there.
Not in 2024.
2020 core is going to be about organic growth and improving our operations.
Can you talk about.
Your digital revenue in it.
So can you talk about why.
And what should we be expecting there over the next couple of quarters.
Well, we've been very acquisitive over the past several years and to Mikes point, where we're in right. Now we're just working on harmonizing those acquisitions and driving up margins, but really the growth would come from.
The acquisitions that we've been active with for the past four or five years.
Plain and simple okay, great. Thanks, Thanks for the answers.
Sure thing.
Yeah.
And ladies and gentlemen, with that we'll be ending today's question and answer session I'd like to turn the floor back over to Michael Christensen for any closing remarks.
Just wanted to thank you all for joining us today and for your support of Entravision. We look forward to sharing further details on our progress with you on our fourth quarter earnings call, which will be in March. So thank you.
Ladies and gentlemen, with that we'll conclude today's conference call and presentation and thank you for joining you may now disconnect your lines.