Q2 2024 Entravision Communications Corp Earnings Call

Greetings and welcome to the Entravision second quarter 2024 earnings conference call. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Roy Nir, Vice President Financial Reporting and Investor Relations. Thank you. You may begin.

Operator: Thank you. You may begin.

Speaker Change: Good afternoon, everyone, and welcome to Entravision's second quarter 2024 earnings conference call. Joining me today are Michael Christenson, Chief Executive Officer, and Mark Boelke, Chief Financial Officer.

Operator: Before we begin, I must inform you that these constants calls 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 will also 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 investor relations page and was filed with the SEC on Form 8K. I will now turn the call over to Michael Christianson.

Speaker Change: 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.

Speaker Change: Please refer to Entravision's SEC filings for a list of risks and uncertainties that could impact actual results.

Speaker Change: This call will also 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.

Speaker Change: The press release is available on the company's investor relations page and was filed with the SEC on Form 8K. I will now turn the call over to Michael Christenson.

Michael Christenson: And thank you to all of you for joining us on this call today. In our second quarter of 2024, we completed the transformation that we outlined for you in our first quarter report. We reached an agreement to divest our digital platform representation business to a left group, and we closed that transaction on June 28th. The transaction included all of our digital platform representation operations, including those in Latin America and Asia. More than 320 people in 32 countries serving a dozen digital advertising platforms.

Michael Christenson: Thank you, Roy. And thank you to all of you for joining us on this call today.

Michael Christenson: In our second quarter of 2024, we completed the transformation that we outlined for you in our first quarter report.

Speaker Change: We reached an agreement to divest our digital platform representation business to a left group, and we closed that transaction on June 28th.

Speaker Change: The transaction included all of our digital platform representation operations, including those in Latin America and Asia.

Speaker Change: More than 320 people in 32 countries serving a dozen digital advertising platforms.

Michael Christenson: Earlier in the second quarter, on May 6th, we sold our controlling 51% interest in AdsMirai, a marketing technology and services company based in Barcelona, to our partners, who own the other 49%. That transaction involved another 350 people in two countries.

Speaker Change: earlier in the second quarter on May 6th.

Speaker Change: We sold our controlling 51% interest in AdsMirai, a marketing technology and services company based in Barcelona, to our partners who own the other 49%.

Speaker Change: That transaction included another 350 people in two countries.

Michael Christenson: These actions represent a positive step forward for Entravision. We now have the opportunity to focus on our core U.S. media business at a critical time as we navigate the unprecedented changes in the broadcast industry. Entravision is a trusted source of news, information, and entertainment for our Latino audience.

Speaker Change: These actions represent a positive step forward for Intravision. We now have the opportunity to focus on our core U.S. media business at a critical time as we navigate the unprecedented changes in the broadcast industry.

Speaker Change: EntroVision is a trusted source of news, information, and entertainment for our Latino audience.

Michael Christenson: This is an audience that we have served for three decades. We have made significant investments this year to expand our news production capabilities and the amount of news that we provide for our audience. We now have morning, midday, early evening, and late news in all of our markets, and we have weekend, early evening, and late news in San Diego, Las Vegas, Denver, El Paso, and McCallon Tech. We've also invested in our sales organization to build a team that can engage directly with political decision makers and educate them about our audience and how Entravision can help them reach that audience. 1 in 5 of the Latinos in America are in our broadcast market.

Speaker Change: This is an audience that we have served for three decades.

Speaker Change: We have made significant investments this year to expand our news production capabilities and the amount of news that we provide for our audience.

Speaker Change: We now have morning, midday, early evening, and late news in all of our markets. And we have weekend early evening and late news in San Diego, Las Vegas, Denver, El Paso, and McAllen, Texas.

Speaker Change: We've also invested in our sales organization to build a team that can engage directly with political decision-makers and educate them about our audience and how Entravision can help them reach our audience.

Speaker Change: One in five of the Latinos in America are in our broadcast markets. We believe our audience will be critical to determining the outcome of the 2024 elections and future elections.

Michael Christenson: We believe our audience will be critical to determining the outcome of the 2024 elections and future elections. In addition to our investments in U.S. media, we are also making significant investments in our remaining advertising technology and services businesses, Smatics and Adway, to improve their platform and operational capability. Both of these businesses are now growing faster than their industry growth rates, and they are profitable. These combined actions are all good for Entravision.

Speaker Change: In addition to our investments in U.S. media, we are also making significant investments in our remaining advertising technology and services businesses, Smatics and AdWake.

Speaker Change: to improve their platform and operational capabilities. Both of these businesses are now growing faster than their industry growth rates and they are profitable.

Michael Christenson: They put us in a stronger financial position with positive momentum. We're excited about the opportunities ahead, and we are looking forward to building value for our company and our shareholders. Now, I'll pass the call over to Mark Boelke, our CFO, to provide the financial report.

Speaker Change: These combined actions are all good for EntroVision. They put us in a stronger financial position with positive momentum. We're excited about the opportunities ahead, and we are looking forward to building value for our company and our shareholders.

Mark Boelke: As Mike stated, during the second quarter of 2024, Entravision completed the sale of our global sales representation business, known as Entravision Global Partners, or EGP. As a result of this sale, financial results for EGP are reported in our financial statements as discontinued operations for both the second quarter and prior period, and I will review second quarter financial results for our continuing operation. On a consolidated basis, revenue for the second quarter was $82.7 million, up 12% compared to the second quarter of 2023.

Mark Bulkey: Now, I'll pass the call over to Mark Bulkey, our CFO, to provide the financial report.

Mark Bulkey: Thanks, Mike. As Mike stated, during the second quarter of 2024, Entravision completed the sale of our global sales representation business known as Entravision Global Partners, or EGP.

Mark Bulkey: As a result of this sale, financial results for EGP are reported in our financial statements as discontinued operations for both the second quarter and prior periods, and I will review second quarter financial results for our continuing operations.

Mark Boelke: The increase was driven primarily by our digital segment and political advertising revenue in our television and audio segment, partially offset by decreases in overall advertising revenues, Spectrum Rights Usage Revenue, and Retransmission Consent Revenue. I'll now review each of these operating segments.

Mark Bulkey: On a consolidated basis, revenue for the second quarter was $82.7 million, up 12% compared to the second quarter of 2023.

Mark Bulkey: The increase was driven primarily by our digital segment and political advertising revenue in our television and audio segments.

Mark Bulkey: Partly offset by decreases in overall advertising revenue, Spectrum writes the usage revenue and retransmission consent revenue.

Mark Boelke: Starting with our digital segment, revenue for the second quarter was $41.1 million, up 36% compared to the second quarter of 2023. The growth in the digital segment was driven primarily by SmatX, our programmatic ad purchasing platform, and AdWake, our mobile growth solutions business. During the second quarter, operating margin for the digital segment was 6% compared to negative 1% in the second quarter of 2023. Operating margin on net revenues minus the cost of revenue was 16%. Compared to negative 2% in the second quarter of 2023.

Mark Bulkey: I'll now review each of our operating segments. Starting with our digital segment, revenue for the second quarter was 41.1 million dollars, up 36% compared to the second quarter of 2023.

Mark Bulkey: The growth in the digital segment was driven primarily by SMATX, our programmatic ad purchasing platform, and AdWake, our mobile growth solutions business.

Mark Bulkey: During the second quarter, operating margin for the digital segment was 6% compared to negative 1% in the second quarter of 2023.

Mark Bulkey: operating margin on net revenues minus the cost of revenue was 16% compared to negative 2% in the second quarter of 2023.

Mark Boelke: The improvement in digital segment operating margins was attributed to better performance and margins in semantics and ad way. Looking ahead to the third quarter, revenue from our digital segment is currently facing plus 17% compared to the third quarter of 23. Moving on to our television segment, revenue for the second quarter was $28.6 million, down 5% compared to the second quarter of 2023. The decrease in television revenue was driven by decreases in overall advertising revenue.

Mark Bulkey: The improvement in digital segment operating margins was attributed to better performance and margins in somatics and AdWave.

Mark Bulkey: Looking ahead to the third quarter, revenue from our digital segment is currently pacing plus 17% compared to the third quarter of 23.

Mark Bulkey: Moving on to our television segment, revenue for the second quarter was $28.6 million, down 5% compared to the second quarter of 2023.

Mark Bulkey: The decrease in television revenue was driven by decreases in overall advertising revenue, spectrum rights usage revenue, and retransmission consent revenue, which was partially offset by increased political advertising revenue.

Mark Boelke: Spectrum Rights Usage Revenue, and Retransmission Consent Revenue, which was partially offset by increased political advertising revenue. During the second quarter, television segment operating profit was $3.1 million, down 59% compared to the second quarter of 2023. Operating margin was 11% and part of 25% during the second quarter of 2023. As we discussed in our last investor call, the decline in television operating margins was primarily due to our decision to expand our local news operations beginning in January 2024.

Mark Bulkey: During the second quarter, television segment operating profit was $3.1 million, down 59% compared to the second quarter of 2023. Operating margin was 11% compared to 25% during the second quarter of 2023.

Mark Bulkey: As we discussed in our last investor call, the decline in television operating margins was primarily viewed or decision to expand our local news operations beginning in January 2024.

Mark Boelke: We made this strategic decision in order to provide more local news and information to our audiences and to provide more opportunities to generate additional revenue and connections with highly valued news inventory, particularly for political advertising during election years. As a result of this decision, we hired 70 additional news employees, and as Mike mentioned, we now provide news in the morning, midday, early evening, and late night in all of our Univision, Fox, and NBC markets, as well as weekend news in five key markets. We now produce more than 280 hours of local news per week across our television portfolio.

Speaker Change: We made this strategic decision in order to provide more local news and information to our audiences and to provide more opportunities to generate additional revenue in connection with highly valued news inventory, particularly for political advertising during an election year.

Speaker Change: As a result of this decision, we hired 70 additional news employees, and as Mike mentioned, we now provide news in the morning, midday, early evening, and late night in all of our Univision, Fox, and NBC markets, as well as weekend news in five key markets.

Speaker Change: We now produce more than 280 hours per week of local news across our television portfolio.

Mark Boelke: For the third quarter, revenue from our television segment is currently pacing plus 9% compared to the third quarter of 23, and we currently expect that pace to increase as political advertising takes up throughout the quarter. Turning to our audio segment, revenue for the second quarter was $13 million, down 4% compared to the second quarter of 2023. This decrease was primarily driven by a decrease in overall advertising revenue, partially offset by an increase in political advertising revenue.

Speaker Change: For the third quarter, revenue from our television segment is currently pacing plus 9% compared to the third quarter of 23. And we currently expect that pace to increase as political advertising picks up throughout the quarter.

Speaker Change: Turning to our audio segment, revenue for the second quarter was $13 million, down 4% compared to the second quarter of 2023.

Speaker Change: This decrease was primarily driven by a decrease in overall advertising revenue, partially offset by an increase in political advertising revenue.

Mark Boelke: For the second quarter, Audio Segment Operating Profit was $1.9 million, up 21% compared to the second quarter of 23. The audio segment operating margin was 15% compared to 12% for the second quarter of 23. The increase in our audio segment operating margin was primarily due to saving the rent expense related to our move from a stand-alone operation facility into our corporate headquarters and a decrease in variable expenses associated with a decrease in advertising revenue.

Speaker Change: For the second quarter, audio segment operating profit was $1.9 million, up 21% compared to the second quarter of 23.

Speaker Change: Audio segment operating margin was 15% compared to 12% for the second quarter of 23.

Speaker Change: The increase in our audio segment operating margins was primarily due to savings in rent expense related to our move from a stand-alone operations facility into our corporate headquarters and a decrease in variable expenses associated with the decrease in advertising revenue.

Mark Boelke: We've taken steps to strengthen our audio content and radio station footprint that we believe will provide stronger ratings and advertising revenue. For example, we've had a 10-year partnership with the NFL as the exclusive Spanish-language audio home in the U.S., and this week, we announced that we expanded and extended this relationship for another three years. And we believe the NFL continues to see the value and power of connecting with our audiences.

Speaker Change: We've taken steps to strengthen our audio content and radio station footprint that we believe will provide stronger ratings and advertising revenue.

Speaker Change: For example, we've had a 10-year partnership with the NFL as the exclusive Spanish-language audio home in the U.S.

Speaker Change: And this week, we announced that we expanded and extended this relationship for an additional three years. And we believe the NFL continues to see the value and power of connecting with our audiences.

Mark Boelke: For the third quarter, revenue from our audio segment is currently pacing flat compared to the third quarter of last year. Similar to our television segment, we currently expect this pace to increase as political advertising picks up throughout the quarter. Corporate expense for the second quarter was $10.8 million, a decrease of 10% compared to the second quarter of last year. This decrease was primarily due to decreases in professional services expenses and non-cash stock-based compensation. Partly offset by an increase in severance pay, resulting from recent changes made to the corporate structure.

Speaker Change: For the third quarter, revenue from our audio segment is currently pacing flat compared to the third quarter of 23. Similar to our television segment, we currently expect this pace to increase as political advertising picks up throughout the quarter.

Speaker Change: Corporate expense for the second quarter was $10.8 million, a decrease of 10% compared to the second quarter of 2003.

Speaker Change: This decrease was primarily due to decreases in professional services expenses and non-cash stock-based compensation, partially offset by an increase of severance expense resulting from recent changes made to our corporate structure.

Mark Boelke: Turning to our balance sheet, we had a total of $88.3 million in cash and marketable securities as of June 30, 2024; our indebtedness under our credit facility at quarter-end was $187.8 million. During 2024, we have prepaid $20 million of our bank debt, including a prepayment of $10 million during the first quarter and an additional $10 million during the second quarter. Under our credit agreement, our leverage ratio is calculated net of $50 million in cash.

Speaker Change: Turning to our balance sheet, we had a total of $88.3 million in cash in marketable securities as of June 30, 2024.

Speaker Change: Indebtedness, under our credit facility at Quarter End, was $187.8 million.

Speaker Change: During 2024, we have prepaid $20 million of our bank debt, including a prepayment of $10 million during the first quarter and an additional $10 million during the second quarter. Under our credit agreement, our leverage ratio is calculated net of $50 million of cash.

Mark Boelke: And as of June 30, 2024, our leverage ratio under our credit agreement was 3.0 times. Calculating our leverage ratio at a total cash and marketable securities, our total net leverage was 2.2 times. Leveraged calculations under our credit agreement are based on consolidated EBITDA for the trailing four quarters, and consolidated EBITDA for 2nd quarter 24 was $10.5 million.

Speaker Change: And as of June 30, 2024, our leverage ratio under our credit agreement was 3.0 times.

Speaker Change: Calculating our leverage ratio, net of total cash in marketable securities, our total net leverage was 2.2 times.

Speaker Change: Leveraged calculations under our credit agreement are based on consolidated EBITDA for the trailing four quarters, and consolidated EBITDA for second quarter 24 was $10.5 million.

Mark Boelke: Cash Capital expenditures during this second quarter were $2.0 million, representing 11% of net cash provided by operating activity, compared to 78% during second quarter 23. Cash Capital expenditures for the year-to-date period of January through June 2024 were $4.7 million, representing 9% of net cash provided by operating activities compared to 32% for the prior year period. The higher cap X during 2023 was driven primarily by the buildout of our new office headquarters, which was completed in the third quarter of 2023.

Speaker Change: Cash capital expenditures during the second quarter were $2.0 million, representing 11% of net cash provided by operating activities, compared to 78% during second quarter 23.

Speaker Change: Cash capital expenditures for the year-to-date period of January through June 2024 were $4.7 million, representing 9% of net cash provided by operating activities, compared to 32% for the prior year period.

Speaker Change: The higher CapEx during 2023 was driven primarily by the build-out of our new office headquarters, which was completed in the third quarter of 23. Capital expenditures are expected to be approximately $7 million for full year 2024.

Mark Boelke: Capital expenditures are expected to be approximately $7 million for full year 2024. During the second quarter, free cash flow, defined as cash provided by operating activities, less cash capital expenditures, was $15.7 million, compared to $2.3 million in the second quarter of 2023.

Speaker Change: During the second quarter, free cash flow, defined as cash provided by operating activities, less cash capital expenditures, was $15.7 million, compared to $2.3 million in second quarter of 2023.

Mark Boelke: We paid four and a half million dollars in dividends to stockholders in the second quarter, or five cents per share, representing 25% of our net cash provided by operating activities. We paid $9 million in dividends to our stockholders in a six-month period year-to-date, or $0.10 per share, representing 18% of our net cash provided by operating activities during the period. Our Board of Directors has approved a $0.05 dividend per share for the third quarter of 2024, which will be payable on September 30th to stockholders of record as of September 16th, 2024, for a total dividend payment of $4.5 million.

Speaker Change: We paid $4.5 million in dividends to stockholders in the second quarter, or $0.05 per share, representing 25% of our net cash provided by operating activities.

Speaker Change: We paid $9 million in dividends to our stockholders in the six-month period year to date, or 10 cents per share, representing 18% of our net cash provided by operating activities during the period.

Speaker Change: Our Board of Directors has approved a $0.05 dividend per share for the third quarter of 2024, which will be payable on September 30th to stockholders of record as of September 16th, 2024, for a total dividend payment of $4.5 million.

Mark Boelke: This concludes our call. Thank you for joining us. If you have questions, please connect with us through the Investor Relations page on our website, where you will also have access to the transcript of this call, the press release about our results, and a copy of our Form 10Q, which has been filed with the SEC. We welcome feedback and input from our shareholders, and we look forward to hearing from you.

Speaker Change: This concludes our call. Thank you for joining us. If you have questions, please connect with us through the Investor Relations page on our website, where you will also have access to the transcript of this call, the press release for our results, and a copy of our Form 10-Q , which has been filed with the SEC.

Speaker Change: We welcome feedback and input from our shareholders and we look forward to hearing from you. Thank you. Operator?

Operator: This concludes today's teleconference. You may disconnect your lines at this time, and thank you for your participation.

Speaker Change: This concludes today's teleconference you may disconnect your lines at this time and thank you for your participation.

Operator: Good afternoon, everyone, and welcome to Entravision's second quarter 2024 earnings conference call. Joining me today are Michael Christenson, Chief Executive Officer, and Mark Belky, Chief Financial Officer.