Q2 2019 Earnings Call
Good afternoon, and welcome to the Entravision second quarter 2019 conference call.
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I would like now I would now like to turn the conference over to Mr. Walter you all that.
CEO . Please go ahead Sir.
Thank you Nancy.
Good afternoon, everyone and welcome to Entravisions second quarter 2019 earnings Conference call.
Joining me on the call today is Jeff Lieberman or President COO, and Chris Young our executive Vice President and Chief Financial Officer.
Before we begin I must inform you that this conference call will contain forward looking statements that are subject to risks and uncertainties that could cause actual results to differ please refer to our SEC filings for a list of risks and uncertainties that could impact actual results.
This call is the property of Entravision Communications Corporation, any redistribution retransmission or rebroadcast of this call in any form.
Without the expressed written consent of Entravision Communications Corporation is strictly prohibited.
Also this call will include non-GAAP financial measures. The company has provided a reconciliation of these non-GAAP financial measures to their most directly comparable GAAP measures in todays press release. The press release is available on the company's wasn't website and was filed with the FCC on form 8-K.
Our second quarter results were in line with our expectations with increased revenues at our TV Division.
Being offset by a decrease in revenues at both our digital and radio segments.
Looking beyond the general business environment, our balance sheet continues to be solid with approximately $166 million in cash and marketable securities on the books for US is a total debt of 245 million.
During the quarter. We were also active in buying back our stock with approximately 439000 shares repurchased at an average price of $2 or 95 cents per share.
We also continue to return capital to our shareholders.
Our quarterly dividend.
Were very proud of our local TV news teams in Denver, San Diego in Washington, D.C. In these three markets. We have won a total of 444 Emmys, we'll update you on the next call about our additional Emmys, and Orlando Macallan and El Paso.
Now turning to our financial performance revenues decreased 7% to 69.2 million in the second quarter.
Consolidated operating expenses were down 1% and consolidated EBITDA.
Adjusted EBITDA was 12.6 million compared to 14.9 million last year free cash flow, which we defined in our press release was 1.9 million compared to 8.9 million last year.
You could do to Capex related to the FCC <unk> television repack and this years second quarter.
Turning to our television segment operating results television revenues were up 4% during the second quarter compared to the prior year period.
Advertising revenue was down 7% during the second quarter, primarily due to lower national sales National advertising revenue was down 10%, while local advertising revenue was down 4% compared to last year's second quarter period.
Retransmission revenues.
<unk> remained flat during the second quarter compared to the same quarter in the prior year.
Revenue generated from spectrum usage rights totaled $4 million during the second quarter arising primarily from non advertising revenues.
Related to a service agreement with a local telecom operator, as well as spectrum leasing initiatives or multi cast.
Excluding retransmission spectrum usage rights and political revenues core television advertising revenues were down 4% with local down 3% and national down 5% during the quarter.
Automotive advertising was down 1% for our television segment and represented approximately 31% of our total television advertising revenue.
We saw an increase of 5% in tier two the expenditures that were offset by declines in both tier one and tier three.
The growth in tier two was a result of increased spending by Ford Dealers Association General Motors, Chevy dealers and Gulf Coast Honda dealers.
Beyond automotive top 10 advertising categories that generated growth during the second quarter were services, which increased 2% media, which was up 2% travel and leisure up 5% restaurants were up 2% and telecom increased 50, 57%.
Telecom growth as a result of 18 to increasing their spending by 583% in the quarter.
Overall, we added 32, new advertisers, who spent more than $10000 during the second quarter, which totaled approximately $784000 and advertising revenue.
Notable new brands in the second quarter included San Diego gas and electric Tenet, healthcare, and California, and the California Department of Health services.
Turning to our ratings performance, our Univision television stations built Uh huh.
Upon their market leadership in May 2019 for adults 18 to 49 in early local news our Univision television stations finished ahead of their Telemundo competitor in 13 of 17 markets, where we have head to head.
Local news competition.
Additionally.
Adults 18 to 49, our early local newscasts are ranked number one or two against English and Spanish competitors in 10 markets. Our late local newscasts are ranked number one or two against English and Spanish competitors in eight markets regardless of language.
During a full week, our Univision and when he must television stations combined have had a cumulative audience of 4 million persons two plus in our markets combined compared to Telemundo 3 million persons two plus we have 33% more viewers than Telemundo in our Univision and only modest television footprint.
During weekday prime time, when compared comparing to all stations in total we had higher ratings that at least one of the big four network networks in 10 markets. Among adults 18 to 49 and adults 25 to 54 and in 12 markets.
Adults 18 to 34.
Turning to our audio division audio revenues revenues were down 70% during the second quarter compared to the prior year local revenues were down 9% and national revenues decreased 28% in the quarter, excluding political core radio revenues were down 16% in the second quarter.
There were two carry key areas that contributed to this decline in national revenue. The first is in Los Angeles, where we combine kilowatt why along with KFC and Cassidy to form a superstation, which based on Nielsen audio simulcast rules can be combined into one set of call letters.
Based on this change we saw a decline in national revenue.
With the change in format national agencies need to see results skews the four to six months prior.
To placing national spot business on the station we are pleased to announce that our Jose station has already built its audience ranking as the number one Spanish language radio station in the Metro during morning drive an afternoon drive among Hispanic adults 18 to 49 and Hispanic adults 25 to 54 for the month of June 2019, Jose also ranked as the number one Spanish language radio station in Prime among Hispanic adults 18 to 49 and number two among Hispanic adults 25 to 54 for the same time period.
With this continued success, we expect to see better national spot results in our audio business in the second half of 2019.
The other area that contributed to the National revenue decline was our radio network, our national our network Nash and nationwide ratings, which are released two times a year saw declines.
[noise] excuse me.
These declines led to lower revenues for Q2.
Our affiliate stations along with our owned and operated stations have seen an increase in ratings that will be reflected in the spring release delivered to the industry in late summer.
Besides iridiums increase that we are seeing we also have added a number of affiliate stations to our lineup that will help us strengthen the overall ratings of our radio network. This will position us well for the radio upfront in October .
Service has our largest advertising category for audio was one or two categories of saw an increase in spending in the quarter improving by 3% paid programming saw a 4% increase in spending increase in services came from increased spending by May 10 law firms freeway insurance and Geico direct all other categories were down including auto.
Overall, our audio business added 17, new advertisers, who spent more than that that $10000. During the second quarter, which total approximately $446000 in advertising revenue notable new brands in the second quarter included a reduction in insurance Metro link and tenants health care.
Looking at our audio division ratings performance in spring 2019, among adult among Spanish language radio stations or afternoon drive. It allows me electrical lot that show is ranked number one in seven of eight of our eight markets released for spring among Hispanic adults 18 to 49.
And Hispanic adults 25 to 54.
Hi profile shows El Genio, Lucas and will show the appealing anchor our morning drive and mid day time period, unless we're able to see the network and Anna Jose in Los Angeles, and Riverside Spurt for spring 2019, Peel lean ranked as the number one Spanish language mid day show in six out of our nine markets released among Hispanic adults.
18 to 30, 418 to 49 and 25 to 54 and ship it to show. They can you Lucas was ranked number one or two among Spanish language radio stations in six out of eight markets. Among Hispanic adults 18 to 49 and the spending adults 25 to 54.
Now, let's talk about our digital business for second quarter digital revenue saw a decrease of 18% versus the same period last year. Obviously this was disappointing. It is no news at the marketing and media landscape has changed more in the last five years and the previous 50.
With most of the focus pointed to digital channels total digital AD spend it is growing at a fast pace and many companies in the industry are adapting their strategies around these dramatic shifts entravision is no stranger to that trend.
The reduction in digital revenues, mostly associated to a growing trend among advertisers are moving their investments to programmatic buys and seeking more transparency and control over their budgets. We're also seeing a higher demand for content marketing and unique solutions that provide consumers with experiences beyond pure transactional buys.
These shifts hubs have affected some of our top digital products, such as mobile performance and AD network results.
In order to adapt these trends we are currently undergoing a significant restructuring of our digital division.
The objective of this change is to achieve greater profit margins and efficiencies by providing meaningful and holistic solutions to our clients through a more aligned product offering.
Through our newly aligned digital structure, we are focusing on finding solutions to the current challenges of the industry.
By investing in products that have been delivering results and removing those that are not delivering results.
Significant focus isn't developing smadar, our proprietary demand side platform. So that entravision can engage with the increasing programmatic demands. This platform continues to grow at a steady pace as currently generating 30% of our digital.
AD revenue.
There are short and mid term plans to evolve our smacks technology to place it front and center of our media offering in the U.S. and internationally.
We're also putting more focus on our digital audio business are you engage would just laugh, which has seen an 82% revenue increase when compared to the first quarter of 2019. We have also seen 161% increase in profit things too in innovation in our programmatic business model analytics and expansion in our publisher agreements that are driving positive changes in margins regarding our own no audio solutions. We are seeing solid results through our in house third party distribution alliances.
Delevering over 6.7 million hours of content to over a 900000 users.
Our podcasts initiative is playing a major role in the success story.
As we are growing our content offering and have seen downloads climb to 1.8 million in Q2, which represents represents a 36% increase over the first quarter.
We we strongly feel that staying close to our local communities continues to be a paramount importance and we are happy to report that in Q2.
We reached over 12.2 million fans, delivering 6000 stories and 107 million video views from Entravision owned and operated digital touch points as I mentioned before the need for media companies to provide value to customers through consumer can experience the driving entravision just to spearhead a digital transformation the objective of providing a more holistic solution to our advertisers.
Our approach is to offer reach throughout the companys different touch points as to as opposed to selling the silo and experiences that stay with within just one of our platforms for us the future is omni channel.
Turning now to our basis for the third quarter to our television business is currently pacing at at a plus 2% in the third quarter. Our audio advertising revenue is currently pacing down 14% in the third quarter digital revenues are currently pacing down 14%.
Too.
On revenue for the company is pacing down 5% for Q3 versus last year.
In summary, our second quarter results were largely in line with our plans and we remain on track in executing our strategy to further build on our unique audience reach and targeting capabilities, while proactively managing our costs.
As we execute our multi platform strategy and strategically invest in our content and distribution assets, we remain committed to maximizing our performance in enhancing our cash flows to the benefit of our shareholders I will now turn the call over to Chris to take you through the numbers. Thank you Walter and good afternoon, everyone.
As Walter has discussed net revenue for the quarter was down 7% at 69.2 million compared to 74.3 million.
In the same quarter of last year.
Operating expenses decreased 1% to 43.2 million and consolidated adjusted EBITDA decreased 15% to $12.6 million.
For the quarter revenues in our TV segment were up 4% to 38.1 million compared to 36.5 million in the same quarter of last year.
The increase in our TV segment revenue was primarily attributable to revenue generated from spectrum usage rights, which totaled $4 million during the second quarter arising primarily from non advertising revenue related to a service agreement with the local telecom, operator, and spectrum leasing initiatives and an increase in national advertising revenue, partially offset by decreases in local advertising revenue and political revenue.
[noise] retransmission consent revenue for the quarter was 9.1 million and was flat over the prior year period.
Radio net revenue for the quarter was down 17% to 14.4 million compared to 17.2 million in the same quarter of last year.
The decrease in our radio segment was primarily due to decreases in local and national advertising revenue as well as the absence of World Cup revenue achieved in the prior year period.
Digital net revenue for the quarter was down 18% to 16.8 million compared to 20.6 million in the same quarter of last year.
The decrease was primarily due to a growing trend of digital advertising moving over to programmatic platforms in recent months, both domestically and more recently in international markets.
Operating expenses decreased 1% to $43.2 million for the three month period ended June Thirtyth 2019 from $43.8 million for the prior three month period.
The decrease was primarily attributable to a 10% decrease in our radio division expenses arising from certain expense control measures. The company undertook in April of last year, partially offset by a 1% increase in operating expenses at our TV Division and a 9% increase at our digital division arising primarily from severance costs.
Corporate expenses for the quarter were up 4% to 6.5 million compared to $6.3 million in the same quarter of last year.
The increase was primarily due to an increase in audit fees relating to our late filing of our 10-K for the 2018 period.
Income tax expense was 2.3 million for the quarter, while cash taxes actually paid was $1.3 million.
Earnings per share for the quarter were a negative 19 cents compared to five cents per share in the same quarter of last year.
This is primarily due to an impairment charge related to our digital goodwill.
Excluding the impact of this one time and non cash charge EPS was seven cents per share.
Free cash flow as defined in our earnings release decreased to 1.9 million for the quarter compared to $8.9 million.
The same thing would have last year.
This decline was primarily driven by a higher than usual capex capital expenditures during the quarter associated with the relocation of our station channel positions in conjunction with the FCC broadcast auction.
Net cash interest expense was 2.5 million for the quarter.
As well and as it was at the same quarter of last year cash capital expenditures for the quarter were $7.9 million compared to $2.7 million in the prior year period.
Excluding capex expected to be reimbursed by the FCC, we anticipate that our capex capital expenditures will be approximately 14.5 million during the full year 2019.
Turning to our balance sheet as of June 32019, our total debt was 244.8 million and our trailing 12 month consolidated adjusted EBITDA was 52.9 million.
Cash and marketable securities on the books was 166 million as of June Thirtyth.
Net of 75 million of unrestricted cash on the books, our total leverage as defined in our 2017 credit agreement was 3.213 0.21 times as of 630 19.
Net of cash and marketable securities total our total net leverage was 1.49 times. This concludes our formal remarks Walter.
Jeff and I will now be happy to take your questions Nancy I'll turn it back over to you for questions.
Thank you we will now begin the question and answer session.
You asked a question you May press Star then one on your telephone keypad, if youre using a speakerphone. Please pick up your handset before pressing the keys.
To withdraw your question.
Please press Star then too.
At this time, we will pause momentarily to assemble our roster.
And our first question comes from Michael Kupinski from Noble capital markets. Please go ahead Sir.
Thank you first I was wondering in the digital media segment. If you can break down for me where.
You're seeing the most trouble and good headway that pulpo and since you did take an impairment charge and anticipate that you're looking for slower growth in that business.
I was wondering if you can obviously you're going to be cycling against your strategy over the course of the next year, but kind of looking forward. If you can give us your thoughts on whether or not this division can begin to grow based on the current environment that you're seeing or is it that you have to maybe make a few acquisitions to kind of bolster the current business to have a more a broader product suite to offer advertisers.
So Michael it's Walter HM.
The to answer the first question the.
Of our two digital units.
Headway saw the.
The biggest decline.
And that was.
You know just attributable to the changes that I spoke about in my remarks about more and more advertisers moving to programmatic away from our mobile brain.
For additional product in addition to that we did.
Weve you know, what we're looking at the business and into <unk>.
Comedy and assessing it and.
And making and taking.
<unk> girlfriend both.
We're on a a better track in a in the third quarter and a we're doing.
A couple of managing expenses as I've said.
With us on snacks.
Which is our you know machine learning artificial intelligence, a programmatic product and and that seems to be.
So I I believe that that for four headway in particular.
Second second half will be will be better than the first half. We are we are being more prudent about the business that we take in terms of camp.
<unk> to make sure that we're producing the proper margin but.
But I I, we remain confident in the business. We continue to look for to answer. Your other question. We continue to look for for those tuck ins that will enhance are.
The platform Smacks was one we're looking perhaps at a supply side platform that a that would also give us more.
Okay more robust a digital platform and just overall so you know.
Well I mean, I have great confidence in the business and and we think that this is just.
Part of the process here of the of getting back to growth.
Thanks for that and I was just wondering all Walter I know that you set parameters on how much you think that digital revenues would contribute to total company revenues.
Do you have any thoughts in terms of updating that prospect or your goals for the digital segment going forward.
Well I just answer it this way I mean, we want I mean, our goal is to get our digital business to 30% of total revenue and.
Tracks in here in in the first half, but we.
We expect to get back to that that target I'm here in the second half that said, we're also being I said, we're being careful in terms of the business that we take to make sure that.
Engage in are going to give us the right margins.
Gotcha, and then in terms of.
Just in a on the TV side, if I could turn to that for a second the pacing data that you gave the 2% growth for TV does that include the spectrum.
Agreements service agreements as well.
It does Michael it includes all revenue streams multi casts one offs with the mobile telecom and advertising and Retrans.
Gotcha and in terms of just the core business. What are you seeing it is auto the problem because I know that auto as a percent of total.
Advertising revenues tend to be higher for you than even some of the English language TV stations and.
Can you just kind of give us your thoughts on where auto is what autos doing.
And as a percent of total revenues more particularly.
As how how big of a category is it now for you.
Auto for the second quarter as a category for TV was down 1%, Michael which is basically flat kind of in line with where the rest of the.
And its representing about 31% of our total TV.
Business, so it's kind of concern.
For Q3 auto is pacing at a minus three so a slight at two point drop but still relatively resilient compared to what I think is happening in the industry in general.
This this sector is concerned everyone knows it's ours are coming down things seems to be cooling off with the spending seems to be pretty consistent quarter.
Gotcha and in spite of some weak revenues you guys have been kind of generating some pretty strong cash flow.
And this is a reflection of your expense reduction efforts.
How how do you see that in the second half can you just kind of give us some thoughts on.
When you might start to cycle against some of the expense save cost that you've already taken beginning of last year.
Sure you know for for radio I'll, just break it out segment by segment give you. Some some some high level color I mean radio generally speaking for the second half of the year should be kind of a flattish range.
Because we are cycling up against that a change that we made.
Back in the second quarter of last year and the same goes for TV kind of in the flattish range. If you blend both Q3.
<unk>.
Yeah, just just a follow up on that point digital we should be seeing slightly easier comps.
On the expense side so flat.
And and Chris I think that you may have mentioned that there were some further opportunity there might be some further opportunity to cut cost and radio and maybe in other areas.
Have those initiatives already been factored into your thoughts on the expenses or is that a prospect that might.
Might be a positive surprise, that's still all of that work is still on paper, we've not we've not finalized any decisions on that front, yet Michael but were still up we're still optimistic that there are more expense savings to come.
Gotcha, Okay. That's all I have thank you.
Thank you.
Thank you Michael.
Again, if you had a question. Please press Star then one.
We have a question from Mr. Gordon Hodge from Tracker research. Please go ahead.
Hi, Good afternoon, I'm just had a couple of questions one I apologize, but Ah wealth right.
My phone I think God garbled, when you were giving out the audio pacings in the digital pacings and I was wondering if you wouldn't mind repeating those.
Oh, so digital for for third quarter third quarter, Yes, corn is facing a minus 14.
And then audio.
Oh audio was minus 14 as well.
Oh it was okay great.
So I guess a couple of things one is just I was wondering on Retrans, you know given that that.
Innovation was back on dish in I believe for the full.
Second quarter I was just curious on the Retrans trends for you is that a function of your arrangement with the innovation. It. The fact that it's flat rather than up a little bit.
Or is that a function of a sub losses elsewhere.
No. It's really a function of last years 9.1 million Gordon we had some true up payments totaling about Oh, that's right.
Oh, it's artificially high as your comp.
You know going forward the comps get easier because we took about a.
Call it almost.
Almost a million Bucks a quarter out in both Q3 and Q4 that we now have back in.
You should have some <unk> some meaningful growth year over year for the back end of the year.
Okay terrific and then.
Last two I guess, one Walter I'm wondering if you could just expand a little bit on that.
The change in the way that local markets are being managed and Organised I think that was announced yesterday, maybe just talk us talk us through a little bit what what's changing and sort of how what the approaches at the local level.
Well, we made a you know a few changes here in the left of.
A couple of months starting with.
The naming of Karl Meyer as.
Head up our media group revenue.
And Carl doing a great job.
Expected Karl is it says as we've elevated the edema lenders to the.
The president of local media and Eddie is is is it. His responsibility is to oversee are all call. It 10 largest markets <unk> for local.
And as well as both both broadcast local and digital local and then we just one Navarro who used to work with US a few years back just return to the company and one's going to be responsible for all call. It our mid to smaller markets.
In total one report the Eddie Eddie reports to Carl and then of course, Claudio Santana is Ah oversees our national and she'll report to.
To Carl as well and as will a cutting this or not and Uh huh.
<unk>.
Also Jessica Martinez.
Oh, who oversees our local digital effort will report.
We're very pleased with the with the way Carl's restructured the AR.
Broadcast on <unk> and local digital sales effort, we think we're going to be on the right. We're on the right track now and we expect a you know even stronger results.
Have they made any concrete changes to this to the way the sales is or does it or they combining.
Is it a multimedia sales approach or is there any any change there's a tool early early to talk about will certainly if there's definitely more emphasis on on multimedia you know a more holistic approach.
So yeah, there's definitely a greater emphasis on on digital.
And.
Combining that went the other way with our other marketing solutions like television and radio obviously.
Okay Perfect and then last question just as it relates to M&A I you made a small acquisition in the.
Yeah, I guess post the second quarter dystrophy curious, it's quite small I know, but I'm just curious what the plan is for that and then.
There are a number of sort of opportunities you know a rising one of <unk>.
Which is with Univision and I'm just curious if you think there might be some opportunity if they were to sell off the parts as opposed to sell off the entire company.
Whether you would that would present some opportunities for you.
Well you know we have a close working relationship with Univision, we certainly I understand.
Yes platform well you know their their local TV and radio.
The process. It just started a in terms of whatever strategic alternatives there.
If there's an opportunity along the way for us to increase our particularly our television portfolio.
And then any comments on the Texas TV acquisition, Yeah. We just made the announcement we are filing what the FCC.
We're going to wait for the FCC to rule on that you know and give us the green light that we do have plans for it but I think we want that process to play itself through before we announce what the plans are Gordon fair enough. Thanks very much. Thank you all tax Gordon.
And we have a follow up question from Mr., Michael Kupinski from Noble capital markets. Please go ahead.
Thank you just one other question some of the broadcasters better Bari reported have indicated that they were actually seeing political being booked even before the presidential election. I was wondering if you have any visibility on political certainly the prospect for you in the fourth quarter or maybe with some primary dollars or kind of maybe that might flow in are you seeing political being booked at this point or is it still a little too early.
No not yet Michael it's still early.
We do have you know.
Don't have it in our budgets for sure, but Oh, we do have expectations that we'll see fourth quarter political.
No the California primary has been moved up to March so, we <unk> and that's going to be a very competitive primary and certainly in California, whoever wins, California could could.
So we expect to see sense and.
The movement.
Gotcha. Okay. Thank you that's all I have thank you Michael Thank you.
This concludes our question and answer session.
I would like to turn the conference back over to Mr., Walter you Hola for any closing remarks.
Thank you Nancy.
Thank you everyone for participating.
Second quarter 2019, Investor Conference call.
We look forward to speaking to all of you in November when we will announce our third quarter results.
Thank you.
The conference is now concluded. Thank you for attending today's presentation. You may now disconnect enjoy the rest of your day.
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