Entravision Communications Corporation

Good afternoon and welcome to IDTRAvision's first quarter 2020 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touch-tone phone. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Walter Ulloa, Chairman and CEO. Please go ahead.

Thank you, Grant. Good afternoon, everyone, and welcome to Entrevision's first quarter 2020 earnings. I hope everyone is staying healthy and safe in these difficult times. Joining me on the call today is Jeff Lieberman, our President and COO, and Chris Young, our Chief Financial Officer. Before we begin, I must inform you that this conference call will contain forward-looking statements that are subject to risk 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. The call is the property of IntraVision Communications Corporation. Any redistribution, retransmission, or rebroadcast of this call in any form without the express written consent of the company. 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 gap measures in today's press release. The press release is available on the company's website and was filed with the SEC on Form 8K. Our first quarter results were affected by the COVID-19 pandemic and the resulting economic crisis late in the first quarter, which resulted in declines in our broadcast and digital segments compared to the prior year. However, we did achieve growth in our television segment compared to the first quarter of 2019, as we've benefited from a healthy political advertising from presidential primaries across the country. We expect a significantly greater adverse impact in future periods, depending on the extent and duration of the economic turndown arising from the pandemic. So we have undertaken an extensive review of our business to efficiently align operations and reduce costs. I'll walk you through the various actions we have undertaken later on In beyond this extremely difficult business environment, our balance sheet today continues to be solid with approximately $134 million in cash and marketable securities on the books versus a total debt of approximately $217.5 million. For financial performance, revenues decreased 1% to $64.2 million in the first quarter. Solidated operating expenses were down 6%. Solidated adjusted EBITDA was up 20%. to $9.7 million compared to $8.1 million last year. Free cash flow was up 304% to $5.2 million compared to $1.3 million. Interesting to note that in early March, we were forecasting 70% EBITDA growth for the quarter, our largest percentage growth in a quarter in our history. Fortunately, our revenue started to unravel across all our platforms as we entered the second week of March and the COVID crisis accelerated. Turning to our television segment, operating results, television revenues in the first quarter up 2%, 9.2 million compared to the prior year period, primarily due to 5.3 million in political advertising in the quarter, slightly offset by the absence of approximately 3.9 million in non-recurring spectrum-related revenue in the prior period last year. National advertising revenue was up 34%, while local advertising revenue was down 1%. On a core basis, first quarter TV advertising revenue excluding political was down 6% during the quarter. National down 9% and local down 3%. First quarter retransmission revenues were up 9%, 9.6 million compared to the same quarter last year. Taking a look at some of our major ad categories in the first quarter, automotive, our largest advertising category, was down 12% and represented approximately 24% of our total television advertising revenues. The impact of the COVID-19 virus has been significant to the automotive sector as U.S. manufacturing has been closed or production significantly reduced. Many dealerships have looked to navigate to online traffic to substitute for foot traffic. U.S. April auto sales are expected to be negative 43% compared to April 2019, and the full year outlook has been revised to a range of 12.7 million to 14 million auto units sold annually. compared to $16.8 million in 2019. Unlike the 2008 recession, this crisis has not yet led to lower prices, but special financing and record-level incentives are expected to continue. Services, our second-largest category, was up 15% in the quarter, while media was down 9% and healthcare was up 7%. Turning to our ratings performance, television affiliates built upon their market leadership in the February 2020 sweeps. Adults 18 to 49 in early local news, our Univision television stations finished ahead of their Telemundo competition in 12 of 17 markets where we had head-to-head competition. In late local news, we finished ahead of Telemundo competitors among adults 18 to 49 in 10 of the 17 markets where we compete. Additionally, our early local newscasts are ranked number one or two against English and Spanish competitors in eight markets. Our late local newscast ranks number one or two against English and Spanish competitors in seven markets. The whole week, our Univision and Unimas television stations combined have a cumulative audience of 4.1 million persons two plus compared to Telemundo's 3.2 million persons two plus. We have 25% more viewers than Telemundo in television footprint. Turning to our audio division, audio revenues were down 2% during the first quarter. compared to the prior year. Local revenues were down 8%, while national revenues were up 11% in the quarter. Core radio revenues, excluding approximately $1 million in political sales in the quarter, were down 11% in the first quarter. Venture Vision concluded our live audio coverage of the NFL with a broadcast of the Super Bowl live from Miami, Florida. This was the fifth season of our relationship with the NFL and our best-performing season. 2019-2020 season saw an increase in audio revenue of 25% over our performance in the 2018-2019 season. Our NFL Spanish rights extend through the 2020-21 season. Our services, our largest advertising category for audio, improved its spend with our audio platform by 18% over the prior year period and represented approximately 29% of our total audio revenue. The increase in services came from increased spending by several large law firms in the L.A. marketplace. Auto was the second largest ad category for audio, representing 17% of the total audio revenue and was down 20% in the quarter compared to last year. Looking at our audio division ratings performance for winter 2020 among Spanish-language radio stations, the Rasno y la Chocolata show is ranked number one in seven of our nine markets, including Los Angeles, released for the winter book. among Hispanic adults 18 to 49, including Thais. Across our nine owned and operated radio stations, the Erasmo y la Chocolata show reached more than 619,000 Hispanics 18 to 49. Let's talk about our InterVision digital businesses. Earlier this week, we announced the launch of InterVision Digital, which consolidates our digital media, consumer insights, and marketing technology businesses under the InterVision brand. As many of you know, we have prudently built a portfolio of digital assets over the past five years that possess digital reach, data insights, and creative and programmatic capabilities. This includes statics, a programmatic mobile-first DSP solution, audio-engaged and audio advertising platforms, scroller ads, and optimized video advertising marketplace, data expand and international data management platform, and audience marketplace with consumer insights, and our US Hispanic marketing solutions for SMB national advertisers. Venture Vision Digital brings these businesses into a unified solutions offering that provides advertisers and agencies a single source to engage consumers globally. Businesses have a successful track record of connecting content and technology with targeted audiences, and the performance and branding capabilities of this marketing technology platform will continue to be an exceptional component to our complement to our television, radio, and digital media assets serving the United States market. For the first quarter, digital revenues were $13.3 million, which represents a decrease of 8% versus the same period last year. This decrease is directly related to the current COVID-19 pandemic. One bright spot during the quarter for digital was our digital audio business, which improved its performance during this crisis. We have been able to expand our offering through third-party distribution and gain momentum with our unique content offering. Digital Audio has proven to be a solid business unit for IntraVision over the past few quarters, boasting a 15% increase in both margins and revenue growth in the first quarter when compared to the same quarter last year. Our demand-side platform, Smatics, also continues to show growth as we have seen an increase in revenue of 41% from this product when compared to the same period last year. The COVID crisis has also affected this business, and we have had to pivot in terms of our client base so we could serve clients and verticals less impacted by the pandemic. Because of the flexibility offered by having our own technology, we're working hard at expanding our sales force in the United States to accelerate growth. In less than a month, we have strengthened our U.S. sales crew, and it has already closed three new campaigns and created dozens of new opportunities. We are expecting to see positive results from this business unit in the upcoming quarters as we continue to focus on mobile app promotion, value-added services, and programmatic. In short, while the Digital Division's first quarter was affected by the coronavirus outbreak, we are excited about expanding our footprint in our local markets as well as the new prospects and technology advancements led by SMATICS in the United States. In return to our outlook on the near term, it is important to remember that the majority of regions where InterVision operates have been in lockdown mode since the middle of March. while our digital operations in Spain have been locked down since February. On the positive side, our TV ratings are up significantly as the world shelters in place to combat the virus. The negative side, of course, is that most of our advertisers are also under lockdown, causing a significant dislocation of our advertising revenue across all our advertising platforms. While some regions globally have begun the process of gradually returning to the workplace, Given the uncertainty of both the timing and the economy opening back up and the length of the recovery, we have extremely low visibility on our future operations. Today, our television advertising business is pacing minus 36%, our radio business is pacing minus 50%, and our digital is pacing minus 33% for the second quarter. We've taken several difficult steps to weather this health and economic crisis. They include the following. Temporary reduction of our workforce by approximately 18%. Company-wide reduction of salaries for those still on the payroll ranging between 2.5% and 22.5% based on compensation levels. The cancellation of our stock buyback program. The reduction of our dividend to shareholders by 50%. And lastly, the reduction or elimination of various expenses that are broadcast in digital units as well as corporate. The culmination of these cost reductions will result in a year-over-year fixed cost reduction in the second quarter of approximately $6.2 million across our television, audio, and digital platforms, as well as corporate expense. Also, while we hope the world returns to work as soon and safely as possible, should it be necessary to maintain these cuts beyond the second quarter, the effective impact of doing so would result in an additional $14 million in fixed cost reduction over the third and fourth quarters versus prior year period. In summary, our first quarter results were modestly improved from a cash flow perspective. We might be negatively impacted by the COVID-19 pandemic. While there's no doubt the second quarter will be extremely difficult, to weather the pandemic, we've taken the necessary steps to ensure our survival in these difficult times. I will now turn the call over to Chris.

Thank you, Walter, and good afternoon, everyone. As Walter has discussed, net revenue for the quarter was down 1% to $64.2 million. compared to $64.7 million in the same quarter of last year. Operating expenses decreased 6% to $40.3 million, and consolidated adjusted EBITDA increased 20% to $9.7 million. For our TV division, rated revenues in the first quarter increased 2% to $39.2 million, primarily due to approximately $5.3 million in political revenue for the quarter. Excluding political and $3.9 million in non-recurring spectrum-related revenue in the prior year period, core TV ad revenue was down 6% for the quarter. Retransmissing consent revenue for the quarter was $9.6 million and was up 9% over the prior year period. Radio net revenue for the quarter was down 2% to $11.7 million compared to $12 million in the same quarter of last year. Decrease in our radio segment was primarily due to decreases in both national and local advertising revenue. Core radio revenues, excluding approximately $1 million in political revenue in the first quarter, were down 11%. Digital net revenue for the quarter declined 8% to $13.3 million compared to $14.5 million in the same quarter of last year. The improvement was primarily due to declines at our international headway unit offset by a 13% increase at our U.S. digital unit. Operating expenses decreased 6% to $40.3 million for the three-month period ended March 30, 2020, from $42.7 million in the prior year period. The decrease was primarily due to an 18% decrease in our audio expense 11% decrease in our digital expense, slightly offset by a 5% increase at our TV division, arising from an increase in commissionable revenue and severance costs. Corporate expenses for the quarter were down 1% to $6.8 million compared to $6.9 million in the same quarter of last year. The decrease was primarily due to a decrease in audit-related fees in prior year, partially offset by an increase in legal fees. Consolidated adjusted EBITDA improved 20% to $9.7 million over the prior year, Free cash flow, as defined in our press release, increased 304 percent to 5.2 million. During the quarter, due to the onset of the current economic crisis, we updated our internal forecast of future performance and determined that triggering events had occurred that required interim impairment assessments related to goodwill, FCC assets, and fixed assets. As a result of these assessments, we recognized a one-time non-cash impairment charge totaling $39.8 million across all three of our business segments in Q1. As a result of the impairment, income tax expense was actually a benefit of $1.7 million for the quarter, while cash taxes paid was $145,000. Earnings per share for the quarter were a negative 42 cents compared to two cents per share in the same quarter of last year. Excluding the one-time impairment charge, EPS was two cents per share. During the quarter, the company paid a cash dividend of $0.05 per share to shareholders of the company's Class A, B, and U common stock. The total amount of cash disbursed for the dividend was $4.2 million. The company announced today that due to the ongoing pandemic and the related economic uncertainties that have impacted our business, the director has decided to temporarily reduce the quarterly cash dividend by 50% to $0.025 per share to shareholders of the company's common stock payable on June 30, 2020. The total amount of cash to be disbursed for this quarterly dividend will be approximately $2.1 million. The Board intends to revisit this temporary dividend reduction next quarter as we continue to review economic conditions. Also during the quarter, we repurchased approximately 259,000 shares at an average price of $2.02 per share. Given the uncertainties around the current economic crisis, the company has ceased all buyback activity for the foreseeable future. Cash interest expense was $1.9 million for the quarter compared to $2.3 million in the last year. Cash capital expenditures for the quarter were $2.7 million compared to $6.1 million in the prior year period. We anticipate that our capital expenditures will be between $6 and $7 million. Turning to our balance sheet, as of March 30, 2020, our total debt was $217.5 million, and our trailing 12-month consolidated adjusted EBITDA was $42.8 million. Cash and marketable securities on the books was $128 million as of 3-30-2020. Net of 75 million of unrestricted cash on the books, our total leverage as defined in our 2017 credit agreement was 3.3 times as of 3-30-2020. Net of cash, total cash and marketable securities, our total net net leverage was 2.1 times. This concludes our formal remarks. Walter and I will now take your questions. Grant, I'll hand it over to you.