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.

We will now begin the question and answer session. To ask a question, you may press star then one on your touch tone phone. Again, that is star then one. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. Our first question comes from Michael Kapinski with Noble Capital Markets. Please go ahead.

Thanks for taking the questions. So in terms of the cost cut that you've done for the second quarter, is that in addition to the cost cuts that you've done or began, I guess, in the third and fourth quarters of last year? So this would be incremental or that in total? Okay. What are the metrics that you are going to use in terms of trying to determine whether or not to keep those costs in place for the third and fourth quarters? What are the triggers that you may back off on some of those cost cuts?

I think revenue.

there would just be in general that revenues would increase, then you can start layering back the cost. Okay. And then in terms of the digital businesses, can you talk about what was involved in doing the consolidation? What are the cost savings associated with that move? And what does it mean for your digital strategy going forward? I mean, can you just kind of expand upon the reasons why you went through the consolidation and what that means for your strategy? And it sounds like you're, trying to still develop your strategy to expand in the U.S. and U.S. footprint. So I was just wondering if you can just add a little bit more color there.

Well, the reason for the consolidation of the digital business was just to get an organized approach to our marketing of those businesses. Baragay, who we recently named, is a our national digital business. Certainly one of the people within the organization with the most experience and take the role that he has. But we've also consolidated our U.S. business under the IntraVision digital brand. But our purpose was to have a robust multi-platform service servicing our existing small and mid-sized businesses in the U.S., and complements our branding services offered by our television and radio, tailored performance-based digital products. And so we're able to, by, I'll say, integrating our, better integrating our digital, U.S. digital assets with our broadcast assets, we're able to provide better solutions, marketing solutions for our clients. And then our international business is taking steps, as I pointed out, to accelerate the growth of that business in the U.S. with its mathematics products. So it's just a way of bringing everything under one umbrella and to create a more efficient platform for all of our digital business units.

And IntraVision U.S., for instance, your IntraVision Digital U.S., Does that have the full suite of products at this point, or is that something that you're going to be layering in as you go?

It has the full suite of products.

Okay. All right.

This latest consolidation that we just made.

Gotcha. And then auto, obviously a big category for you. You said it's 24%. I know that at one point it was at 29%, almost 30% of your business. Can you talk about that category and whether you believe it will come back? What are you hearing from your dealerships and customers? If you could just kind of give us a flavor of what you're starting to see as the economies are starting to open up a little bit here.

Well, we don't have the feedback right now that we'd like to have. As I pointed out, we're just starting to see Texas and Florida and Colorado opening up. There's also steps being taken to open up California here this week in some capacity. But our motive is difficult to really estimate. I think it's going to end up. I gave you some information that we were able to source about how the revised forecast for auto unit sales in the U.S. is now 12 to 13 million as compared to almost 17 million in 2018. Right there, there's been a major adjustment in forecasting by the auto industry in terms of challenges that we're all going to face. Anyone have anything, Chris?

Well, they're going to come back and offer a ton of incentives when the world finally opens up. They've got a ton of inventory they have to start unloading. And those incentives are going to be record-breaking, and they're going to need to advertise and message those incentives. So we expect auto to come back fairly robustly. When it does come back, the question is when that actually happens. But we're pretty confident that when it does come back, it'll be a strong one.

I also think that because of the pandemic, change in attitudes, and probably younger demographics and millennials who hadn't entered the vehicle market, ride share programs and public transportation. The pandemic is going to change that, and we're going to see more younger demos looking to buy vehicles.

Gotcha. And do you have any – obviously political was very strong for you in the first quarter. Any thoughts on how that shakes out as you're turned toward the stronger third and fourth quarters and And are you seeing political in the second quarter? Can you just talk a little bit about your thoughts on political?

Well, you know, we had just a huge political – certainly we were very pleased – turned out. Another important data point about the core business advertising categories, we're also performing quite well in our second quarter advertising categories. We're looking – Very, you know, the outlook was very positive. As far as political is concerned, second quarter, we review our numbers constantly, and what we're seeing is probably we look to be at budget for the quarter. We had forecasted to be above budget, but then everything changed. I feel fairly confident that we'll be at budget for the quarter. Now, as far as Q3 and 4, it's still too early to tell. You know, we have, as you can imagine, you know, Q3 is a higher budget than Q2 and Q1, and then Q4 is a pretty large budget. So we'll see. We still think, you know, one of the things I just read this week, and you probably read too, is this announcement by the Biden campaign that, you know, They're going to spend $55 million in five key states to mobilize the Latino voter. And of the five states, I believe we're in four of those states with strong media assets, including Nevada, Colorado, Florida, and Texas. Anyway. But we're well positioned to take advantage of that, you know, rather impressive purchase by the Biden campaign or investment in the Latino campaign. I still believe that in order to win the White House, you're going to need to capitalize the Latino vote in important swing states. Gotcha.

And you have a large cash position. It appears that there are a lot of distressed companies out there that may trip some debt covenants. What is the M&A environment like right now? Are people like talking or are they just waiting to see how things shake out? And if you are looking at assets, is there a preference for you in terms of radio, TV, or digital at this point?

Well, I don't think there's any – we haven't been privy to any conversations on the M&A front. I think everyone's still in kind of a lingering state of what do we do now, you know, as far as this pandemic is concerned. Covenants don't start to get tripped up until you start reporting Q2 numbers, and you're going to be in late summer before that happens. And then conversations with lenders about what to do about those covenant breaks, you know, start in early summer perhaps. So we're not kind of – we're not in that – realm where those conversations start to be had. But that said, we're sitting here and we're watching and we'll wait and see what shakes out. But to your point, we do have a cash cushion and we'll wait and see how things turn out. As far as platform priorities are concerned, I think digital continues to interest us. TV, I think, would also be opportunistic should it be kind of an in-market tuck-in opportunity. And then I guess third on that run would be radio.

Gotcha, and just one last question and a housekeeping item. I assume that there were some unusual items in the DNA, depreciation and amortization line, which was like 4.5 million. Is that number, is that a good number going forward, or was there something in that number?

That was related to the REPAC assets depreciating, so it's a slightly accelerated number, but that'll smooth itself out.

Gotcha.

Now, the REPAC came after the the FCC auction and you had to go out and buy equipment on that front. And that's why there was a temporary spike.

Okay, perfect. That's all I have. Thank you. I appreciate it.

Thank you, Michael.

Again, if you'd like to ask a question, it is star then one, star then one to ask a question. At this time, I'm showing no questions in the question queue, so this will conclude our question and answer session. I'd like to turn the conference back over to Walter Uya for any closing remarks.

Thank you, Grant, and thank you, everyone, for participating on today's call. We look forward to reporting our second quarter earnings results on a faster call in early August.