Entravision Communications Corporation

Greetings and welcome to the EntraVision second quarter 2022 earnings conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Kimberly Astukian of Investor Relations. Thank you. You may begin.

Thank you, Operator. Good afternoon, everyone, and welcome to Entrevision's second quarter 2022 earnings conference call. Joining me today are Walter Ulloa, Chairman and Chief Executive Officer, and Chris Young, 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 Entrevision's SEC filings for a list of risks and uncertainties that could impact actual results. This call is the property of Entrevision Communications Corporation. Any redistribution, retransmission, or rebroadcast of this call in any form without the express written consent of Entrevision Communications Corporation is strictly prohibited. Also, this call will include non-GAAP financial measures. The company has provided a reconciliation of these non-GAAP financial measures to their most comparable GAAP measures in today's press release. The press release is available on the company's website and was filed with the SEC on Form 8-K. In addition, all pro forma figures including revenue, operating expenses, and consolidated adjusted EBITDA noted throughout the prepared remarks include the contributions of Media Donuts and 365 Digital in the prior year period. I will now turn the call over to Walter Ulloa, Chairman and Chief Executive Officer.

Thank you, Kimberly, and good afternoon, everyone. We appreciate you joining us for EntraVision's second quarter 2022 earnings call. EntraVision's performance in the second quarter capped off a strong first half of 2022. Net revenue for the second quarter totaled $221.7 million, up 24% year over year. On a pro forma basis, revenue increased 16% over the prior year period. The continued growth of our digital segment, combined with improvements in our core television and audio businesses, drove the strength during the quarter. For the six months ended June 30, 2022, revenue totaled $418.9 million, up 28% year-over-year. On a pro forma basis, revenue for the first six months of 2022 increased 20% over the prior year period. Similar to the quarter, year-to-date revenue benefited from growth in our digital segment, as well as improvements in our core television and audio businesses. Consolidated adjusted EBITDA totaled $22.5 million for the second quarter, up 26% year-over-year. What is so impressive about our second quarter EBITDA growth is that we had $5.4 million of non-returning revenue from the prior year same period, and we still managed to grow EBITDA 26% in the quarter. For the six months ended June 30, 2022, consolidated adjusted EBITDA totaled $40.6 million, up 27% year-over-year. Even as our top line continues to grow, we have successfully maintained a lean cost structure, having right-sized our expenses over the last few years. Despite current macro conditions, we do not currently see a need to make any additional expense cuts. That said, expense management will continue to remain core to our operations as it undoubtedly drives our EBITDA free cash flow and ability to provide returns to our shareholders. Speaking of shareholder returns, I am pleased to announce that our board of directors has approved a cash dividend for the second quarter of 2022 of two and a half cents per share, payable to shareholders on September 30th, 2022. During the quarter, we also continued buying back shares under our $20 million share repurchase program. bringing the total repurchase to date to approximately $11.3 million. With that as a background, let's take a further look at each of our three segments, beginning with our largest digital. I'm very pleased to report that during the second quarter, all of our digital units delivered solid revenue growth while at the same time reporting positive operating margins. Digital segment revenue represented roughly 78% of consolidated revenue the second quarter, and totaled 174.4 million, up 34% year-over-year. Top achievements for the segment during the quarter included our strategic territorial expansion within Latin America, Southeast Asia, and Sub-Saharan Africa, as well as the success of our mobile performance business led by Smatics. Entrevision's digital mission is to continue building a global digital marketing sales operation in emerging territories where a critical mass of connected consumers exists together with a large and growing advertising industry. Based on these criteria, we have expanded across multiple territories and continents, both organically and through strategic tuck-in acquisitions. At present, Entrevision's digital operations span 35 different countries and service over 7,000 clients. To deliver upon this mission, our digital operations provide two main offerings. The first is our commercial representation service, for some of the world's leading social and technology platforms. In this business, due to our phenomenal sales teams who provide staffing, onboarding, and workflow services, we continue performing strongly. The second offering entails our mobile user acquisition solutions that include cutting-edge proprietary technology, unique performance services, and dynamic creative optimization workflows. These mobile solutions are offered in Latin America, Europe, Africa, and Southeast Asia as standalone services. With that as a background, let me provide some examples of these services in action. Starting in Latin America, EntraVision Cisneros Interactive delivered solid results for the second quarter with revenue increasing 9% over the prior year, fueled by our commercial representation partnerships with Meta and Spotify. Turning to Meta in particular, on July 1st, EntraVision Cisneros Interactive officially expanded its partnership with Meta in Honduras and El Salvador. This brings our Latin American partnership with Meta to 11 total countries. As part of this expanded partnership, Entrevision Cisneros Interactive will provide strategic support, creative expertise, and content development for Meta advertisers in the region. Entrevision Cisneros Interactive has had great success in Latin America over the past five years, training more than 5,000 people, including agencies and advertisers, to leverage the Meta platform for their advertising needs. Our geographic expansion into our 10th and 11th Latin American countries is evidence of our historical success, and we are very excited to see our efforts unfold. Go-to-market events are already taking place throughout Honduras and El Salvador, with setup and training happening at each of our local offices. In Southeast Asia, Entrevision's Media Donuts also delivered very strong results, with revenue improving for the second quarter 57% year-over-year on a pro forma basis. EntraVision's Media Donuts revenue growth was largely driven by its success with Twitter and TikTok along with strong mobile performance. Similar to our digital units, EntraVision Media Donuts continues to expand its geographic reach and during the second quarter broadened its operations into Bangladesh, Myanmar, Nepal, and Cambodia. Latin America, Asia, and now Africa. Sub-Saharan Africa is amongst our most recent expansion territories, and we have been very pleased with our performance in this region. For the second quarter, EnterVision 365 Digital's revenue increased nearly five times that of the prior year on a pro forma basis. In May, EnterVision 365 Digital opened its operations in Kenya to serve local companies with advanced branding, performance, and other creative needs. Sub-Saharan Africa has over 500 million digitally connected consumers who are technologically savvy, making it a favorable region to further expand. Smatics, our mobile user acquisition programmatic ad tech platform, headquartered in Barcelona, Spain, also performed very well during the second quarter, with revenue improving 162% year over year. Smatics' highly competitive offerings remain a go-to for the gaming, fintech, and mobile delivery industries. In the second quarter, we continued to bring Smatics across the globe with territory expansion into Asia and Europe. We also unveiled several ad tech product performance enhancements, and debuted our new team of professionals solely dedicated to work on gaming apps and mobile performance. With many different digital brands now part of the Entrevision family, we have taken the important step of unifying all of our marketing communications under a single umbrella. To manage this entire process on a global basis, we have appointed our very own Karina Serda as Executive Vice President of Global Marketing. Karina will be an important part of our expansion effort, working closely with each of our global businesses on branding, messaging, sales, and training. We are excited to take this step in our marketing and sales operation with Karina's promotion. Now let's turn to our television segment, which comprise 15% of revenue for the second quarter. Television revenue was 32.4 million in the second quarter, down 5% compared to the prior year period. As noted last quarter, we anticipated our television revenue would decline this year, primarily to the discontinuation of three Univision affiliates at the end of 2021. Excluding those three Univision affiliate markets, total television revenue was up 11% year over year. Excluding those three Univision affiliate markets, and 2.8 million in political spend in the second quarter, core television advertising increased 1%. National core advertising revenue increased 1% and local core advertising revenue increased 1% year over year. The auto category continues to face pressures. Excluding the three discontinued Univision affiliations, auto ad revenues were down 3% in the second quarter year over year. While we initially believed the auto category would recover in the second half of 2022, But for a number of reasons, including high gas prices and continued supply chain disruption impacting inventory, improvement in this key advertising category is unlikely to happen in the second half of 2022. Nevertheless, strong performance in other ad categories has nicely offset the decline in auto. Excluding the three discontinued Univision affiliates that ended in 2021, travel and leisure, restaurants, retail, grocery, finance, and beverages had strong growth in the second quarter compared to the prior year. As a result of the current market conditions, national advertisements order cycles have shortened considerably, reducing our overall sales visibility. Fortunately, local ads have been fairly resilient with consistent sales cycles. Turning to political, it was certainly an encouraging quarter from a political advertising perspective. While we had initially anticipated approximately $11 million in total political ad revenue in 2022, Following a strong second quarter in which we generated 3.4 million in political ad sales in our television and audio units, we now expect full-year political ad revenues for television and audio combined to be $17 to $19 million. This impressive performance was primarily driven by the Nevada elections, the California online gambling initiatives, and the Texas primaries, all of which have recognized the importance of the Latino voting population. A particular note, in Texas, California, and Nevada, we are seeing more political advertisers reserving television spots closer to election day. This is a purchasing behavior we have not experienced to this extent with past election cycles. With regards to our ratings performance during May 2022 for adults 18 to 49 in early local news, our Univision television stations finished ahead of their Telemundo competitors in 12 of 14 markets. In late local news, we finished ahead of Telemundo competitors among adults 18 to 49 in 11 of 14 markets plus one tie. Additionally, our early and late local newscasts are ranked number one or two against English and Spanish competitors in nine markets, including ties. Lastly, let's speak to our audio segment, which comprised the remaining 7% of second quarter revenue. Audio revenue totaled approximately 14.9 million for the second quarter, up 6% year over year, primarily due to an increase in local advertising revenue. Excluding political spend of $628,000 in the second quarter of 2022, core audio revenue increased 2% versus the second quarter of 2021. The audio segment's cash flow generation was also strong and improved 8% in the second quarter as compared to the prior year. With regards to advertising categories, travel and leisure, retail, restaurants, product brands, finance, beverages, and entertainment all delivered strong growth versus the prior year period. Similar to television, auto audio advertising continued to struggle during the second quarter, delivering a negative 5% performance year over year. Looking at our audio segment ratings performance for the spring book, among Spanish-language radio stations, the Erazo y la Chocolata show is ranked number one in PM Drive in nine out of our 11 markets released for spring among Hispanic adults 25 to 54, including ties. and in six markets among Hispanic adults 18 to 49. Across our 11 owned and operated radio stations, the Rosalie La Chocolata show reached more than 469,000 Hispanics, 25 to 54. On our tricolor network, our midday programming ranked as a top choice among Latinos. During midday, La Plebe ranked as a top three Spanish language radio station in four of our six tricolored markets, released for spring among Hispanic adults 18 to 49, including Thais. Before speaking further, I will turn the call over to Chris Young, our CFO, to discuss our second quarter financial performance in further detail and to provide our third quarter pacing. Chris?