Entravision Communications Corporation

Q4 2022 Earnings Conference Call

3/9/2023

spk02: Good day and welcome to the EntraVision fourth quarter and full year 2022 earnings conference call. All participants will be in a 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 a 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 Kimberly Estrican in Investor Relations. Please go ahead.
spk01: Thank you, Operator. Good afternoon, everyone, and welcome to EnterVision's fourth quarter and full year 2022 earnings conference call. Joining me today are Chris Young, Interim Chief Executive Officer and Chief Financial Officer, and Jeffrey Lieberman, President and Chief Operating 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 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 the 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 8K. I will now turn the call over to Chris Young.
spk05: Thank you, Kimberly, and good afternoon, everyone. We appreciate you joining us for Entrevision's fourth quarter and full year 2022 earnings call. Before we begin, I want to note that it has been two months since the sudden and tragic passing of our founder and CEO, Walter Ulloa. Walter's vision was to build a leading global advertising solutions, media, and technology company. In pursuing that vision, Entrevision built a strong leadership team that has transformed our media portfolio, expanded our geographic reach to 40 countries, and achieved tremendous growth. During this period of transition, Entrevision's board of directors has entrusted me with the role of interim CEO in addition to maintaining my duties as CFO. The board is currently engaged in a search for the full-time CEO. We are moving forward and we are as focused as ever on the successful execution of our long-term strategy to deliver value for our partners and shareholders. Let's begin by discussing our full year results, which were very strong. Total revenue of $956.2 million for 2022 was up 26% year-over-year and represented a new company record. Digital, which comprised 78% of our total revenue, increased by 35% compared to 2021. Television and radio segment revenues, which made up the remaining 22% of consolidated revenue, were down 1% and up 11%, respectively, year over year. Consolidated adjusted EBITDA was also a record $103.1 million for the year, up 17% over last year. Free cash flow totaled $63.3 million for the year, or a conversion rate of 61% of our consolidated adjusted EBITDA. For the year, earnings per share were 21 cents compared to 34 cents in 2021. With such stellar annual performance, in February, our Board of Directors approved an increase in our dividend, doubling the dividend from 2.5 cents per share to 5 cents per share. This increase returns the quarterly dividend payment to pre-pandemic levels. With that as a background on the year, I'll now turn the call over to Jeff Lieberman, IntraVision's President and Chief Operating Officer, to speak further on the fourth quarter.
spk04: Jeff? Thank you, Chris. Like most of our management team, I've been part of IntraVision for over two decades, working side by side with Walter. Walter and I worked together since IntraVision became a publicly listed company on the New York Stock Exchange in August of 2000. Having known Walter for such a long time, I can say with certainty he would be proud of our financial results we are reporting today. Let's begin with our largest revenue segment, digital, which, similar to the full year, comprised 78% of fourth quarter's revenue. Digital revenue was $230.1 million for the fourth quarter, improving 30% year over year. InterVision now provides a full suite of digital marketing services in 40 countries, including traditional brand awareness solutions, along with transactional performance-based services. In the United States, our digital solution complements our existing television and audio offering with results-driven services for local clients. These services include digital audio, lead generation, OTT digital video solutions, and branded content production. Outside the U.S., Entrevision has achieved strong results based on our unique and extensive audience reach and superior technology. By partnering with premier digital platforms such as Meta, Spotify, TikTok, and Twitter, our solutions-based sales organization provides cutting-edge results for our clients in developing countries where these platforms have yet to have the reach they have established in the United States. All of our digital companies experience growth. Smatics, our programmatic ad platform, once again performed well during the quarter, with revenue improving 29% year-over-year as we grew our business across multiple verticals, most notably gaming apps. IntraVision LatAm, which is our business previously known as IntraVision Cisneros Interactive, also delivered strong results for the fourth quarter, with revenue increasing approximately 7% over the prior year. driven largely by a commercial representation partnership with Meta. Entrevision Asia, known formally as Media Donuts, saw revenue improve 72% year over year. Revenue growth was largely driven by success with Twitter and TikTok, along with the strong performance of our mobile user acquisition operation, now servicing 11 countries in Southeast Asia. Turning to Africa, Entrevision Africa known formally as 365 Digital, achieved a 92% increase in revenue for the fourth quarter compared to the prior year, driven by our TikTok relationship. Beyond enhancing our digital product offerings, we continue to broaden our sales leadership. In December, Spadix welcomed Phil Gauthier as our Chief Revenue Officer. Phil is the former head of mobile for Twitter in Europe, the Middle East, and Africa. He will continue to accelerate Smatix's global revenue growth by leading our sales team around the world. Let's now turn to the television segment, which comprised 15% of revenue for the fourth quarter. Television revenue was $45.8 million in Q4, up 14% compared to the prior year's period, benefiting from strong political advertising revenue. Excluding the three discontinued Univision affiliates, Washington, D.C., Tampa, and Orlando, total television revenue was up 38% year-over-year. Excluding these three affiliate markets and incremental political revenue, core television revenue decreased 9%, national core revenue decreased 21%, and local core revenue increased 3% year-over-year. Retransmission revenue for the quarter totaled $8.9 million. which was down 1% year over year, mainly due to the discontinued Univision affiliates. Operating cash flow margin for our television division was 50% for the quarter. Political revenue totaled $19.1 million in the fourth quarter, bringing our total political revenue to a record $32.1 million for the year. Out of this total, television generated $14.8 million of political revenue in Q4 and $25.2 million for the year. Lastly, our audio segment comprised the remaining 7% of fourth quarter consolidated revenue. Audio revenue totaled approximately $20.4 million for the fourth quarter, an increase of 26% year over year, again largely driven by political ad revenue. Excluding incremental political revenue of $4.2 million in the fourth quarter of 2022, core audio revenue increased 2% versus the fourth quarter of 2021. Even more impressive was our audio operating cash flow margin, which was a record 43% in the quarter. I want to thank our entire team around the world for a strong fourth quarter and year, and we'll now turn the call back to Chris to discuss the quarterly financials and first quarter pacing in further detail. Thanks, Jeff.
spk05: Revenue for Q4 2022 totaled $296.3 million, an increase of 27% from the fourth quarter of 2021. As Jeff just mentioned in the segment breakouts, for our digital segment, revenue totaled $230.1 million in the fourth quarter, up 30% year-over-year, and up 20% on a pro-forma basis as compared to Q4 of 2021. For our TV segment, total revenue was $45.8 million in the fourth quarter, up 14% year-over-year. Lastly, for our audio segment, revenue totaled $20.4 million in the fourth quarter, which was up 26% compared to Q4 of 2021. Operating expenses in the fourth quarter of 2022 totaled $57.2 million, up 19% from $48.1 million in the prior year period, primarily due to our variable expenses related to revenue growth and increases in salaries. Corporate expenses increased by 101% to $22.6 million for the quarter, compared to $11.2 million in the same quarter of last year. The primary driver was severance expense incurred upon the passing of our late Chief Executive Officer increases in non-cash stock-based compensation, and an increase in salaries. Consolidated adjusted EBITDA totaled $36.5 million for the fourth quarter, up 11% from $32.9 million in the prior year period. Free cash flow, as defined in our earnings release, was $19.3 million compared to $30.9 million in the prior year quarter, or a conversion rate of 53% of adjusted EBITDA. Net income attributable to common stockholders was a negative 1.6 million compared to 3.9 million recorded in the prior year period. Diluted earnings per share for the fourth quarter 2022 were a negative 2 cents compared to a positive 4 cents per share in the same period last year. With that said, it is important to note that we incurred a total of 18.8 million in one-time charges that impacted net income in the fourth quarter and 27.7 million that impacted the full year. These charges included the following. An increase in fair value contingent consideration of $7.4 million for the quarter and $14.2 million for the full year, resulting from the outperformance of our various digital platforms compared to original expectations. $4.6 million in non-cash charges related to the acceleration of Mr. Ulloa's unvested RSUs upon his death. $4.3 million in cash severance charges, also primarily relating to Mr. Ulloa's passing. $1.6 million in non-cash impairment charges relating to our broadcasting assets. And finally, foreign currency losses of approximately $900,000 in the quarter and $3 million for the full year. Excluding these one-time charges, adjusted EPS was $0.19 in the fourth quarter and $0.52 for the full year. Cash paid for income taxes was 5.5 million for the fourth quarter, compared to 0.6 million in the same quarter of last year. For the year, cash paid for income taxes totaled 16.9 million in 2022, compared to 4.1 million paid in 2021. Net interest expense was 2.5 million for the quarter, up 57% from 1.6 million in the same quarter of last year. Cash capital expenditures for Q4 totaled 3.6 million, bringing our full-year capital expenditures to $11.5 million for 2022, up from $5.8 million in 2021. Turning to our balance sheet, cash and marketable securities as of December 31, 2022, totaled $155.2 million. Total debt was $213 million. Our total leverage, as defined in our credit agreement, was 1.3 times as of the end of fourth quarter. Net of total cash and marketable securities Our total net leverage was 0.5 times. Turning to our pacings for the first quarter of 2023. As of today, revenue from our digital segment is currently pacing at a plus 21% over the prior year. Our TV segment is pacing a minus 3% over the prior year period, with core TV revenue, excluding political, booked thus far in the quarter, pacing at a plus 2%. Lastly, our audio segment is pacing a minus 3% over the prior year period, with core audio revenue, excluding political, pacing at a minus 1%. All in, our total revenue compared to last year is pacing at a plus 16%. As we look ahead to the remainder of 2023, despite the prevailing choppy macroeconomic conditions, EntraVision remains well positioned for another year of growth as we continue to expand our operations globally. With the benefit of a solid balance sheet, strong cash flow generation, and a talented management team, you can expect us to continue to seek out opportunities that will further enhance the digital offerings we provide to our growing global customer base. Beyond acquisitions or strategic investments, you should also expect to see continued growth from our digital platform. Our strengthening relationship and overall business model with Meta, in particular, continues to be validated through the recently announced launch of operations for this platform in Honduras, El Salvador, Ghana, Iceland, and Mongolia over the past 12 months. To summarize, 2022 was an amazing year of growth for Entrevision that was unfortunately capped off by the sudden death of our co-founder, chairman, and CEO, Walter Ulloa. As we continue to reflect on Walter's loss, I want to take a moment to thank all of our stakeholders, including our employees, our board, and our shareholders, for your support during this difficult time. A significant part of Walter's legacy was his installment of highly talented leaders across all of Entrevision's business platforms, and through their leadership, we will continue to succeed. With that, we'll open up the call to questions. Operator?
spk02: We will now begin the question and answer session. To ask a question, you may press star then 1 on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. The first question today comes from Michael Kupinski from Noble Capital Markets. Please go ahead.
spk06: Thank you for taking my question. And first of all, my condolences to the InterVision family and also congratulations on a great quarter. A couple of questions. Chris, can you update us on now that you've rolled up some of the earnouts, are there any additional possible earnouts that may be coming up for some of the past acquisitions?
spk05: There are earn-ups that are coming up as far as payments are concerned. We'll have about a $30 million payment in April. And in addition to that, there will be something in the low single digits as far as the payment is concerned also in April. And then that's it for the year.
spk06: Gotcha. And then can you talk a little bit about the M&A environment? I know that you have been making acquisitions. Can you talk a little bit about that?
spk05: Yeah, it's been busy on that front. I mean, we've got a pipeline that's pretty robust, and we continue to work through it. And again, you're not talking transformative. You're talking about smaller deals that will be complementary to our existing digital portfolio.
spk06: Gotcha. And then if you want to just chat a little bit about Cisneros, you know, we see some deceleration in the rate of revenue growth there. Can you just kind of give us an update on what's going on with Facebook, Latin America? And I know it sounds like you're adding some additional markets there. Can you just kind of give us a flavor of what images and color and what you learned?
spk05: I mean, it's still in growth mode, right? So Cisneros, Latam, Q3 did plus 10. Q4, they did a plus 7. We're looking to do a little better than plus 7 in that pace that we gave out for Q1. So it's still a relatively stable region of the world for Facebook. And, of course, we've got the new markets that we're also working on that will be incremental growth on top of that.
spk06: And Chris, I don't know if you can give us this, but if you can just chat a little bit about pacing is obviously still very strong, 21% first quarter. What's driving that? Is it some of the new markets? And if you can just talk to us a little bit about what percentage of the new markets are driving the 21% growth?
spk05: Sorry, I didn't mean to talk over you. The new markets aren't really contributing to the growth. You know, if you took that plus 21% and factored in, if you took the plus 16 pace that we talked about and factored in the acquisitions on a pro forma basis, that looks more like a plus 11. But it's clearly, we've got a minus three on the broadcast side, we've got a plus 21-ish on the digital side. It's all about digital carrying through the growth right now. We've got a broadcast environment that's choppy. National has gotten soft on us. Local is still pretty resilient. With that said, we're still pushing ahead. But clearly, digital is driving the show as far as our growth is concerned at this point.
spk06: Gotcha. And then my next question was about national. If you can just kind of give us a flavor of national versus local in your core TV and audio as well?
spk05: Yeah, for TV, local is a plus one, but national is a minus 18. And from all the channel checks that we've been doing, we're hearing the same numbers coming out of other folks in the space. So look, if you look at our top three categories for broadcast, you've got auto, which is pacing at a plus 10 Q1, services minus three, and healthcare plus 22. And then everything else is kind of a mixed bag. So But clearly, look, this is a government-sponsored slowdown that this economy is seeing. And, you know, national is not that atypical for national to pull back, you know, because those branding campaigns are the first ones to go out with the tide. But local remains resilient.
spk06: Gotcha. And then can you kind of give us a little thought about expense growth in the quarter? Sure.
spk05: Yeah, the expense growth in the fourth quarter you're talking about, radio is a little bit higher than usual because we are in the process of moving the radio folks here to corporate, so that drove it. And then TV was a plus five. You've got variable expenses associated with the revenue growth. Well, you've got variable expenses on both sides associated with the revenue growth.
spk06: And can you talk about how we should look at that in terms of the run rate going into the first quarter?
spk05: Yeah, that'll be a function of the revenue, right? We don't like to generally guide on expense, but, you know, there will be radio will look a little higher than usual because of that move that we're doing. TV will be a bit more subdued. And then digital is just purely a function of the revenue growth. So digital, you should expect to see double-digit growth on the expense front.
spk06: Gotcha. Thank you. That's all I have. Thank you.
spk05: Thanks, Michael.
spk02: The next question comes from Edward Riley with E.S. Hutton. Please go ahead.
spk00: Hey, guys. Give my condolences to Walter's family and the team. Thanks, Edward. The recent dividend increase is interesting. I'm just maybe wondering if you could talk about capital allocation priorities for 2023.
spk05: Yeah, the dividend increase was just getting it back to pre-COVID levels. I think what we're going to do going forward is allocate capital towards M&A. That's kind of where it needs to be. Dividend is kind of where it needs to be as well. And we'll observe and monitor the debt accordingly with our operations. But we've got plenty of cash. We're going to generate plenty of free cash, and we're going to work to applying that to continued M&A opportunities.
spk00: Okay, got it. Thank you. Thanks, Everett.
spk02: As a reminder, if you would like to ask a question, please press star then 1 to enter the question queue. The next question comes from David Marsh with Singular Research. Please go ahead.
spk03: Thank you for taking the question. I also offer my condolences to Walter and the entire family. Thank you, David. With regard to the M&A landscape, could you talk about your focus with regard to M&A? Is it new markets? Is it more focused internationally? Just talk about the landscape and what opportunities that you are seeing presenting themselves at this point.
spk05: Sure, digital, international, complimentary to our existing digital footprint. Not necessarily thinking geography by geography in this day and age technology is such that it could be in a different geography, but it's complimentary to our existing infrastructure. But that's our focus. We've got a lot of smart folks out of our Barcelona office who are helping us out with some opportunities that we're working on. And again, they're going to be complimentary to our existing digital footprint. not much along the lines of stuff here in the United States. There are one or two deals in the U.S. that we are looking at as well, again, on the digital landscape, but nothing really on the broadcast front at this time.
spk03: Anything in particular that might be on the table for divestiture here in the next 12 to 18 months?
spk05: No, it's steady as she goes as far as our asset base, so nothing that we're looking to sell.
spk03: And then just turning to the advertising side, I mean, obviously political will be down significantly from the first half of this year, certainly, and maybe even to the third quarter. But obviously a big election year next year. Do you see political coming back? Are you starting to get some – interest in terms of political ads for the back half of the year at this point already?
spk04: Yeah, David, we are already starting to see some small buys that are coming through right now. We had a really robust political year last year, and we are anticipating that the presidential election year is going to be as good, if not better, than what we delivered last year as we go forward. And, you know, we are going to see a ramp up of that digital spending and through each quarter of the year, but mostly in fourth quarter coming this year.
spk05: And California's got a Senate race coming up. The primaries for that are going to be really interesting, and that's something that we should expect to see in the second half of the year. It's going to be hyper, hyper competitive.
spk03: Got it. Thank you. That's a great color. That's all from me. Thank you. David, thank you.
spk02: This concludes our question and answer session. I would like to turn the conference back over to Chris Young for any closing remarks.
spk05: Thanks again for joining us today. We look forward to sharing our progress with you on our Q1 earnings call in May. Betsy, with that, we'll sign off. Thank you all for your time. Appreciate it. Thank you.
spk02: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Disclaimer

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