Entravision Communications Corporation (EVC) Earnings Call Transcript & Summary

Good afternoon, and thank you for joining albeit virtually the 4:00 p.m. session of Citi's 2021 TMT Conference featuring Entravision. My name is Derek Van Zandt, I will be the Citi host for today's session. We're pleased to have Entravision back at our conference for the first time in 7 or 8 years. Obviously, the media landscape has changed quite a bit during that time, and Entravision is a different and more diverse business today than then. For those not familiar, Entravision is a diversified global marketing, technology and media company serving clients throughout the United States in more than 20 countries across the world. The company is strategically focused on the U.S. Latino and LatAm markets. It is the largest affiliate group of Univision and recently completed a transaction with Cisneros Interactive, which expands its international digital business. Today, we have Chris Young, Entravision's CFO and Treasurer, to tell us more about the company and its strategies. Chris plans to make some prepared remarks supported by slides and then take questions. Just in terms of logistics, I believe the questions will be needed to be submitted by the chat function on the bottom of the screen, which will be e-mailed to me, and then I will repeat the questions at the end of the session. With that, I turn it over to Chris.

Thanks, Derek, and thanks to the folks at Citi for having us. I guess what I'll do now is share the screen and you tell me if this goes this as plan, Derek. And can you see the screen?

I can, Chris. Looks good.

Okay. Great. So thank you for having us. Let's start with safe harbor. I will likely be making forward-looking statements. No reps or warranties with respect to the accuracy of any such statements. Let's get that out of the way and make the lawyers happy and move forward. So you covered the intro pretty much, Derek. We are a diversified global marketing and technology and media company serving clients in the U.S. in more than 20 countries across LatAm, Europe and Asia. We've made a lot of changes in our organization since the last time. I believe, it was 2011 the last time we did the Citi conference out here on the West Coast. And yes, we've been undergoing some radical changes. It's still adhering to our core legacy business, but they're changing with the times. We were founded in 1996. We went public in 2000. We've got a little over 1,000 employees globally. And again, we are operating in 22 countries. We trade on the New York Stock Exchange under the ticker EVC. So investment highlights for our strategy. I'll touch on all of these segments throughout the presentation and we'll do this for about 20 minutes and then, like Derek said, we'll hand it over to you for questions. But as far as defense is concerned in this COVID environment, we are in a solid financial position vis-à-vis all of our competitors in our marketplace. We've got a strong free cash flow conversion. 65% of our EBITDA was converted to free cash flow in Q3 of this year. We have something else that is a great benefit to our story, which is we are flushed with cash as far as liquidity is concerned, $136 million in cash and marketable securities as of third quarter. We've got a streamlined cost structure. We have taken approximately $11 million per quarter thus far out of our business in costs just to adjust with the times as far as the COVID pandemic is concerned. Year-over-year, our operating expenses are down 21%. And couple that with a solid balance sheet, as far as our debt is concerned, our net leverage, net of all of our cash and marketable securities is approximately 2x, which is pretty solid vis-à-vis our competition and other players in the marketplace. Our core market is obviously the U.S. Latino market here in the United States, that's a $1.9 trillion market expected to be in 2023. We're also now in the global digital advertising marketplace, which has shown a 13% CAGR -- expected to show a 13% CAGR between now and 2023. Our core legacy business is our Univision affiliation. We are Univision's largest TV affiliate group. We've got one affiliation agreement covering the entire Univision and UniMás portfolio, which runs through the end of 2026. We've got retransmission revenue that adds stability to our free cash flow. We've got an expanding platform of digital assets, which I'll get into a little later on, but that's one of the reasons why we wanted to come to a conference like this because you tend to have investors that are more focused on the digital and tech side of the media world. That's where we'd like to focus our energies at least as far as this presentation is concerned. Global footprint provides extensive reach, again, 22 countries covered 33 U.S. -- 35 U.S. markets with local sales teams and assets. The majority of our team has been with our company for 15 years or longer with one exception. I'll get into that over the next couple of slides. So let's just take that snapshot of the -- our significant and growing target market, the U.S. Latino market highlights. I don't think this is news to anyone, but is the dynamic market. The U.S. Latino marketplace, $1.5 trillion market expected to top $1.9 trillion by 2023. There are approximately 60 million -- there were approximately 60 million U.S. Latinos in 2018. That's expected to grow at approximately 109 million in 2058, the largest U.S. ethnical ratio group. 31% of the U.S. Hispanic population is under the age of 18 versus 20% among non-Hispanic. It's a very young demographic. Median age of its 29 for males and 30 for females versus 37 and 39, respectively, for the general population. It's a young demo. It's a high-growth demo, and it's a marketplace that is dynamic and growing and that's our core marketplace here in the United States. They are the pretty faces of our management group. I mentioned we've all been here since before we were gray or bald, and we will be here for the foreseeable future. Juan Saldívar is our newest addition. He's been on our Board since 2014. He's got extensive experience working at Televisa and Bertelsmann Group. He is our Chief Digital Strategy and Accountability Officer. He's been the new addition to this group over the past -- in a full-time capacity over the past couple of years, brings a breadth of experience in the digital marketplace and has been a real shot in the arm to our digital efforts globally. Let's cover our operating segments briefly, the 3 core operating segments. We talked about TV a little bit. We've got 55 TV stations across the U.S. In addition to Univision and UniMás, we do have several Fox stations and an NBC station in Palm Springs. In addition to that, we also have affiliations with several other networks. And just to put the perspective on the revenue generation, $104 million in year-to-date revenue out of the TV unit through the end of third quarter. Our Audio division, we've got 48 radio stations across the United States, covering several different formats that generated approximately $30 million in year-to-date revenues as of Q3. Then digital, as I've said before, we're operating in 22 countries. We've got programmatic, branding and performance marketing platform, big tech and sales partnerships. The Cisneros acquisition, which I'll get into in a bit more detail, really focuses on relationships with 3 of the premier digital platforms in the world Facebook, Spotify and LinkedIn. And that's a segment that through third quarter generated approximately $38 million year-to-date revenues, which does not, by the way, includes Cisneros we'll get into. Nuts and bolts as far as our TV segment is concerned, we've mentioned earlier, 55 TV stations across the country. We do produce our own early and late news cast in 21 markets, covering 12 million households, 4.2 million weekly viewers. If you want to take a snapshot of the landscape of the Spanish language TV market, you got Univision and UniMás that's covering approximately 56% of the Spanish language viewing. This is full week audience share adult 18 to 49. The #2 Spanish language network here in the country is Telemundo, NBC-owned. Telemundo has done a nice job. They've come a long way over the past, well, say, 10 years with some funding by Comcast and NBC. But Univision is still the dominant player in the U.S. Spanish language TV market. As I said, we do produce our own local news. Local news is over-indexed as far as consumption is concerned with Hispanics compared to non-Hispanics, local news production in 20 markets. We're #1 or #2 regardless of language ratings wise. In 10 of our markets, we've got year-over-year growth ratings wise in 9 of our markets. Local news is a significant profit generator for our TV business, and it's important to our strategy as far as the TV segment is concerned. Our audio segment, nuts and bolts, again, 48 radio stations across the country. But our content is produced or distributed on 361 network affiliates stations that aren't owned by us, but that enables us to enhance our reach as far as the distribution is concerned. We're operating in 17 markets, we're able to reach 96% of the Latino here in the United States with our content. And we believe we've got the best content in the Spanish language media world with the marquee talent that we've got here on this page El Genio Lucas, Piolin and the Erazno show, we believe are the best in the business. And we're very proud of the content, and we expect that to be a growth driver for that platform going forward. This was a big political year for us. We disclosed what we did as far as political in the fourth quarter. Basically, we had our earnings call the day after the election. So it felt right to just go ahead talk about the numbers since it wasn't going to change. But we think it's a validation of the voter -- the representation of the Latino vote and its importance in this country, both in local and national politics, particularly in the markets like Texas, which has historically been a red state, turns kind of purple this time around, and we're expecting that to turn blue over time. And that's one of our largest markets of operation. We've got multiple station assets and digital assets in Texas as well as Colorado and Nevada, and of course, California. California is a blue state, but you've always got a plethora of messaging campaigns that the government releases to the voter base to make decisions in the local marketplace, not just people but on issues -- issue campaigns. And that's always been a source of -- a nice source of political revenue for us. So we expect -- I mean, generally speaking, if you look at this chart, it's got a nice growth path, and we expect that growth to continue for the foreseeable future. Let's talk about our Legacy Digital segments. At its core, we've got really 4 categories of digital assets. The first is our local U.S. digital marketing efforts. This is really our sales reps across the country helping smaller mom-and-pop organizations launch and manage digital campaigns. It's more of an agency type of business that we run. We also will run their social media advertising campaign. You're basically adding value to our existing broadcasting relationship and making money there. We've also got our own content that we own that we distribute, not only on our traditional broadcasting platforms but as well as on audio networks in our streaming and podcast. Audio engage has worked really well with our radio network hand-in-hand. When you package that up, they both help each other out. They've done a solid job of helping our radio network performance as of late. So we're very proud of that. We've got video and data platforms as well in the form of a product called ScrollerAds and a product called DataXpand. The data that's used to enhance the efficiency of a buy of a campaign. And then we've got a programmatic and mobile performance platform, and that's really a proprietary programmatic buying platform, otherwise known as a DSP called Smadex. These guys have done a wonderful job of growing that platform over the past several years. They are particularly making inroads in the gaming and financial industries here in the United States as well as in Europe and it's a nice growth engine that we've got big expectations for going forward. So Wayne Gretzky said you want to skate to where the puck is going to be, not where the puck is. And while we're happy and pleased with our TV and radio broadcasting businesses, it's clear that the growth in the media world is going to happen on the digital side of coin. And this is where we are headed. And I think we've made that kind of -- we've made that clear through some of the acquisitions that we've executed over the past several years. But you've got -- regardless of how you slice up the digital segment growth drivers between ad spend -- between programmatic ad spend and global app user spend. This is the marketplace that's going to be presenting the biggest growth opportunities, and this is the marketplace that we're focused on for the foreseeable future. So let's talk about Cisneros Interactive. This is an acquisition that we announced in our third quarter call. It was effective October 13. This is a big tech sales partnership. And basically, what it is, it's a pretty simple business model. It's a rep firm. They do sales. They represent sales efforts on behalf of Facebook, Spotify and LinkedIn across 17 countries in Latin America. And basically what they do is they market the services and the products of these 3 primary platforms in exchange for commission, and there are bogeys if you exceed budget or plan, you get a couple of points on top of that. It's not a huge margin business between 5% and 6% of cash flow margins in this business, but it's a very growth-oriented business. These platforms are flourishing in emerging markets in Latin America. And basically, starting up operations in Latin America and in emerging markets is not something that a lot of these tech platforms really want to focus their efforts on. So they'll hire -- there are a handful of companies out there that do business like this and Cisneros is one of them and one of the more successful ones, and we're very excited about this. So we did disclose in the Q3 earnings call, the revenue expectations of approximately $55 million for Q4 and approximately $1 million to $1.5 million of EBITDA from this acquisition through the end of fourth quarter. That's the number that we talked about on the third quarter call. Keep in mind, this was not 100% acquisition. This was a 51% acquisition. So the other 49% will be coming out of minority interest below the line. But what we'll be doing is grossing up the revenue, representing 100% of the revenue from the operations and revenue, showing 100% of the expenses and then taking out the earnings portion of the 49% that we do not own below the line. Just want to walk you through those logistics. I've gotten a lot of questions on that. Let's cover our financials very briefly. Third quarter, we had a very successful quarter. We did about $6 million in political revenue. That was a big boost for us. We've come a long way since March and April when COVID was just settling in. We've made a lot of changes to our operations, streamlined our operations, made it much more efficient. You see what we did in EBITDA in Q2. We barely broke even at $1.7 million, but clearly, a huge improvement between Q3 and Q2 of this year. But more importantly, year-over-year, in a COVID-hit quarter, Q3 of 2020, we outperformed the prior year number by 80%. And we're very pleased with that, and the expectation is that, that trend will continue into the Q4. And with the streamlined operations, that will continue into 2021 as well. We talked about the balance sheet at the beginning of the presentation. We've got approximately -- we had approximately $136 million in cash and marketable securities as of September 30, $216 million of debt. Trailing 12-month EBITDA was as of third quarter, $39.2 million. We've got a credit agreement for that $216 million that defined our leverage at 3.6x, where we're only allowed to net $75 million of our cash against our leverage to decree that calculation. However, if you netted all of our cash against that debt, our balance sheet looks like it's a 2x levered balance sheet. And I think that's very, very helpful -- help be, particularly in light of the COVID environment that we're in. We talked about Q4 pacing on our third quarter call. Digital is up, and this is primarily driven by Cisneros, 250% year-over-year. TV boosted by political, but we also mentioned on our third quarter call that TV core business was even facing positive over year-over-year, which we were very pleased to see. But the TV segment was facing 46% over prior year. In radio, again, helped, in part, large part by political was pacing at a plus 15% year-over-year. So very exciting numbers for fourth quarter across all 3 platforms, and we're pleased about what we're seeing in the first quarter as well. That's -- I've got an appendix with the requisite map of our broadcasting footprint. I'll let everyone download that and just go with that at the leisure. We've also got some rankings by market as far as our local news segments are concerned. So with that, Derek, I'll turn it over to you for questions.

Perfect. Chris, thank you so much for that. So just as a reminder for anybody who's on the line who would like to ask a question, I believe that there is a Q&A link if you can send me your questions, and I'll receive those via e-mail and then I can read them out to Chris. So if anybody has those questions, please go ahead and send those to me. In the interim, while we wait for any inbounds, Chris, maybe I'll just -- had a couple of questions here. I jotted down as I was listening to your remarks to get this started. As we go to 2021, obviously, lots of changes to big ones being the new administration that hopefully will be smoothly transition on the 20th and then there is a -- obviously, the vaccine and recovery rollout. Just curious how you think through those variables and any impacts they may have on your business and outlook for '21?

Well, I think the change in the administration is significant for us because a large portion of our assets are located along the U.S.-Mexico border. And those markets have been heavy or, I would say, hard hit by a tougher immigration stance that the Trump administration has taken. And a lot of people don't recognize or understand that there's a lot of fluidity in the economics of a border market. There's just a ton of money that typically would come into the market from Mexico as well as plenty of money going back to the Mexican side. That has materially changed over the past 4 years. Folks that would normally come into the U.S. to take care of shopping needs, you know what, they're doing that less and less these days. And there's a stark difference in those local economies today versus what those economies looked at -- look like 6, 8, 10 years ago. So a more user-friendly administration when it comes to immigration policy, we think, is nothing but good news for our particular business model and we're really excited about that. So as far as COVID is concerned, look, we're in Los Angeles right now. That's where our headquarters is. We are in lockdown mode, but we're finding ways to work with firms to continue serving their advertising needs. And I'd say the worst is here, as we speak, but it feels like we're starting to figure this out. And as things start breaking lose because of the vaccine getting distributed over time and how long it takes before we get back to a full fire -- full firing market, I don't know. But you know what, we've made enough cuts and streamlined efforts to our cost structure. So we feel that we're in a great position. It's not a question of if, but when this market starts to recover, we're going to be in a great position to really drive our profitability.

Great. One other question. I mean you obviously cited as a strength in your balance sheet and the cash and the liquidity you have, it's clearly served you well and allowed you to be opportunistic during the last year. But as we move towards a recovery, how would you guide or think about capacity, leverage, the ability for pursuing different type of capital allocation?

Sure. Well, we cut our dividend in response to COVID. We'll be revisiting the dividend policy quarter in, quarter out as we progress into 2021. So we'll see how that takes us. I think historically, you know what, we've been pretty even keeled as far as capital allocation between M&A, shareholder returns and debt paydown. I think given our balance sheet is pretty tight with respect to a 2x levered balance sheet. I think it's safe to say we'll be more focused on M&A and shareholder return opportunities as far as capital allocation rather than debt, but that remains to be seen. The good news is we have plenty of cash. It's a resource that gives us an advantage in a marketplace where the acquisition activity could heat up in 2021. And it gives us a competitive advantage that others don't have as far as being able to execute on M&A. So we feel that that's a huge asset that's not necessarily a hidden asset, but it's a huge benefit to us, and we'll see how that plays out.

As you think about those M&A opportunities, domestic versus international, you obviously just made a significant international move. How would you think about prioritizing or thinking through those?

I think we're pretty open-minded. Here in the U.S., there's simply -- there are a handful of companies in the Spanish language media space that are struggling, we'll see how those play out. And whether it's an opportunity that's right for us, we'll have to take a look at it and make that decision. But we're open minded. And as far as the international marketplace, we're -- we've been in the international marketplace, mainly in Mexico and Latin America and Spain now for the better part of 5, 6 years. We understand it well. We've got a management team in those markets that we're very comfortable with. And we feel we've got the right infrastructure to take advantage of what is essentially an emerging market. The competition is not nearly what it is here in the United States. It's less mature, and it's a market that we're very comfortable operating in. And that's one of the strengths that Juan Saldívar brings to the table as far as his leadership is concerned. And so in short, we're open-minded to either. I'd hesitate to rank either one as far as priorities. But look, we're looking for accretive acquisitions that complement our existing operational strategy. And if it fits that definition, we'll take a hard look at it.

Great. Maybe one question just on -- as you think through your different businesses and segments today and how they work together, I mean you talk about some of the legacy businesses and to some extent, they've been synergistic or helpful as you've grown some of your organic digital efforts with your legacy assets and then you've expanded into new spaces. How will you see those segments working together and being synergistic in the future? And where do you think you are on that journey?

Well, I think we're in early days as far as the synergistic opportunities are concerned. So Cisneros, the brand-new acquisition, you've got a sales rep firm that's got their own clients that's potentially complementary to our existing legacy international digital clients. There are also products that are complementary with respect to the Facebook product and the LinkedIn product versus the Hispanics product that we have. So the opportunities on the international front are exciting. We haven't even scratched the surface, right? Now we're in the process of integrating such scenarios that integration processes has gone exceedingly well. We're very pleased with it to date. Once we get that operationally integrated then we'll start working on the upside potential with respect to the sales synergies. And on the domestic side, there has always been -- there continues to be a longstanding effort to combine our digital platforms as far as pitches are concerned to our broadcasting clients. Look, you -- today, you can't even get in the door of a local car dealership without having some kind of digital pitch that's complementary to your broadcasting pitch. You have to have it. It's a must. It's not a luxury. It's not an add-on. You either have it or you're not in the running for the buy for the campaign. So -- and that will be an ongoing effort, but it continues to yield results for us.

Great. And then I just note that recently there was an ownership change for the owners of Univision, obviously, an important partner of yours. Just curious if there's any contractual impacts or anything notable about that relationship that people should be aware of?

No, it's -- obviously, it's a brand-new relationship. We're excited for them about the opportunity. There are lots of things that -- lots of ideas that they have as far as new management is concerned. We're excited to work with them as far as being their largest affiliate partner. And look, we think it's all good, right? And you know what, even though it's our core legacy business, it's a very important business to us. Univision is one of, what is our most important partner throughout our business platforms, and we'll continue to work with them and hopefully have some fun as we go. The rating story has improved significantly over the past several years over Univision. Televisa, who is the content provider of Univision's content has made some important changes to its lineup that has begun to resonate with the younger part of the demographic and ratings wise, that's been nothing but a tailwind. So we expect that to continue and with the Televisa relationship and with the Univision relationship, we're excited about the new management team, and we're excited to work with them. But there are no contractual changes as far as the actual change in management is concerned and ownership.

Great. Thanks for that. Right now, I'm showing that the question queue is empty. I think we've covered whose have come in. I'll give it here a minute, but I'll ask you, Chris, is there anything else that you would like to clarify or double back on?

No, I don't think so. And look, it's early days in 2021. It feels like a difficult marketplace, given COVID, particularly here in L.A., but we're excited about 2021. We've got big expectations. We've got a management team that's excited. There -- it just feels like there is pent-up demand as far as everyone wanted to get back to normal operations. And you know what, we're just pleased to be in a position with our clients to hopefully serve their advertising and marketing needs. So we're excited about 2021. We think it's going to be a great year.

Fingers crossed, I hope the same. So Chris, it was great having you as part of the conference. Hopefully, we won't have to wait, I guess, 10 years for the next time. And hopefully, the next time we're able to do it in-person, not virtually.

Exactly. From your lips to God's ears, Derek.

Super.

Great.

Thanks so much. Thanks, everybody, for joining. And have a good afternoon.

You, too. Thank you, all.

Bye-bye.

Bye.