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Univision Communications Inc. (UVN)

Q1 2006 Earnings Conference Call

May 4, 2006 4:30 p.m. EST

Executives

Ray Rodriguez - COO

Andy Hobson - CFO

Analysts

Victor Miller - Bear Stearns

David Joyce - Miller Tabac

David Miller - Sanders Morris Harris

James Dix - Deutsche Bank

Mark Wienkes - Goldman Sachs

David Bank - RBC Capital Markets

Eileen Furukawa - Citigroup

Jonathan Jacoby - Banc of America Securities

Jessica Reif Cohen - Merrill Lynch

Lee Westerfield - Harris Nesbitt

Patrick Grenham - Vanguard

Anthony DiClemente - Lehman Brothers

Presentation

Operator

Good day. Welcome to Univision's first quarter earnings call. Some of the information discussed today will contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements involve risks and uncertainties including those relating to Univision's future success and growth. Actual results may differ materially due to risks and uncertainties as described in Univision's filings with the Securities & Exchange Commission. Univision assumes no obligation to update forward-looking statements discussed on this call.

On today's call we have Ray Rodriguez, President and Chief Operating Officer; Andy Hobson, Chief Financial Officer and Chief Strategic Officer; and Diane Vesga, Vice President. I will now turn the call over to Ray Rodriguez. Go ahead, sir.

Ray Rodriguez

Thank you. Good afternoon, everyone and thank you for joining us today. Univision is reaping the benefits of our long-term strategy and our recently launched initiatives. I am happy to report that the strong financial performance you will hear today is a result of the investments we've made in our businesses, our cost reduction efforts, the underlying growth of Spanish-language media as well as Univision's leadership position in every industry in which we operate.

Specifically, you will see that our momentum is strong and growing. In addition, with compelling NTI data for the first time in our history we will be able to use the same information as the English language networks to show our up front advertisers that Univision has become a tough competitor to ABC, CBS, NBC and FOX; and regularly beats one or more of these four English language networks in prime time.

We expect current and prospective advertisers to take note of this as they allocate their dollars away from traditional spends on English language television and towards innovative, high yield opportunities like the Univision Networks. As the Hispanic population continues to grow in size, we are confident that advertisers will see that reaching Hispanics through Univision Television, radio, music and online assets will be a key to their success.

Let me start by highlighting the first quarter performance of each of our divisions starting with the television division. On one out of every two nights in the quarter the Univision network attracted more adult 18 to 35-year-old viewers in prime time than one or more of the Big 4: ABC, CBS, NBC or FOX. Let me remind you, that's among all 18 to 34-year-old viewers in the entire U.S., not just Hispanics. Quarter after quarter we told you of our outstanding success among the 18 to 34 demographic.

While Univision's audience is made up of Hispanics of all ages, our popularity among young viewers cannot be over looked. In fact, in the first quarter the median age of a Univision viewer was 33 years old. That compares to an average median age of 45 for the top six English language networks. In fact, TeleFutura audience is also very young with a median age viewer of only 35.

Our popularity isn't just among adults. It is among teens and kids as well. In the first quarter we increased our teen audience 14% in prime time and 13% in total day compared to first quarter last year. Our viewership among kids 2 to 11 increased 10% in prime time and 14% in total day. So while some may assume that bilingual kids and teens would largely choose to watch English language television, they would be wrong.

Our growth among kids and teens and our continued strength in the young adult demographics proves that it doesn't matter what generation you are, Hispanics form a unique bond with Univision when they're young, and that bond only gets stronger as they grow into adulthood.

During the first quarter of 2005, our two most popular novellas of all time came to their finales, bringing us record audiences. So naturally our 2006 audiences were comparatively lower as a result. With a slate of new, cutting-edge novellas, we expect our growth to hit record levels. The new novellas include the highly anticipated 'La Fea Mas Dea' which has been a runaway hit many Mexico and had a strong start on Univision last week.

We made headlines in the last few weeks with our announcement that the seventh annual Latin Grammy Awards will be held in New York City for the first time. With the support we've already received from the Mayor's Office and the City, we have great expectations that this will be our most successful show ever.

Locally, during the February Sweeps, Univision attracted more total adults 18 to 34 than the local ABC, NBC, CBS and FOX affiliates, to rank as the number one station in prime time in Los Angeles, Phoenix, Sacramento, Houston, Fresno, and Bakersfield.

In total day, Univision stations were also the number one ranked stations in those same markets plus also in Miami and Dallas among all adults 18 to 34. Our flagship station, KMEX in Los Angeles showed considerable strength in this sweep ranking number one in prime time by a considerable margin. KMEX out-delivered the number two ranked FOX affiliate by 35%; the number three ranked NBC affiliate by 86%; and the number 4 ranked ABC affiliate by 100%.

Now turning to the TeleFutura network, we mentioned last quarter that we were going to be making some programming adjustments at TeleFutura. One month ago we implemented a simple change to our prime time line-up adding a movie block Monday through Friday from 7 to 9. Already we have seen a positive impact on our weekday prime time audience with growth of 12% among Hispanic adults 18 to 49, and 24% among Hispanic adults 18 to 34, compared to the previous month.

Over the course of the first quarter, TeleFutura's primetime viewership experienced notable growth, increasing 11% among Hispanic adults 18 to 49 and 20% among Hispanic adults 18 to 34. TeleFutura remained firmly placed in the number two spot ahead of Telemundo and behind only the Univision network in early morning, daytime and weekend daytime among Hispanic adults 18 to 49.

Our cable network Galavision once again delivered more Hispanic viewers than any other cable network, regardless of language, to rank as the number one cable network among Hispanics in prime time. Galavision also continued to reach all time high viewership levels delivering its highest ever total day audience among all key demographics.

Galavision prides itself on its line-up of news programming which reports on the people and places that Hispanics care about most. In the first quarter every single one of the top 10 cable news programs in any language among Hispanics 18 to 49 was on Galavision.

Now let's talk about our radio business. Our results in the Arbitron winter book have been extremely impressive so far with nearly all of our clusters posting sizable gains over the fall ratings period and many showing significant gains over last year's winter book.

In Los Angeles, Univision Radio continued to expand its listening, increasing its audience share among adults 18 to 34 and 25 to 54 by 39% and 20% respectively over the winter of 2005 book. We own and operate the number one and the number two ranked stations among all stations in Los Angeles and broadcast the number one Spanish-language morning show in that market.

In Miami, Chicago, and Phoenix Univision Radio stations posted double-digit adult 25 to 54 audience share growth over the winter 2005 book and claimed the number two ranked positions among all stations in any language in all three of those markets.

We also experienced significant growth in Las Vegas where we ranked number one in the market among adults 25 to 54. In the San Francisco, Houston, Dallas and San Diego markets where new Spanish-language competitors have launched over the last year, Univision Radio posted significant audience share gains of 20% or more over the fall 2005 book.

Let's turn now to music. Univision Music group continued to lead the U.S. Latin music industry and was responsible for an average of 37 out of the top 100 Latin albums sold according to Neilson Soundscan. During the quarter, Univision Music group artists held the number one regional Mexican song spot and the number one single on the overall Latin chart according to Billboard.

As you know, we're also leaders in new media. In the first quarter, Univision.com visits increased 50% compared to last year and for the first time in our history we achieved 1 billion page impressions in a singly quarter. We're far and away the number one Spanish-language web destination.

With this momentum and four consecutive quarters of profitability under our belt, Univision Online is now poised to fully reap the benefits of our investment. I would now like to turn the call over to Andy Hobson for our financial overview.

Andy Hobson

Thank you, Ray. Univision had a strong first quarter. The Company delivered consolidated net revenue growth of 4% within our guidance of mid single-digit percentage growth. Pro forma operating income before depreciation and amortization increased by 16%, exceeding guidance of low double-digit percentage growth. Pro forma net income increased 27% and diluted EPS grew 31% to $0.17, exceeding our guidance of $0.14 to $0.16.

To provide a comparable basis, the pro forma results exclude a $1.3 million gain related to our sale of Entravision stock, offset by $2.8 million of stock compensation expense related to FAS 123-R; a $1.6 million charge related to an asset impairment, $1.4 million of Televisa litigation costs and $900,000 of costs related to exploring strategic alternatives.

Our advertising-oriented businesses of television, radio and internet delivered an outstanding quarter with net revenue growth of 9% and pro forma operating income before depreciation and amortization growth of 25% in the quarter.

Our television business was the main driver of our financial results for the quarter, generating net revenue growth of 10% and delivering strong operating leverage with pro forma operating income before depreciation and amortization growth of 30%.

This strong operating leverage reflects the impact of the cost reduction plan implemented during the fourth quarter of 2005 and represents an outstanding result.

Our network business grew net revenues by 10.5% and our television station business grew revenues by 8.5%. Univision Radio generated net revenue growth of 2% while the radio industry was flat, as reported by the radio advertising bureau. Univision Radio's pro forma operating income before depreciation and amortization for the quarter decreased by 7%.

The slowdown in our radio business is driven primarily by revenue declines in Miami, San Francisco, Houston and San Diego where we recently implemented format changes to address new competitive entries. Excluding these four markets Univision Radio generated 8% net revenue growth in the first quarter.

The outlook for these four main markets is expected to improve in the second half of the year, driven by their very strong ratings performance in the winter book. In the winter book, ratings increased by 20% in Miami, 33% in San Francisco, 24% in Houston, 35% in San Diego versus the fall book among adults 25 to 54.

As discussed in our last earnings call, our music business had extraordinary financial results in the first quarter of 2005 with 52% revenue growth and 125% operating income before depreciation and amortization growth, making 2006 first quarter comps difficult.

Our music business revenue decreased 24% in the first quarter and pro forma operating income before depreciation and amortization decreased 64%.

During the first quarter, Univision Online continued to be profitable increasing revenues 35% and delivering pro forma operating income before depreciation and amortization of $200,000.

Income tax expense for the first quarter was $26.8 million of which $14.5 million represented deferred tax expense. Income tax expense is net of $5.7 million of benefit related to the settlement of certain federal and state tax audits. Cash taxes were $10.4 million.

Capital expenditures for the first quarter totaled $20 million of which $11.3 million was related to construction projects and $8.7 million represented normal maintenance expenditures. At March 31, outstanding indebtedness including capitalized leases totaled $1.42 billion, our cash position totaled $103.2 million.

In compliance with regulation FD of the Securities & Exchange Commission, we provide guidance on our quarterly conference calls. Again, for comparable purposes the second quarter 2006 guidance excludes the impact of share-based compensation under FAS 123-R which for the quarter is estimated to reduce operating income before depreciation and amortization by approximately $3 million.

Guidance also excludes Televisa litigation costs and costs related to exploring strategic alternatives which combined, are estimated to be approximately $2 million to $3 million in the second quarter.

We estimate the consolidated net revenues for the second quarter will grow in the mid to high 20% range. With operating income before depreciation and amortization growing in the mid 20% range. This guidance includes the impact of the World Cup.

As mentioned during our last earnings call, the revenues and associated costs of the World Cup fall approximately 80% in the second quarter and 20% the third quarter. During the second quarter the World Cup is expected to contribute approximately $90 million of incremental net revenue and is expected to break even to be marginally profitable on an incremental basis.

Excluding the impact of incremental World Cup revenue and expenses, the guidance for the second quarter reflects consolidated net revenue growth in the low double-digit percentage range and operating income before depreciation and amortization growth in the mid 20 percentage range.

Pro forma diluted EPS is expected to increase between $0.31 and $0.32 per share from $0.24 per share in 2005 which is adjust to exclude a loss from a non-temporary decline in the fair value of our Entravision investments of $0.14 per share in the second quarter of 2005. The pro forma adjustments discussed above increased pro forma EPS by approximately $0.01 a share in the second quarter 2006.

Second quarter CapEx is expected to be approximately $45 million. CapEx for the full year is expected to remain in line with our previous guidance of $105 million.

On March 17th, 2006, Univision entered into programming, licensing arrangements dated as of May 31, 2005, with TeleVisa and Venevision giving Univision the exclusive right until 2017 to utilize TeleVisa and Venevision programs on the Puerto Rico television stations.

On March 17, 2006, Univision entered into a new revolving credit facility with a syndicate of commercial lenders that will mature on March 17, 2011. The aggregate amount of commitment under the revolving credit facility is $1 billion.

As in our last earnings call, we will not be discussing nor answering questions regarding our ongoing process to explore strategic alternatives. Likewise, we will not be discussing nor answering questions concerning the litigation initiated by Grupo TeleVisa. With that, we'll be happy to take your questions. Adrianne, will you please instruct the participants on how to ask questions.

Question-and-Answer Session

Operator

(Operator Instructions) First to Victor Miller at Bear Stearns. Go ahead, sir.

Victor Miller - Bear Stearns

Good afternoon, Ray. Good afternoon, Andy. Thank you for taking the questions. First of all, can you talk a little about the World Cup economics? In '02, I believe from a reported basis your EBITDA was about $8 million; internally you thought it was about a loss of $2 million, somewhere around that.

We had thought maybe that the EBITDA impact would be significantly better this time around, yet the guidance as you suggest for both with or without the World Cup is about the same number at mid 20's growth.

Maybe you could talk a little about whether you will make money on the World Cup from your reported, internal P&L basis.

Secondly, you talk about radio being up 8% ex some format changes and plus 1% including those. Maybe you can tell us a little about what you're seeing in terms of the impact, maybe more specifically on some of the markets of the language weighting changes that we've seen at the Arbitron numbers. And, whether you think that means by the end of the year you're more likely to see the 8% number rather than the 1% number for the second half. Thanks.

Andy Hobson

As it relates to the World Cup, Victor, the World Cup as I think we have been pretty clear this year, is expected to be marginally profitable. We have, in the second quarter, approximately $90 million of revenues on an incremental basis. We assume that two-thirds of World Cup revenue are incremental.

We've also said previously the expenses for the World Cup, license fees and productions are about $110 million. $90 million in revenue and 80% of the revenue is falling in the second quarter, approximately we have $88 million of expenses against it. So we would make about $2 million. We'll make low single-digit millions in the World Cup this year. The $2 million in the quarter is about 1% EBITDA growth.

Victor Miller - Bear Stearns

Andy, don't you save a lot because you don't have the expense associated with the PLA that you don't have to run during that time? So isn't there an incremental cost savings there that's around $20 million, $25 million? So when you look at it, the profit is more like in the mid 20's?

Andy Hobson

No, I think if you do it that way you only do the license fee against the non-incremental portion or against the third; and that would be again about $5 million or $6 million of potential cost savings.

Victor Miller - Bear Stearns

Okay.

Ray Rodriguez

Victor, on the radio when you look at the fall book, the one before this winter book and compared to this latest book, for instance in Los Angeles our audience is up 11%. It is up 15% in Miami; 17% in San Francisco, 25% in Chicago, 16% Houston, 26% in Dallas, 48% in San Diego. So our audience is growing tremendously this quarter over last quarter, and we're looking forward to much better revenue numbers going forward.

Victor Miller - Bear Stearns

Thank you very much.

Operator

We'll go next to David Joyce at Miller Tabac.

David Joyce - Miller Tabac

If you could break out the percentage revenue growth from the networks versus the stations, and the local versus national contribution.

Andy Hobson

Networks versus stations, networks was 10.5%, stations 8.5%; and within our station business that growth was driven by national that was up 17%, and local was up approximately 4%.

David Joyce - Miller Tabac

And local versus national in radio, please?

Andy Hobson

Local was up 2%, and our national network business combined, which is pretty much the same advertisers, was up 1%.

David Joyce - Miller Tabac

Thank you.

Operator

We'll go next to David Miller with Sanders Morris Harris. Go ahead, sir.

David Miller - Sanders Morris Harris

Hi. Congratulations on the solid results. Ray, on the radio side, once again you knocked the cover off the ball in Los Angeles and Miami. When you write in your press release here that KLVE and KSCA increased cluster audience share by 39%; and in concert with what you did in terms of the share increase in Miami, do you have any study on what the break out is between much is due to population growth? How much is due to modernization of the Arbitron data? How much is due to share gains? I would be very interested in that. Thanks very much.

Ray Rodriguez

That's a very, very complicated and very detailed question, and I can get numbers to you. I can tell you that the numbers we're reading off the population growth, I mean those are huge percentage growths, so that is not due to population growth other than a small percent of that.

It has to do with, these are markets where our cross-promotion is doing great. In some of the other markets where there are new competitors, a new competitor will pour a ton of money into a new format. For instance, when some of these Clear Channel stations have gone Spanish and they just pour a ton of money in promotion and get some listenership early on.

What we've seen is that wears out real quick and our numbers start to shoot back up. But I would say -- and I will get back to you with all the numbers, David -- but the population growth year-over-year is not significant enough to account for this large of an increase in audience. We're just really hitting on all cylinders.

Andy Hobson

I have a couple of the details, Ray. Population growth tends to be 3% to 4% a year, so of a delta in change, maybe 3% to 4% of that delta is population growth. According to Arbitron, the benefit of language weighting would only be at most a 5% lift, and depending on how the market splits between Spanish-dominant versus bilingual it could actually be negative.

David Miller - Sanders Morris Harris

Okay. Thanks very much.

Operator

We'll next to James Dix at Deutsche Bank. Go ahead, sir.

James Dix - Deutsche Bank

Good afternoon, gentlemen. A couple questions. First, just in terms of your strategy for TeleFutura, if you could give a little color as to what your programming strategy is. And, in particular how it is counter programming the Univision Network, especially given they have similar median ages, and how your new schedule is going to play into that.

Secondly, in term of the auto category, it is one which a lot of people following the television business have had a lot of interest in. What are you seeing, particularly in terms of where the money is coming from in terms of tier 1, tier 2, tier 3 in terms of your growth? Are you seeing any particular stand outs in terms of growth there?

Finally, how important do you think it is for Univision to develop an in-house programming capability over time?

Ray Rodriguez

I will talk about the TeleFutura strategy. Even though the median ages are very similar, you really have to look at our point in time in Spanish-language television, a little bit like it was in 1964 before ABC came in. There were only two choices. When TeleFutura came in, there is just so many people with only two choices that it made absolute sense to give the audience a choice, any choice.

If you look at the Telemundo and Univision programming grids, they are very, very similar. Novellas in prime time, et cetera. So if you didn't like a novella, there was no place to go. It was a simple deduction that if you started a third network with as many people as there are, you could program general interest programming such as movies, which is what we did and game shows and so forth in prime time and attract a huge amount of audience. That's what we did.

It is just an absolute counter programming strategy versus trying to limit our demo. We're very generalized, and that way we maximize the audience we can get to. We don't want TeleFutura to be a niche program programmer because it doesn't make any sense. We would be going for a smaller audience where we can go for 40 million potentials.

Andy Hobson

As it relates to auto industry, the auto industry for the quarter was up a little over 8%. Each of the tier 1, tier 1 and tier 3 categories was up a pretty comparable amount. They're all up high single digits.

Ray Rodriguez

As far as in-house programming, the way we approach it is we know that we can get programming from our programming partners at no additional cost. But if there is no programming available for a certain day part and we believe that there are advertisers there that we are not able to get with the programming provided by our partners, we do a study on how much that revenue is versus what it might cost to produce a show. If we determine that we're going to be able to grow EBITDA even though we're going to spend money on production, that's what we will do.

If not, we leave a lot of money on the table, so there is a hurdle that we have. There is a pretty big bar we have to jump in order for us to decide to produce something in-house, and that is determined by economics of EBITDA.

James Dix - Deutsche Bank

Great. Thanks very much.

Operator

We'll take our next question from Mark Wienkes at Goldman Sachs. Go ahead, sir.

Mark Wienkes - Goldman Sachs

Thanks. Compared to the approximately 170 network TV advertisers that bought Univision last year in the up front, how many do you think are planning to buy this year? Second, what kind of penetration into buying more brands or spending on more brands are you seeing across your advertisers?

Ray Rodriguez

I don't think that we are going to be talking about our up front potential on this call, so I wouldn't be able to talk to you about that.

Andy Hobson

As it relates to new brands in the first quarter on our network business, we received 10 new brands from Colgate, General Mills, J&J, Unilever and Wyatt.

Mark Wienkes - Goldman Sachs

Assuming no change in ownership, what do you think is the optimal leverage that would maximize returns?

Andy Hobson

I haven't thought about that. Certainly a lot higher than we are now.

Mark Wienkes - Goldman Sachs

Okay. Thank you.

Operator

We'll go next to David Bank with RBC Capital Markets. Go ahead, sir.

David Bank - RBC Capital Markets

Can you talk a little bit about what the scatter market environment was like in the first quarter and how it looks in the second quarter?

Andy Hobson

Network revenue up 10.5%. The scatter market was pretty consistent with how it has been historically. There is not a significant difference one way or the other.

David Bank - RBC Capital Markets

And same kind of environment in the second quarter?

Andy Hobson

As far as I know.

David Bank - RBC Capital Markets

And one follow-up. I know you said you don't really want to talk about the up front but I thought I would ask. Can you talk about essentially how much you pre-sold in connection with the World Cup for the 2007 up front? Is there a big chunk of inventory that has been sold already? Can you quantify that percent?

Andy Hobson

If I understand your question and you're asking when we do multiple year commitments with World Cup advertisers,.

David Bank - RBC Capital Markets

Right.

Andy Hobson

Is that a significant portion of inventory? No. It is not a significant portion of our inventory.

David Bank - RBC Capital Markets

Thank you.

Operator

We'll go next to Eileen Furukawa at Citigroup. Go ahead, please.

Eileen Furukawa - Citigroup

Thanks for taking the question. We're wondering if you saw players like Clear Channel who have been more aggressively targeting Hispanic audiences starting to take market share in the first quarter, within what we would call the Hispanic focus subsection of the radio industry? Or would you say your market share was stable or growing within the sub segment? If they did take share, do you think the share shift is temporary and when it might reverse itself?

Also a minor question, the music business seemed a little challenging in the first quarter. Can you give us color on that and whether you think this is just temporary in nature? Thanks a lot.

Ray Rodriguez

As far as any of the competitors that have changed formats into Spanish, as I mentioned before, when they do that, there is a great deal of money spent at the very beginning. There is a curiosity factor. They do get listeners to tune in, but what we have found is as soon as the novelty kind of wears out and the money runs out for promotion, Univision comes right back. Sometimes we've done it just staying on course, and other times we have made format moves that have been very well received, as I mentioned.

I just went through all of our markets, all of our radio markets and all of them are up, and there are a few of those where players like Clear Channel have come in, and did take some share at the beginning, and then we came right back, so that's the history so far.

Andy Hobson

What was the second question?

Eileen Furukawa - Citigroup

A little more color on what happened in the music business and whether or not the challenges you face are temporary in nature or not.

Andy Hobson

Our release schedule in our music business is very back-end weighted this year into the third and fourth quarters.

Eileen Furukawa - Citigroup

Okay. Thanks.

Operator

We'll go next to Jonathan Jacoby at Banc of America Securities.

Jonathan Jacoby - Banc of America Securities

Good afternoon. The question I have is wondering if you're getting any anecdotal evidence when you speak to the buyers in terms of how NTI is progressing. Is it changing the way they look at the Hispanic marketplace? Are you seeing any of that as you progress and scatter as you head for the up front in any of your discussions? Thanks.

Ray Rodriguez

Well, in general, Jonathan, it is so early at this point we really launched late, late December so the thing has been up for four months. We're out there telling the story. There is no way getting around it. They are seeing the numbers, and we're still to see how quickly advertisers are going to decide to buy the NTI or not.

September '07 the Hispanic measurement goes away. There is no other way to buy, that is September '07. The other fortunate thing is that the NTI numbers, the audience that we are showing as being delivered is higher, both for Univision and TeleFutura than when measured by NHTI. That's also a very big positive going forward.

That's even though we still believe that the NTI sample has some improvements in many of the language weighting categories and so forth. We see nothing but good news going forward.

Jonathan Jacoby - Banc of America Securities

Thank you.

Operator

We'll move next to Jessica Reif Cohen with Merrill Lynch.

Jessica Reif Cohen - Merrill Lynch

A couple questions. How indicative traditionally is second quarter scatter performance of your up front performance?

Andy Hobson

I am not sure there is. Jessica, I don't believe there is any kind of correlation. It just depends on what… it just depends. I don't believe we've got any stats on that.

Jessica Reif Cohen - Merrill Lynch

Then just go back to the NTI thing. We heard there is some pushback from advertisers because you don't have year-over-year comparisons obviously. Are you hearing that? Do you expect to use NHTI for a proportion of your sales for this year's up front? If that's the case can you talk about your expectations? Does that hamper your sales effort or how do you see that?

Ray Rodriguez

The NTI numbers are better so we're pushing them. An advertiser may want to not go to the NTI because our numbers are higher, so we're pushing as many of them into NTI as possible. The numbers are higher, and there are no comparisons from prior year, so it makes it difficult. But again, in September of '07 that all goes away. We don't know yet at this point.

Some have told us they're clearly buying from NTI and some have as you say been resisting, but our numbers in NHTI are huge, as you know.

Jessica Reif Cohen - Merrill Lynch

Right. I wanted to clarify something on radio. Obviously we've gone through this on the call for awhile how excellent your ratings are. Are you already seeing the pick up in revenue in Q2?

Ray Rodriguez

Are we talking about Q2 revenues, Andy? I forget if we're breaking them out.

Andy Hobson

I think it is fair to say its improved but not dramatically. We expect the big effect of these rating gains to happen in the third and fourth quarter. There is typically about a six-month lag from moves like this in a rating book to revenue.

As it relates to scatter and up front correlation, I don't see a lot of correlation looking over the past five years on a quarterly basis.

Jessica Reif Cohen - Merrill Lynch

All right. Thank you.

Operator

We'll go next to Lee Westerfield with Harris Nesbitt. Go ahead, please.

Lee Westerfield - Harris Nesbitt

Thank you. Good afternoon. Just two questions. First, the sports licensing agreement, I want to touch on that. That covers league soccer games. What else's does it cover? When does it expire? In any way you want to provide us an understanding, what percentage of your revenue, your TV revenue, your royalties, whatever you would choose to say, does the sports license agreement cover?

The second question, Andy, I don't know whether you have an updated statistic about this you can share in any way, but what is the total foreign ownership on a diluted or basic basis at this stage?

Andy Hobson

The sports licensing agreement, are you talking about Mexican league soccer?

Lee Westerfield - Harris Nesbitt

Yes, I am.

Andy Hobson

Okay. Mexican league soccer expired. That agreement expires at the end of '07. I don't have what portion of our revenues is made up of Mexican league soccer. We still have the right to buy those programs directly from the teams. We right now buy them in concert with Televisa.

Lee Westerfield - Harris Nesbitt

Okay. The foreign ownership, please?

Andy Hobson

I do not have a good answer on that other than the three obvious foreign owners that exist now in our stock, Televisa, Venevision and Carlos and Son.

Lee Westerfield - Harris Nesbitt

I can do that arithmetic. Thank you very much.

Operator

We'll go next to Patrick Grenham with Vanguard. Go ahead, sir.

Patrick Grenham - Vanguard

Thanks for taking the call. I notice you had good improvement in the internet segment. I was wondering what you're planning on doing going forward in order to maintain that growth or improve it?

Ray Rodriguez

The most important thing is we are that we continue to grow people coming in and so we are by far -- there is no one that even comes close in Spanish-language internet in the U.S. than we are -- and we continue to grow and so that's number one.

We're also able to cross promote our internet site not only on television, but we're promoting it on radio as well and that advantage is huge for us. So as this thing continues to grow which it will, we lag the U.S. growth by a few years, but we're kind of tracking just a few years back.

We're seeing growth in all the areas we're in. Specific sites where we're in joint venture with other folks like Google and so forth, and then we have advertising sales growth. On top of that we have new media like mobile and so forth which all of that is kind of in that division.

So again, we've made investments over years and we are now not only breaking even but starting to make a little money, so again, it is only upside. The investment portion is now complete.

Patrick Grenham - Vanguard

Can you talk about or tell us at all how you expect margins and growth to trend over the coming quarters?

Andy Hobson

We don't give divisional guidance on the internet business. Right now the internet business is very well positioned. We have invested about $100 million in that business to get it to breakeven, and every incremental piece of news we hear out of that division is positive.

Their focus is more of a broadband portal, and I think prospectively we'll continue to move in that. That combined with a very, very hot mobile telephone business among Hispanics is driving it. Advertising, I forgot what the exact number is, but the cost to advertise on our home page is just dramatically increased from where it was. That combined with just a tonnage business of the page views have really driven revenue.

Keep in mind when you think about that business, though, that internet penetration among Hispanics is only at 40%. We're dramatically behind the overall penetration rate in the U.S. It is about the same as where it was in 1999.

Patrick Grenham - Vanguard

Okay. Thank you.

Operator

Our next question is from Anthony DiClemente with Lehman Brothers. Go ahead, please.

Anthony DiClemente - Lehman Brothers

Thanks for taking the questions. I have two. First on the Q2 guidance for EBITDA, giving acknowledgment to the fact that the World Cup is marginally profitable in Q2, can any of the mid 20's percent growth be attributed to a halo effect or a crowding out effect, I would call it, from the World Cup?

Secondly just wondering on the subject of retransmission consent, CBS was in the news signing this deal with Verizon's new video network at $0.50 a sub. Have you given any thought as to what the Univision Network might be worth to a cable or satellite MSO on a per sub basis? Do you think a Big 4 network would have to set that precedent? Thanks.

Andy Hobson

Because we're not fully sold, I don't think we get this halo effect with World Cup crowding out inventory, as may be more commonly seen with the Olympics or even with political advertising. I don't think that's occurring here.

I think pricing for our services will in part be determined by how the other networks and large station groups set comparables. If you look at our networks compared to other niche-oriented cable networks, I think that our networks deserve about $0.20 a sub on an expanded basic basis, and in some of the niche tiers many, many, many times more than that.

Anthony DiClemente - Lehman Brothers

That's great. Thank you.

Operator

We'll go back to Victor Miller with Bear Stearns. Go ahead, please.

Victor Miller - Bear Stearns

Two things. The core TV growth was quite modest, obviously. It looks like a lot of the expense reduction program you put in is running through there, maybe all of it. Is the core TV growth in that low single-digit range kind of what we should expect for the rest of the year, excluding the World Cup of course. What did you make of the Sleen family taking its stake? What did you take away from that given the timing of everything? Thanks.

Andy Hobson

We do expect modest expense growth in our television business for the remainder of the year. And the Sleen family, we welcome them as shareholders.

Victor Miller - Bear Stearns

Thank you.

Operator

That does conclude today's question and answer session. At this point I will turn the conference back over to Ray Rodriguez for any closing comments.

Ray Rodriguez

Thank you, operator. I would like to thank you again for having joined us today. Have a nice evening.

Operator

That does conclude today's conference. We do appreciate your participation. You may disconnect at this time.

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Source: Univision Communications Inc. Q1 2006 Earnings Conference Call Transcript (UVN)
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