Univision Communications Incorporated (Pending:UVN)
Q4 2015 Earnings Conference Call
February 23, 2016 11:00 AM ET
Rainey Mancini - SVP, Finance and Head, IR
Randy Falco - President and CEO
Frank Lopez-Balboa - CFO
Peter Lori - Deputy CFO and CAO
Aaron Watts - Deutsche Bank
Davis Hebert - Wells Fargo Securities
Good morning, and welcome to Univision's Fourth Quarter and Full Year 2015 Earnings Call. I would now like to turn the call over to Rainey Mancini, Senior Vice President of Finance and Head of Investor Relations. Go ahead, Miss Mancini.
Thanks and good morning everyone. This morning we issued a press release detailing our 2015 fourth quarter and full year results. Before we begin there are several items I need to cover. First 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, including those relating to Univision's potential future success and growth, involve risks and uncertainties. Actual results may differ materially from these statements due to these risks and uncertainties. We have highlighted the material risks and uncertainties that could impact Univision's future success and growth in the forward-looking statements portion of our earnings release. Univision assumes no obligation to update forward-looking information discussed on this call.
Second in order for Univision to report its results on a comparable basis, we have historically used bank credit adjusted OIBDA which is determined in accordance with the definition of EBITDA in the Company's senior secured credit facilities, and the indentures governing the Company's senior notes, except for an exception that is detailed further in the earnings release.
Beginning this quarter we will refer to adjusted OIBDA instead when we address EBITDA. Adjusted OIBDA includes several expense items that are eliminated from the bank credit adjusted OIBDA calculations, the earnings release details, the reconciliation of adjusted OIBDA to GAAP net income attributable to Univision Communications Inc. and bank credit adjusted OIBDA to adjusted OIBDA. Going forward we expect to continue to report both adjusted OIBDA and bank credit adjusted OIBDA.
Third unless we say otherwise, we are providing year-over-year comparisons, and for television ratings, it's among all adults, 18 to 49, in primetime. Finally, with me on today's call are Randy Falco, President and Chief Executive Officer; Frank Lopez-Balboa, Chief Financial Officer; and Peter Lori, Deputy Chief Financial Officer and Chief Accounting Officer.
I will now turn the call over to Randy.
Thank you, Rainey. And welcome everyone to our fourth quarter 2015’s earnings call. I'm pleased to announce that we finished the year strong. In the fourth quarter total revenue increased over 1% and EBITDA increased nearly 3%. For the full year we delivered record EBITDA of over $1.3 billion a 7% increase from 2014 driven by EBITDA growth in media networks. Following my remarks today Frank will provide more details on the financial results.
We've been on a multiyear transformation. We have diversified our top-line growth and grown our EBITDA over the each of the past five years and at the same time transformed ourselves into a dynamic growth platform media company that delivers our leading content wherever and whenever our coveted audience wants it. For the full year 2015 as I mentioned EBITDA increased over 7%. In addition as a result of this transformation over the last year alone we estimate that our monthly unduplicated reach in 2015 expanded 9% to over 49 million people.
Let me highlight some key operational milestones we've reached and achievements we've made across our different distribution platforms in 2015. We continue to deliver large, live, young and unduplicated audience on our broadcast and cable networks. Univision finished its 23rd consecutive season as the number one network for U.S. Hispanics. In addition to airing our popular primetime Novelas we invested in key programming including the successful launch of La Banda, which will return in 2016 as well as making investments in our award winning news programming. These investments are paying off. Our local TV stations are regularly ranked number one regardless of language in key markets such as LA, New York, Houston and Dallas. We received over 95 Emmys and have leading brand equity with U.S. Hispanics and in 2016 we are continuing these investments including the recent launch of Destino 2016, our comprehensive in depth election coverage that will keep Hispanic America and Multicultural Millennials informed on all electoral developments from the primaries to the general election including hosting a debate in March.
We continue to have the highest rated Spanish language cable network and Spanish language sports network with Galavisión and Deportes. Just three years ago after launching Deportes we are the number one rated Spanish language sports network and achieved many key audience milestones in 2015 including reaching nearly 30 million viewers across TV and digital with the Gold Cup. Tying ESPN among Men 18-34 in July and delivering record ratings in 2015 with year-over-year ratings growth of 37%. In short our access to valuable programming through the PLA as well as our investments in our own content have enabled us to a massive portfolio that makes Univision must see. This has enabled us to drive year-over-year growth in our aggregated traditional MVPD subs across Univision, UniMas, Galavisión, and Deportes. This dynamic portfolio of traditional linear assets delivered over 60% of all Spanish language television viewing among U.S. Hispanics across the last broadcast season. We believe our portfolio is the most efficient way for advertisers to view U.S. Hispanics on television. As a result we continue to add new advertisers to our portfolio.
We also continue to extend our reach beyond our traditional Spanish language media through our strategic investment in Fusion and El Rey. These English language networks have expanded our reach to young multicultural audiences and we continue to expand our distribution platforms that will fit well with our younger skewing highly connected demographic by signing strategic deals with Netflix, Verizon, go90 and Sling TV in 2015. Our must see content makes us a desirable partner in any industry skinny bundles or over the top offerings as well as the traditional bundle.
In addition to growing the distribution on our linear TV content we have been focused on opportunities in digital as well. Digital was an area of great growth in 2015. Our video views increased 28% year-over-year to 29 million views a month and our average monthly uniques increased over 74% to average 15 million a month. This growth was achieved organically and through acquisition. Internally we've identified key passion points for our audience and established digital first content across those verticals while also leveraging our linear platforms for both content and a promotional tool for new launches.
In November we announced the launch of the Univision NOW, our own streaming service of Univision and UniMas content. Over the air users who historically could not consume our linear content out of the home now have access to Univision 24/7. We expect this will also allow us to monetize a portion of our audience that we weren’t monetizing before. And finally we announced the acquisition of The Root in 2015 and we made a strategic investment in the Onion in January of this year. These assets are complimentary extensions to our existing digital assets and will help us expand our reach and achieve scale with Multicultural Millennial audiences. So in short our investments organic and through acquisition have created a growth platform medium portfolio that is meaningful to and differentiates us with our audience helping us to be more than just a media company to them.
In addition to the content we provide our local teams hold experiential community events that were attended by over 4 million people in 2015. These events range from empowerment platforms to entertainment for communities that are the most important for U.S. Hispanics. Because of the investments we make in our audience and the communities that they live in we have been fortunate to be recognized with nearly 20 corporate social responsibility awards in 2015. More importantly our audience recognizes this investment as Univision continues to hold the highest brand equity score with U.S. Hispanics among media brands.
As we move into 2016, we think it will be another great year for Univision with the 2016 Presidential election at the forefront of news cycles we believe U.S. Hispanics and Multicultural Millennials will gravitate towards innovation and our Destino campaign. Additionally we're proud to have the distribution rights for the Copa Centenario Soccer Tournament in June which will be played in the United States for the first time ever. We expect that these events combined with our leading content across entertainment, news and sports will create positive tailwinds in 2016. Overall, we're very pleased with the growth we achieved in 2015. We look forward to continuing our transformation and we are optimistic about our ability to achieve growth going forward.
And with that, I'd like to turn the call over to Frank.
Thank you, Randy, and good morning everyone. As you have heard from Randy, we have been on a multiyear journey where we have continued to grow our EBITDA and transform our leading media company. As Randy mentioned we've added an adjusted OIBDA metric to our press release this quarter, in my prepared remarks today I'll refer to adjusted OIBDA as EBITDA and advertising revenue excluding estimated incremental major soccer and political advocacy as core advertising revenue.
Overall, I am pleased with our fourth-quarter and full-year 2015 results. Our fourth quarter EBITDA increased nearly 3% to 335 million. EBITDA adjusting for the impact of political advocacy and content licensing increased nearly 9% to 314 million. Our total revenue increased 1% to nearly 736 million and our core advertising revenue increased 4% to approximately 492 million. For full year 2015 total revenue declined by 1.8% partially as a result of a though comparison to 2014 with the World Cup and political advocacy.
Core advertising was flat year-over-year as gains in our core Media Networks ad revenue were offset by declines core radio. Despite the decline in total revenue in 2015, we achieved our highest EBITDA ever which increased 7.2% to over $1.3 billion. 2015 was a busy year as we took several steps to strengthening our balance sheet, reduce our overall cost structure and strengthening our long-term strategic relationship with Televisa. First, we refinanced approximately 1.2 billion of debt resulting in approximately 35 million lower annual interest expense. Second, we terminated the management fee and technical assistance agreement with the sponsors in Televisa.
In 2015, we had approximately 27 million of these costs which we will no longer incur starting in 2016. Then in July after we paid an inducement fee, Televisa converted 1.1 billion of convertible debt to warrant at our holding company as a result we're no longer required to make 17 million a year in dividend payments to the holding company, and our holding company debt is now equivalent to our operating company debt.
Next, we successfully negotiated an extension of the PLA with our strategic partner Televisa. This extension is pending the successful completion of an IPO. And finally, we terminated our agreement with Venevision which reduces our annual programming cost by $48 million over the next three years. We will use some of these savings by reinvesting in alternative programming initiatives across our portfolio of networks. Overall, we were able to reduce total cost in 2015 by 7% positively impacting our operating margin. Also Moody’s upgraded our corporate credit rating from B3 to B2 which is now in line with our Standard & Poor's ratings of single B. Looking forward to 2016 we're seeking to monetize a proportion of our spectrum assets in the upcoming spectrum option.
Now let me review our fourth quarter performance. Total revenue for the fourth quarter increased 1% to nearly 736 million. Total advertising revenue was flat versus 2014 and core advertising revenue increased 4% to 492 million. In the fourth quarter, we continue to see a strong scatter market for television advertising, the strong scatter market, higher pricing and the addition of new advertisers to the Univision portfolio helped us to achieve core advertising growth. This growth was driven by 5.6% increase in our core media ad network revenue which is partially offset by a 4.9% decline in our core radio ad revenue.
In addition to growth in core advertising, we continue to see growth in our non-advertising revenue streams, non-advertising revenue for the fourth quarter increased 3.4% to 234 million. This was primarily driven by increases in subscriber fee revenue and constant licensing revenue. Subscriber fee revenue increased 8.5% to over 183 million in the quarter as a result of contractual rate increases in additional distribution of our number one rated Spanish language cable sports network Univision Deportes Network. Content licensing revenue increased 14% to 17.4 million.
Now turning to cost in the fourth quarter total costs were flat year-over-year. As I mentioned we renegotiated our agreement with Venevision at the end of 2014 and then terminated the agreement in the fourth quarter of 2015. These changes led to a 22% reduction in direct operating expenses related to the PLA in the fourth quarter. We used some of these savings to reinvest in programming. And as a result direct operating expenses related to non-PLA programming increased 9.3% to 133.5 million for the fourth quarter. This increase was primarily due to increased investments in our entertainment programming including investments in La Banda and news programming. And finally SG&A cost in the fourth quarter increased 11.3% primarily due to the settlement of a onetime contractual matter and an increase in employee related cost.
Before I move on to the balance sheet let me quickly highlight the fourth quarter performance by segment. Media networks revenue which includes all of our broadcast networks, cable networks, local TV stations and digital properties increased 2.8% to 664 million. Media networks co-ad revenue increased 5.6% to 427 million. Total ad revenue increased 1.6% to 434 million within media networks television core advertising revenue increased 4.4% to 4.4 million and core digital ad revenue increased 32.4% to roughly 23 million. We are excited about our digital business as our operational teams work to grow our overall uniques and video views both organically and through investments.
Media networks’ EBITDA grew 4% excluding the impact from political and efficacy and content licensing it was up 9%. For our radio segment core advertising revenue decreased by about a 5% to 66 million which was in line with our pacing that I highlighted in our last earnings call. EBITDA decreased by 2% when adjusted for the impact of political advocacy. Our leadership team has taken certain actions targeting non-programming related cost that has helped us to maintain radio's EBITDA contribution in 2015 while we remain focused on improving revenue performance.
Turning to the balance sheet at the end of 2015 total net debt for the company was approximately $9.3 billion with a net debt to EBITDA ratio of 7 times down nearly 1.5 turns at a Univision holding company level since yearend 2014. This reduction is due to both lower debt levels and higher EBITDA. Capital expenditures for the year totalled 122 million. Over the past four years, we've made meaningful CapEx investments in facilities, consolidations and media technologies. As a result we believe the peak years of CapEx spend are now behind us and estimate that 2016 CapEx would be approximately $100 million. Finally, we ended the year with approximately $2 billion of NOL carry-forwards.
Before I turn it over for Q&A let me just give you a little more color on some additional items in the fourth quarter. We recorded approximately 37 million of restructuring and severance related charges in the fourth quarter which is primarily related to the Venevision contract termination that I detailed earlier. And we had a non-cash impairment loss of 138 million primarily related to the non-cash write off of FCC radio licenses. And finally as Randy mentioned on January 15, 2016 we paid 27.1 million for a 40.5% interest in the Onion a leading digital media company with comedy brands. As a result of Univision’s effective control over the Onion we will consolidate the financial results of the company for financial reporting purposes commencing in January 15, 2016. We expect the financial impact to be immaterial to our overall performance.
So in summary I'm very pleased with our strong fourth quarter and full year results and I believe we will carry the momentum with 2015 into successful 2016. With that let me turn the call back over to Rainey.
Thanks, Frank. Operator, we're ready to begin the Q&A portion of the conference call. I want to remind you that we are in an SEC mandated quiet period as it relates to the spectrum incentive auction under SEC rules we are not permitted to discuss the auction today beyond what Frank commented on already until the SEC announces that the auction has finished. So we will not be able to answer any questions as it relates to the auction. We are also in an SEC mandated quite period, so we will only be able to take a limited amount of questions this morning. First question, please.
Our first question comes from Aaron Watts with Deutsche Bank.
I've got a few questions I will try to be efficient, if thinking about the core ad environment broadly, can you maybe speak to qualitatively how it's felt in the fourth quarter versus even the third quarter across your network local broadcast and radio businesses and then maybe also it would be helpful to hear about how those three segments are pacing in the first quarter?
Well Aaron let me talk to you about I guess qualitatively, in the fourth quarter we certainly saw I think consistent with whether what other English language networks were seeing a fairly robust marketplace and scatter at the network level. Pricing was also very good that has continued into the first quarter, which is also very solid so that feels really good to us. I think on the local side, local TV is rebounded very nicely for us in the fourth and first quarter. Local radio is actually doing well, it's the national business on the radio side that is giving us the most trouble right now and that's a marketplace issue as opposed to a performance issue. We've actually grown a full share point over the last year in radio audience. So I think qualitatively it feels pretty good and I think you it will continue and we're anxious to see what happens in the second quarter which is usually the bellwether quarter for the upfront.
Okay and Aaron, it's Frank moving to pacing, I'll give you pacing for Media Networks radio in total and this pacing is core pacing and excludes The Onion, so for the Media Networks we're pacing mid single-digits. And just giving you a sense the network is pacing stronger then the local TV stations. And we are pleased with the local station we remember last year we actually had declined in the TV stations business and we're seeing nice growth there which we're happy with. Our radio combination of -- Randy talked about the strong local and the weak national market, so our radio business compared to last year on a core basis is pacing down mid single-digits and so we added up all up core advertising revenue excluding the Onion is pacing mid single-digits.
And just to make sure I heard right, you said you paid 27 million for that 40% stake in the Onion?
Okay, can you provide any update on the distribution renewal front I believe AT&T was coming off pretty here in the near-term maybe just generally on that and then also has consolidation in the distribution space changed for the tenant of those discussions at all?
Yes, let me try and take a shot at that I think I have publically said that I am always concerned about consolidation on the distribution side and while distributors always maintain that they're going to be open-minded and fair going forward that it is really upon them to prove that they will continue to support the minority communities in this country and we're certainly a big part of that. And so I am always interested in how that all plays out notwithstanding what they actually say when they do the acquisition.
On the AT&T front we're certainly optimistic that we'll be able to come to a fair deal, we've always managed to find a way to get a deal done with a distributor we certainly -- it seems like these guys are really good guys they have maintained in the past I think there has been a lot of executives that have stated publically that they're dedicated to the growth of the minority community in this country in terms of giving them opportunities for programmers and so we are aligned there with them and we certainly think that that should serve us both well in terms of being able to come to a fair deal in the future. Again, it all remains to be seen as to how people behave, what they say and how they actually behave about often two different things, but we're optimistic in this case because AT&T seems to be saying all the right things and we certainly think along those lines that we should be able to get a fair deal done.
Okay, got it. And maybe one last one from me and I again appreciate the time. There has been some reports about the ownership structure of Fusion can you maybe just talk about that a little bit and how you see the evolving as we go forward?
Yes Hi Aaron it is Frank. As you know we have the joint venture on Fusion we’re happy with the joint venture and as Rainey talked about we are growing that asset nicely but beyond that we really can't say anything more about rumors that you may read in the press.
Our next question comes from Davis Hebert with Wells Fargo Securities.
I know you can't answer specifics about the auction but I wonder if you could just give any theoreticals around how your covenants might treat asset sales whether a required debt pay down would be enforced?
As Rainey said we are really not going to talk about the auction we've studied clearly our auctions and flexibility and what we will do with that to their proceeds to be with at that time so unfortunately I am going to just pass on that.
And then turning to the radio side, I wonder if you could give a little more color my understanding is as you buy programming from Entravision and I see their results which are very good so maybe if you could just help us talk about the pressure you are seeing on the national side a little more?
Well we don’t buy programming from Entravision so I don’t know where that comes from. You basically...
I apologize, okay.
Yes it is okay if you basically if you look at our radio business we have a couple of salesforces we have our local salesforce which helps sells our local television and our TV business is doing very well on a local basis and we’re seeing that in our radio business and which is not uncommon in the radio business national sales tend to be concentrated third parties and I think it's been soft on a national basis for the industry and we continue to work with our partners to address that sales effort particularly as Randy mentioned our ratings are up year-over-year so that is something I want to be very focused on.
Okay. And then a question on political we have numbers from historical reports maybe if you could help us with just reconfirming the 2012 and 2014 political revenues and how you might see that shaping out for ’16?
Yes. So in 2012 our political advocacy revenue combined was approximately $60 million and so we are not going to be guiding as to what we expect this year but given the fact that there appears to be a declining [Technical Difficulty] on rates and then focus on our community we expect the revenues that we’re going to achieve in political advocacy would be higher this year.
And then 2012 was higher than the previous election cycle as well so that's been the continuing trend of more focus on TV and radio advertising.
Okay. Very helpful and then thanks for the CapEx color and the color on the Onion investment if you could help us with -- are there any other sort of lumpy cash use items as we look at ’16 and model free cash flow anything there?
We are not giving guidance in 2016 we do have the Centenario which is incremental soccer which comes to incremental revenue and incremental programming cost. But we’re very focused on costs and our margins and I'm sure things may come up through the year that will look at opportunistically but at this point we are not seeing anything that is noteworthy or particularly chunky at this point.
Okay and then last one I appreciate you taking all the questions. The streaming product I know it's early days and maybe you could just talk about your plan and how to monetize that is it going to be more advertising driven or subscription driven what's going to be the main revenue driver there?
At present we are talking about Univision now to the OTT product?
Yes, that's correct.
Yes, and so and at this point as Randy mentioned it’s a service that we're bringing to our customers who want to be able to see our product out of home and there are a lot of our customers who are not broadband users, so at this point it's just a subscriber base model. We'll work with Nielsen on measurement and we'll experiment to see whether or not we can get additional ad revenues once we have the measurement on that but we think it's strategic. It's interesting and we can't talk about our plans but we're very pleased with the uptake now and not only that we've been pleasantly surprised that the average viewing of the customers who have the product exceeds our expectations and we're getting people not only in the U.S. but some people outside the U.S. who are signing up to this because they're so dedicated to the brand and they can't watch it outside the U.S. So that's been encouraging to us so.
Thanks. That's the last question we can take today. The IR team is available for any additional follow-up questions. Thanks everyone for joining us and have a good day.
Thank you for joining Univision's fourth quarter and full year 2015 earnings call. You may now disconnect your lines.
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