Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

Univision Q4 and Full-Year 2005 Earnings Conference Call Transcript (UVN)

March 2, 2006

Executives

Ray Rodriguez, President and Chief Operating Officer

Andrew Hobson, Senior Executive Vice President and Chief Financial and Strategic Officer

Diana Vesga, Vice President

Analysts

Victor Miller, Bear Stearns

David Bank, RBC Capital Markets

Mark Winkus, Goldman Sachs

Gordon Hodge, Thomas Weisel Partners

Jonathan Jacoby, Bank of America Securities

David Miller, Sanders Morris Harris

Anthony DeClemete, Lehman Brothers

David Joyce, Miller Tavik and Company

Jessica Reid Cohen, Merrill Lynch

Lee Westerfield, Harris Nesbit

Jason Helfstein, with CIBC World Markets

James Victor, Deutsche Bank

Marcy Ryvicker, Wachovia Securities

Tuna Amoulve, Standard and Poor’s Equities

Meghan Friedman, William Blair and Company

Philip Sizel, Credit Suisse

Good day everyone and welcome to Univision’s 4th Quarter Earnings call. Some of the information discussed today will contain forward-looking statements within the meaning of the private securities litigation reformat 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 and Exchange Commission. Univision assumes no obligation to out take forward-looking information discussed on this call.

On today’s call we have Ray Rodriquez, President and Chief Operating Officer, Andy Hobson, Chief Financial Officer and Chief Strategic Officer, and Diana Vesga, Vice President. I will now turn the call over to Ray Rodriguez. Please go ahead Sir.

Ray Rodriquez, President and Chief Operating Officer

Thank you. Good afternoon, everyone and thank you for joining us today. We are very pleased with our record financial performance and strong operational results in the 4th Quarter and Full-Year. Looking to 2006, we are extremely well positioned for continued growth especially due to our strong competitive positioning. As you know, our two broadcast networks have finally joined Nielsen’s National Television Index or NTI and are now measured right along side all the other major television networks in the country. Not only does our inclusion complete the full television picture for advertisers and media buyers, it allows everyone to see that not only is Univision the leader in Spanish-language television, that it is a powerful competitor of ABC, CBS, NBC, and FOX. Let me give you one example. We delivered more 18-34 year old viewers during 2005 Hispanic and non-Hispanic than at least one of the big four networks on 237 nights of the year. That’s nearly two out of every three nights and already in the first two months of being measured in NTI, not only has Univision consistently held the number five spot among all broadcasters in the country in any language and among all audiences, but we have shown that we can beat ABC, CBS, NBC, or FOX.

We’re very excited about our strong ratings performance in NTI and are confident that current and prospective advertisers will see the real value of growing their future Univision buys. Now let me take a moment to highlight the 4th Quarter and Full-Year performances of each of our divisions starting with the Univision Network. Univision’s viewership reached historic levels in 2005 growing 17% among adults 18-49 and 23% among adults 18-34 to once again become America’s fastest growing youth network. That growth is even more impressive when you compare it to the overall broadcast landscape. In 2005, the English-language networks experienced an average audience decline of 5% among adults 18-49 and a decline of 7% among adults 18-34. While the young adult age group was turning away from the other networks, we added almost a quarter of a million adults 18-34 to our audience in 2005. In addition, among all 18-24-year olds, Univision was the number two ranked network in prime time last year. For the entire year, we beat ABC, CBS, and NBC by delivering more viewers in this demographic; and again these are not just Hispanic viewers, these were all viewers, including non-Hispanics.

Now looking at the Quarter, Univision experienced modest declines in prime time largely due to a particularly tough comparison with the 2004 4th Quarter when we aired our two most popular novellas of all times. However, over the course of the 4th Quarter, our adult 18-49 and 18-34 audiences in prime time, each grew 8% while the audiences of ABC, CBS, NBC, FOX, WB, and UPN each declined. One major highlight of the Quarter was our broadcast of the Latin Grammy Awards. Airing for the first time on Spanish-language television, it was the most watched Latin Grammy award ever among 18-34-year olds and reached more than 9-million total viewers to plus. And in the just completed February sweep, the highlight was surely our broadcast of Premio Lo Nuestro last week. With stars Shakira and Daddy Yankee performing, our annual music awards show reached nearly 11-million total viewers, more than any other Premio in history. Locally, during the November sweeps, Univision attracted more total adults 18-34 than the local ABC, NBC, CBS, and FOX affiliates to rank at the number one station in prime time in the major US markets of Los Angeles, Dallas, Houston, and Sacramento.

Univision stations were also number ranked stations in total day in those same markets plus Phoenix, Austin, and San Antonio among all adults 18-34. In Los Angeles, Univision’s KMEX was home to 7 of the top 10 programs in the November sweeps. In fact the Latin Grammy’s and the Latin Grammy’s pre-show were number one and number two out delivering even Desperate Housewives, which came in at number three among adults 18-34.

Turning now to the TeleFutura Network; even though its ratings were down in prime time, TeleFutura maintains its lead ahead of Telemundo in early morning, daytime, and weekend daytime keeping the number two Spanish-language broadcast network spot behind only Univision among Hispanic adults 18-49 and 18-34 in the 4th Quarter. In addition, TeleFutura tied with Telemundo for the number two spot in weekend prime time among Hispanic adults 18-34. We’re in the process of making some adjustments to our line up at TeleFutura to reignite our ratings without increasing costs.

At our cable network, Galavisión we achieved all time record high quarterly audience levels and remain the number one cable network in prime time and total day with more Hispanic viewers than all other English- and Spanish-language cable networks in the country. In addition, Galavisión made headlines in the Quarter with its broadcast of the FIFA Under-17 Tournament. Not only was the final match the number one program in its time period on that day, it was the number one cable program among Hispanics during the entire 4th Quarter.

Now moving onto the radio business; our results in Arbitron’s fall 2005 Book continue to be strong. Out of the 17 markets in which we operate, Univision Radio was the number one Spanish-language station in 12 markets. In Los Angeles, Univision Radio increased its adult 18-34 and 25-54 audience share by 19 and 14% respectively compared to last year. We hold the number one and number two ranked positions among all stations in Los Angeles including the number one Spanish-language morning show spot. In addition to Los Angeles, several of our other large markets did remarkably well during the Fall Book. Our Miami stations posted an audience share growth of 23% among adults 18-34 and 17% among adults 25-54. While our Chicago radio stations adult 18-34 share grew 52% and its adult 25-54 share grew 21%.

Univision Music Group also had a very strong year increasing sales by approximately 16% and profits by 37% over last year. In the 4th Quarter, we continue to lead the US Latin music industry and were responsible for nearly 1/3 of the top 50 Latin albums sold according to Nielsen SoundScan. Univision Music Group artists also took home three Latin Grammy’s in the 4th Quarter and 7-awards at Premio Lo Nuestro last week.

In our online division, we achieved another Quarter of profitability. Univision.com increased page impressions by 40% and unique visits by 41% in the 4th Quarter compared to the same Quarter last year.

Before I turn the call over to Andy, I’d like to say a few words about our recent decision to begin the process of exploring strategic alternatives to enhance value for our shareholders. As you know, Univision is currently in a uniquely strong position. Our performance is at record levels. Attention to Spanish-language media keeps growing and our industry leading assets and our connection with Hispanics simply cannot be duplicated. Considering all of these factors, we determined that this was an ideal time to evaluate strategic opportunities for the company in a systematic fashion. We are still in the beginning stages of this process and are fully committed to the continued growth and strength of our businesses to ensure the best possible outcome for our shareholders. We will not be answering any questions relating to the process on the call today and do not intend to disclose developments until the final decision has been made by our Board. I’d now like to turn the call over to Andy Hobson for our financial overview.

Andrew Hobson, Senior Executive Vice President and Chief Financial and Strategic Officer

Thank you, Ray. Univision continues its positive momentum with strong 4th Quarter performance. For the 4th Quarter, Univision delivered consolidated net revenue growth of 11% exceeding our guidance to high single digit percentage growth, pro forma operating income before depreciation and amortization increased by 19% exceeding guidance of low teen percentage growth, pro forma net income increased 24%, and diluted earnings per share grew 32%. The 4th Quarter pro forma results exclude an expense of approximately $6 million dollars representing the amount we intend to pay Televisa under protest. This amount is the aggregate of certain claims recently made by Televisa in its lawsuit against us. We believe that the claims are not well founded and; therefore, the amount in question is not owed. We are making the payment out of an abundant precaution and we will seek to recover the amount through a counter-claim. 4th Quarter pro forma results also exclude our cost reduction charge of $30.3 million dollars and a charge for the nontemporary decline in the fair value certain investments primarily Entravision of $33.6 million dollars.

The company’s cost reduction plan included the layoff of 270 employees and the elimination of 100 open positions resulting in labor related cost savings in excess of $25 million and non-labor related costs savings also in excess of $25 million. Our television business generated industry leading growth of 13% in the 4th Quarter and pro forma operating income before depreciation and amortization increased by 14%. Our television network business grew revenues by 12% and our television station business grew revenues by 16% an impressive performance compared to the television industry decline of 7% as recorded by the television advertising bureau. Univision Radio generated strong net revenue growth of 9% in the 4th Quarter while the radio industry declined by 3% as reported by the radio advertising bureau. This performance is very impressive considering that in the 4th Quarter of 2004 our radio business grew net revenues by 12% verses 1% industry growth. Excluding clinical advertising in the 4th Quarter of 2005 and 2004, net revenue of our radio business grew by 12% in the 4th Quarter. Univision Radio delivered strong operating leverage by increasing pro forma operating income before depreciation and amortization by 26%.

Our music business decreased revenue by 5% in the 4th Quarter but pro forma operating income before depreciation and amortization increase by 85%. During the 4th Quarter, Univision Online continued to be profitable increasing revenues by 66% and delivering record pro forma operating income before depreciation and amortization of $2.1 million dollars. Interest tax expense for the Quarter was $43 million dollars of which $22.7 million dollars represents deferred tax expense. Cash taxes were $19.5 million dollars. The affective tax rate for the 4th Quarter increased due to the charges related to the nontemporary decline in fair value of investments for which there was no corresponding tax benefit.

In the year 2005, Univision delivered consolidated net revenue growth of 9% pro forma operating income before depreciation and amortization growth of 13%, pro forma net income increased 14% and EPS grew 18%. 2005 pro forma results exclude the $6 million dollar payment to be made under protest to Televisa that cost reduction charge of $30.3 million dollars and a pre-tax charge with a nontemporary decline in fair value of certain investments in early Entravision is $89.1 million dollars. Income tax expense for the year was $182 million dollars of which $56.5 million represents deferred tax expense. Cash taxes were $121.3 million. The affective tax rate for the year increased due to the charges related to the nontemporary decline in fair value of investments for which there is no corresponding tax benefits. Capital expenditures for the year totaled $102.6 million of which $49 million was related to facilities expansion, upgrading construction projects, and $53.6 million represent maintenance of capital expenditures. At December 31, 2005, EBITA including capitalized leases totaled $1.53 billion. Our cash position totaled $99.4 million of which $36.2 million represents cash from our VIE.

In compliance with regulation efforts of the Securities and Exchange Commission, we provide guidance on our conference calls like this; the 1st Quarter of 2006 guidance exclude the impact of adopting FAS123 on January 1, 2006, which for the Full-Year 2006 is estimated to reduce operating income before depreciation and amortization by $12.3 million dollars, net income by $7.4 million dollars, and diluted EPS by $0.02¢ per share. Guidance also excludes Televisa litigation costs and cost related to exploring our strategic alternatives which combined are estimated to be approximately $2 million dollars in the 1st Quarter. We estimate the consolidated net revenues for the 1st Quarter will grow in the mid single digit percentages and operating income before depreciation and amortization will grow by low double digit percentages. Diluted EPS is expected to increase from $0.13¢ per share in last year’s 1st Quarter to between $0.14¢ and $0.16¢ per share. This guidance reflects expected growth for the company’s divisions other than music of high single digit percentages for net revenue and mid to high teen percentages for operating income before depreciation and amortization offset by declines in revenues in (inaudible) in our music division.

During the 1st Quarter of 2005, as you may remember, our music division had extraordinary financial results. With revenue growth of 52% and operating income before depreciation and amortization growth of 125% including the pro forma effect and it’s VIE. During the 1st Quarter of 2006, we do not expect this level of financial performance to continue. Our 1st Quarter guidance is particularly strong considering that the 1st Quarter of 2005 we consolidated net revenue growth of 15% and operating income before depreciation and amortization growth of 28%. 1st Quarter capital expenditures are expected to be approximately $35 million dollars. Full-year Cap X is expected to be $105 million dollars of which $50 million is related to construction projects, facility expansions and upgrades, and the remaining $55 is related to maintenance of Cap X.

As you know the World Cup has an effect on our financial results for the year. In order to provide clarity, we’ll provide some color on the estimated effect of the World Cup on our Quarterly financials. Previously, we have commented that we expect to have at least $180 million dollars in gross revenues of $153 million dollars in net revenues in the World Cup. We have also previously commented, and we estimated that 2/3 of these revenues are incremental. The revenues and the associated costs of the World Cup fall approximately 80% in the 2nd Quarter and 20% in the 3rd Quarter. Since we estimate 1/3 of the revenues is non-incremental, the World Cup has the effect of concentrating this non-incremental revenue in the 2nd Quarter primarily.

Normalizing for this effect and based on the revenue assumptions above, we estimate that the World Cup has the effect of decreasing 1st Quarter EBITA by $0-5 million dollars, decreasing 3rd Quarter EBITA by $10-15 million dollars, and decreasing 4th Quarter EBITA by $0-5 million dollars, but increasing 2nd Quarter EBITA by an offsetting amount of $15-25 million dollars. From the level to EBITA that would otherwise have been experienced if the World Cup had not been broadcast.

On January 1, 2006, we closed our acquisition of Entravision, San Francisco Bay Area radio stations by exchanging approximately 12.6 million shares of Entravision common stock. On February 27, 2006, we sold to Entravision 7-million shares of Entravision common stock which reduced our over ship stake in Entravision to less than 15%. As a result, we have now complied with our agreement with the Department of Justice to reduce our stake in Entravision to 15% by March 26, 2006.

On February 8, 2006, we announced that our Board of Directors decided to begin a process to explore strategic alternatives to enhance shareholder values. The process is ongoing and the company is being advised by UBS Investment Bank. As Ray mentioned, we will not be discussing nor answering questions regarding this process during this conference call. We do not intend to disclose developments with respect to this process until our Board of Directors has approved a specific transaction. Similarly we will not be discussing nor answering questions considering our defense of the litigation initiated by Televisa. With that, Operator will you please instruct the listeners how to ask questions.

Question-and-Answer Session

Operator

We’ll take our first question today from Victor Miller, Bear Stearns

Victor Miller

Good afternoon. Can I have a clarification on what we can and can’t talk about because of the transaction? When you say the process, does that mean the timing or any question at all involving the transaction?

Andrew Hobson

We are not going to discuss the timing or the process in general, Victor.

Victor Miller

Let’s talk about a couple of other things then; first, could you give what percentage your budget is done for 1st Quarter for TV and Radio right now and then do you have a great percentage of your 2nd Quarter budget already done for TV given the impact of the World Cup, and secondly, when you talked about the World Cup and you talked about the impact of EBITA growth, it doesn’t mean that there is any absolute decline or relatives, so if you thought the budget was going to be up 15% normally in the 1st Quarter you would subtract 0-5% to get to the number in the World Cup year, and lastly, did you do any additional share repurchases since, it looks like in your cash flow statements you did $500 million, which we expected for last year, but did you do any subsequent ones? Thanks.

Andrew Hobson

The percentage of business we have on books for the 1st Quarter TV were in the mid 90s and lately we are in the low 90s. The World Cup to clarify, your correct in that those aren’t absolute numbers, those are numbers that would be, the difference between what we expect to report and what we think we would have reported if we had not had the World Cup and they were in millions of dollars. In the 1st Quarter, we think that had the World Cup not faired our EBITA would have been $4-5 million dollars higher because some of the revenues which is non-incremental of the World Cup, Victor, came from 1st Quarter revenues.

Victor Miller

Ok, so those numbers were dollars not percentages?

Andrew Hobson

They were dollars. $0-5 million dollars in Q1 decline, $10-15 million decline in Q3, $0-5 million decline in Q4 offset by having higher EBITA in Q2 of $15-25 million dollars.

Victor Miller

But, you are underlying budget without the World Cup could have been up double digits.

Andrew Hobson

Absolutely; I am just trying to help you normalize Quarters so you can set the seasonality of the business which has changed this year from past years.

Victor Miller

Is your budget for 2nd Quarter TV pretty much know too, that’s the other thing I had mentioned? Is the business done at a higher level than normal?

Andrew Hobson

Yes, of course because of the revenue in the World Cup. I did not compute that, but I can decipher it out.

Victor Miller

Repurchasing the share, did you do any other shares?

Andrew Hobson

We had not done any other share repurchase because we think it would be inappropriate given the process that we are undertaking.

Operator

Our next question today comes from David Bank, RBC Capital Markets

David Bank

Thank you very much. A couple of questions; the first one guys, could you give us a little bit more color in terms of the station performance verses the network performance of the 4th Quarter and I guess specifically on local and national for TV and if you care to give any color in terms of local/national spot and network in the 1st Quarter. And then second question, in terms of TV operating leverage in the 4th Quarter, do you get 14% growth in EBITA on 13% of revenue what’s your view of that general operating leverage both I think very respectable numbers but I just want to get a sense of is that the right operating leverage conversion that we should be looking at?

Andrew Hobson

The television network business grew 12% in the 4th Quarter and the station business grew 16%. Keep in mind when you look at those operating leverage numbers, in the 4th Quarter of 2004, David, we had an accrual reversal for our allowance of bad debt of $5.3 million dollars. So that in effect reduces operating leverage in (inaudible). If you adjust for that I think you have a pretty good operating leverage, but we would expect that with our cost reduction program, our operating leverage, of course adjusting for the World Cup, which is lower incremental margin business would be higher.

David Bank

Any color in terms of the break down of the business in the 1st Quarter?

Andrew Hobson

Are you asking about the 4th Quarter of last year or the 1st Quarter?

David Bank

The 1st Quarter.

Andrew Hobson

The 1st Quarter, growth is being driven by national and network although local is up mid to high single digits.

Operator

Our next question today comes from Mark Winkus, Goldman Sachs

Mark Winkus

In a normalized year, what is the EBITA, revenue and EBITA contribution from the TV network that Univision purchased and then second on the radio business, the 12% pro forma growth in 4Q and guidance for 1Q, seems like you are expanding relative to the general industry players. How else is that do you think is getting a fair share of your ratings points and how much of that is the current ratings points that you are monetizing? And what do you think each of those are in 2006?

Andrew Hobson

The first question TV verses network station profitability something we don’t disclose and we are not going to start doing that now. Let me relate to the guidance for the non, the advertising support of business of high single digits, that is a blend of both TV, radio, and online with TV outperforming radio in the 1st Quarter.

Mark Winkus

And you are not going to answer anything on the proposed strategic action. How many more of these conference calls do you think they’ll be in all it? How about that?

Andrew Hobson

That’s a very clever way of asking about timing, but I don’t think I am going to add to that either. But, I give you credit for being so clever.

Operator

Our next question today comes from Gordon Hodge, Thomas Weisel Partners

Gordon Hodge

Hi good afternoon, just a couple of things one I was wondering if you could give us a sense for what’s being included in the NTI survey for now costing you, I gather there is some incremental cost there and then also from a revenue opportunity standpoint, I think you going to be included in a lot of the optimizing programs now, I am just curious what percentage of budgets do you think you have been missing because you are not on the optimizing before, and therefore how much opportunity do you have, (inaudible) where there perhaps longer term maybe not necessarily 1st Quarter and then lastly, just to clarify I think you mentioned that the 1st Quarter guidance and I couldn’t hear if you said included or excluded the $2 million for Televisa and the strategic alternatives costs?

Andrew Hobson

Guidance excludes the estimated $2 million dollars. The cost of Nielsen, I believe, is subject to a confidentiality letter agreement, so I am not sure I can disclose that, and the opportunity I think I will let Ray answer it.

Ray Rodriguez

Gordon, this is Ray and you know as you know, we’ve always spoken about a GAAP between the audiences and we are delivering and the dollars that we are getting in our television business and that GAAP I don’t have the latest GAAP but Andy can certainly tell you that. We believe that that’s all related to not being hounded along with everybody else. There is no way now that an advertiser can ignore Univision when it’s sitting right in front of them and in their media buyer screens, every single day. Before this we were not there and the results have been very amazing, I’m giving you just an example. This sweeps that just ended which is the February sweeps, we beat one of the major networks, at least one of the major networks, on 16 out of 28 nights, so we either beat ABC, CBS, NBC, or FOX. 16 out of 28 nights, that just simply can’t be ignored. So we do believe that we will be making up this huge GAAP between revenues and eyeballs that we have been delivering and it’s just a matter of time.

Andrew Hobson

I wanted to clarify that for you, our networks deliver for last year 5.3% national hut and we have about 2.6% of national network advertising revenue. Our stations on a dollar weighted basis for the ad revenue in the markets, deliver 17.2% in market audience share verses 7.7% revenue share.

Ray Rodriguez

So further quantify that, that means doubling the revenues; doubling our current revenues.

Operator

And we’ll take our next question today from Jonathan Jacoby, Bank of America Securities

Jonathan Jacoby

Hi, good afternoon; three questions here the first one is a bit of a follow-up, do you have any anecdotal evidence or color perhaps that now you’ve guarded the NTI is there anything you could share with us perhaps what advertisers said or done. The second question, with the CW network, any chance to pick up some incremental color, affiliate agreement and then lastly, I guess there was a German politician who stated you had, World Cup, that you know in case if there is a bird flu epidemic that they would look to sort of cancel the World Cup, I’m wondering if FIFA has any back-up plans. Thank you.

Ray Rodriguez

This is Ray again; as far as any back-up plans for the World Cup it is so highly unlikely they are just going forward. There’s not going, they are not looking to do anything different, so I have not even heard that being mentioned at FIFA. Andy, do you want to say anything on new affiliates?

Andrew Hobson

I think it’s a possibility and we are pursuing that, but it’s the UPN and the WB affiliates really don’t lose that many hours of programming so they sent a syndication market develops a little more and it has existed in the previous years. We think that their stations will probably remain in English-language format, so we are pursuing stations and markets where we are in need of additional distributions.

Ray Rodriguez

As part of the NTI, the best way to talk about that is the interest that we are having with people going to the upfront that in the past had not shown any kind of interest. Our sales people have been to all of them major English-language agencies with a sort of a road show to take them through with NTI means and talk about the Hispanic opportunity and so forth and the response has been incredible and outstanding, especially when they are seeing the kind of numbers that they are seeing every single day.

Operator

And we’ll take our next question of the day from David Miller, Sanders Morris Harris

David Miller

Hi guys, congratulations on the stellar results. A couple of questions, Andy, you mentioned that on the music side that the financial performance yielded in last year’s Q1 is not going to continue in this year’s Q1, does that have anything to do with some of the inventory issues you experienced, I think it was two Quarters ago, with the industry wholesale you were dealing with, or is this just a seasonal pattern that we shouldn’t really worry about? And then also, Ray, I am just looking at some of these ratings gains here on the radio side in Miami and Chicago, just absolutely off the charts numbers here, are you guys taking share from SBSA in Miami and Chicago or is this just the result of just simple organic growth category wise? Thanks very much.

Andrew Hobson

As it relates to the music performance, I don’t believe it shows a worsening of the returns that exist in that industry rather it shows the normalized release schedule opposed to a extraordinary successful in this schedule. If you look at the difference in the EBITA growth rates that we said kind of driven without music, implies maybe 3-4% points or 3-5% points different from the whole company or roughly a decline in the EBITA of the music division of $5-7million dollars year-over-year.

Ray Rodriguez

As far as radio ratings, the one thing that I think we are getting a lot better at is cross promoting with television and so forth and the more we understand it the more that we take advantage of it the better we are doing. There’s definitely a general increase in our ratings since we started cross promoting but especially we are getting a lot better at it so it’s a general thing. As far as whether we are taking it away from SBS or not, I don’t have the specific numbers here but we are getting major growth in these areas.

Operator

Next today is Anthony DeClemete, Lehman Brothers

Anthony DeClemente

My question has been answered, thank you.

Operator

We’ll take our next question today from David Joyce, Miller Tavik and Company

David Joyce

I know you will not disclose your programming plans for TeleFutura, but can you explain what type of programming you think has not been working and secondly, I was wondering if because of the NTI if you were seeing any scatter increases at this point?

Andrew Hobson

David, as far as the programming plans at TeleFutura I’d really rather not say because it’s kind of strategic and I’d rather wait. I can tell you that it won’t have any kind of a cost impact but I do believe it will have a very positive ratings impact but I really don’t want to go into specific programming strategy at this point until we announce. As far as NTI and scatter, generally just a lot of interest from people that we hadn’t heard much from. I do believe that in the upfront there will be a tremendous amount of push, that’s where there’s a lot of money out there and the money will come from English and as you know English TV, the big money is at the upfront, so we are looking forward to that.

David Joyce

So the incremental advertisers that you tend to see each year might ramp up after the upfront is done verses the regular pace.

Andrew Hobson

That’s certainly something we’d like to see.

Operator

Our next call is from Jessica Reid Cohen, Merrill Lynch

Jessica Reid Cohen

I just wanted to go back to the guidance, your upfront excluding World Cup is up low double digits and the 2005 upfront and the Q1 should include the broadcast year and the calendar year, so the scatter in line or below the upfront or is it dragging down the revenue, I’m just not clear on that?

Andrew Hobson

It’s again, that was in television guidance included other divisions too, so I think it’s a combination of really affected as other divisions.

Jessica Reid Cohen

So, it would not be TV, the network would still be up low double digits?

Andrew Hobson

No, I think there’s an effect, there’s not a perfect seasonality to the double digits, so it’s not perfectly seasonal every Quarter is going to be low double digits.

Jessica Reid Cohen

Do you think it slowed down to the TV station level?

Andrew Hobson

Again, remember that World Cup was up, x-incremental World Cup was low double digits, but the incremental World Cup still falls in the 2nd and 3rd Quarter 80% and 20%, so by the nature of that incremental $51 million dollars, you are reducing your growth rates in Quarters 1, 3, and 4 and increasing it in Quarter 2, that’s what I tried to quantify for everyone in that explanation of that seasonality. Does that make sense?

Jessica Reid Cohen

Yes, but it’s not clear exactly what’s going on at the station.

Andrew Hobson

Television gets separate guidance, by divisions, there are even divisions within divisions.

Jessica Reid Cohen

Andy, you also said something about share repurchases, (inaudible) advance in the share repurchase given the strategic review, is that correct?

Andrew Hobson

Well I think we have is an advance while the strategic review process is going on.

Jessica Reid Cohen

And then finally, the Press Release said that the cost cuts will result in a $50 million or greater impact, can you give a range to how much higher the impact could be?

Andrew Hobson

The only disclosure is made is in excess of $150 million, and I’ll speak to that disclosure, Jessica.

Operator

And we’ll go next to Lee Westerfield, Harris Nesbit

Lee Westerfield

Hi, thanks everybody. Andy, one specific question about your share count, common shares at the end of the Quarter and then I have two follow-ups.

Andrew Hobson

The share count at the end of Q4?

Lee Westerfield

Yes.

Andrew Hobson

On a balance sheet basis?

Lee Westerfield

Yes, common shares.

Andrew Hobson

I think that the, about the right number to use on is $355 million dollars which includes the treasury affect; 335 million shares which includes the treasury affect of outstanding options.

Lee Westerfield

Now regarding the TV stations, do you have retransmission almost like TV stations up to 2009, other TV groups have started to look at monetizing inner fees from cable and satellite, have you looked at that and if so, what would you think about that opportunity over the long run or do you (inaudible) operating group at that time? And Ray my question is on the World Cup, how much inventory and in what gainings are they in the, lead up to the finals or in the preliminary’s or you still haven’t sold time and the final question, Ray, is on the network upfront coming up you have this tremendous ratings gains of the NCI, what if any benefits do you expect to make that if from the CW network the consolidation there on pricing on audiences?

Andrew Hobson

I think the retransmission fees have the potential starting in 2009 when the next window opens to be worth multiple hundreds and millions of dollars; annually.

Lee Westerfield

And Ray, on the World Cup inventory and the network upfront.

Ray Rodriguez

Right now we are, I would say upwards of 90% sold out so we’re almost there. As far as the benefits of NTI in the upfront specifically you asked the question and I forget what exactly you asked about the benefits.

Lee Westerfield

I guess really specifically, I am looking at the elimination of the 6 networks, UPN, WB going into the CW, and I guess I am presuming that there will be upward pricing as a result for younger demographics so I am wondering how you interpret that applying that pricing idea to your audiences going into this upfront market.

Ray Rodriguez

Well we are certainly going to, our prices are certainly going to go up the appropriate amount, I don’t think it has anything to do with these networks because when you really boil it down it’s not in the big picture it’s not that big of an event as far as sales in the big picture as it relates to our percent of the big picture so I don’t think that’s going to have the kind of affect that NTI for instance has which is a pretty major affect.

Operator

We’ll now go to Jason Healthstein, with CIBC World Markets

Jason Healthstein

Thanks and hopefully the reason that you are not looking to sell the company is so you can avoid doing these Quarterly Conference Calls, two questions, one can you talk about what you see really is your opportunity with the internet, it’s a nice business today but not huge and you guys are the dominant player preaching Spanish speaking Hispanics and then number two, the clause statings initiative came in a little higher than expected $30 million verses $25, kind of maybe talk about that and then is all of the clause statings initiatives in TV or is some of that in radio and then was there any impact for the 4th Quarter margins from your cost reductions? Thanks.

Andrew Hobson

The internet we think, now that we have it break even operation as potential to grow extremely fast is great operating leverage probably the best operating leverage of any one of our businesses and we’re really very, very bullish on it right now. It’s a big focus of advertisers and we’re well positioned, so we think it’s as potentially it will be a really nice size business for us over time.

Jason Helfstein

Can you give us some specifics like what’s like your broadband penetration and of US Spanish speaking Hispanics so we can get a size of the market place?

Andrew Hobson

I don’t know what broadband is. It’s still a very immature market. The Hispanic internet penetration rates are in around 40% which are levels existent in 1998 or 1999. It’s still very young, virgin market which is why to have break even right now we are so bullish on the future for that business.

The cost reduction plan was almost entirely in the television business. Keep in mind we did a 5% risk of employees in the 2nd Quarter in radio, much quieter. It was more that $30 million charge is higher than $25 million because of the blend of people took a retirement package for a standard severance as well as greater charges related to the cancellation of programming agreements.

Jason Helfstein

Did any of it hit the 4th Quarter? Did you benefit at all in the 4th Quarter on the margin side?

Andrew Hobson

Yes, we did benefit from the 4th Quarter and will benefit in its entirety this year because of all the layoffs were concluded by the end of the year.

Operator

Our next question will go to Esteban Shreck, Deutsche Bank

Esteban Shreck

Actually is James Victor at Deutsche Bank. Just a couple of quick questions; first Andy, are the operating costs going to be layered even over the Quarters, is that how we should be modeling the $50+ million dollars and then secondly, anything in terms of what you think the NCI impact will be you know that change in terms of your revenue growth, is that going to come more do you think from rates increases ultimately or just higher sell outs and then I guess finally, do you have any numbers as to what you think of revenue GAAP is for your radio business?

Andrew Hobson

The costs I think are generally speaking evenly across the Quarters, plus or minus a little bit. NTI impact, my belief is its going to accelerate people’s entry into the market, I think the benefit on late is probably less and we do have opportunity in prime time. Ray, do you have a different view?

Ray Rodriguez

No, I think that’s right, I totally agree. It’s more new business and people expanding their budgets more than rate at this point. Later on, of course, a few years down the line it will be a different story.

Andrew Hobson

And the revenue GAAP on radio, James, I’ve never computed.

Operator

Your next question today comes from Marcy Ryvicker, Wachovia Securities

Marcy Ryvicker

Hi good afternoon. I was wondering if you could clarify the restructuring charge in Q4, is there any still overcharge in Q1 that we should be aware of, that’s the first question and the second question is, in terms of these strategic alternatives do you have any issues or concerns about employee morale right now considering there could be a lot of upheaval at the company?’

Andrew Hobson

There will be no spill over charges into the 1st Quarter.

Ray Rodriguez

And I have not seen at all any change in morale. People are keeping their nose to the grindstone, this is a very competitive business as you all know and people that are producing shows could care less and the people that are selling are selling to grow their commissions the way it should be, so it was something that people talked about for ½ day when it was announced and that was it.

Operator

And we’ll go next to Tuna Amoulve, Standard and Poor’s Equities

Tuna Amoulve

Thank you very much; can you talk about any theories of your business where you feel the impact of gasoline prices?

Ray Rodriguez

I have not noticed any.

Tuna Amoulve

And Andy, I think you talked about, I kind of got lost when you were talking about (inaudible) Televisa $6 million which I think you said with respect you will file a counter claim, I was wondering clarify that.

Andrew Hobson

The $6 million dollars is the aggregate a number of claims that Televisa made recently in an answer in their lawsuit against us and we believe they are unfounded and we are making the payment out of the abundance of caution so that there could be no chance for a potential of a material breach to the claim. And we will seek to get that sum back we’ll be filing a counter claim.

Tuna Amoulve

Does that include the $1 million that they claimed initially?

Andrew Hobson

We had paid that before.

Tuna Amoulve

And where are those possibilities that are (inaudible) in all of this, I think little has been heard from what their position might be?

Andrew Hobson

You would have to ask them.

Tuna Amoulve

And finally, I read, I know you will not answer any question on the strategic option, but can you at least clarify what you said in your prepared remarks as far as why the Board felt that this was the right moment to move forward.

Ray Rodriguez

Tuna, I really don’t have much more than exactly what I said in my opening remarks.

Andrew Hobson

As it relates to your first question, Tuna, about gas prices, the only place that that would likely impact us on the cost side is utility bills, television stations have very high electric bills so to the extent that electric companies are passing through the higher oil prices. We would be affected by that and secondly, in our news gathering operations putting gas in our news gathering trucks. I don’t think in aggregate given size of and expense structure of Univision does include possibly material.

Operator

We’ll go now to Meghan Friedman, William Blair and Company

Meghan Friedman

Hi. For the World Cup, how many new advertisers are you expecting?

Andrew Hobson

I don’t have that with me. And I would only know the net worth because the stations have, there are so many stations covering it I would have to chase it down.

Meghan Friedman

And then, what would be the gross have looked like in Q4 excluding political advertising in Teleco?

Andrew Hobson

It was roughly the same in political advertising and TV because we’ve had a pretty good 4th Quarter political is booked about the same as 4th Quarter in 2004.

Meghan Friedman

And then, could you review your classes of stock and their respective voting rights in a hypothetical change of control situation?

Andrew Hobson

We have 4 classes of common stock. Class P common stock is owned by our Chairman – it has 10-1 voting rights and I believe has over 50% of the vote of all the classes of common stock combined. There’s a Class T common stock that votes one share along with the one vote per share along with a Double Class A shares as do the Class V common stock. Class T is owned by Televisa, Class V is owned by Venevision, and the Class A common stock is what is publicly traded.

Operator

We will now go to Philip Sizel, Credit Suisse

Philip Sizel

How do you come about your level of interest in your strategic quota?

Andrew Hobson

That is definitely a question we are not answering.

Philip Sizel

Could you give us an idea of how long it might take?

Andrew Hobson

That is definitely a question we are not going to answer either.

Ray Rodriguez

Thank you very much for attending today’s call, if you have any questions you can reach Diana or I in our offices in Los Angeles. Thank you, good-bye.

Copyright policy: All transcripts on this site are copyright Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY’S CONFERENCE CALL AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE CONFERENCE CALLS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY’S CONFERENCE CALL ITSELF AND THE APPLICABLE COMPANY’S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Univision Q4 2005 Earnings Conference Call Transcript (UVN)
This Transcript
All Transcripts