Entravision Communications Corporation (NYSE:EVC) Q1 2021 Earnings Conference Call May 6, 2021 5:00 PM ET
Company Participants
Kimberly Esterkin - ADDO Investor Relations
Walter Ulloa - Chairman & CEO
Christopher Young - CFO & Treasurer
Conference Call Participants
Michael Kupinski - NOBLE Capital Markets
Operator
Welcome to the Entravision Communications Corporation First Quarter 2021 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation there will be an opportunity to ask questions. [Operator Instructions]. Please note that this event is being recorded.
It is now my pleasure to introduce your host, Kimberly Esterkin from Investor Relations. Please go ahead.
Kimberly Esterkin
Thank you, Operator. Good afternoon, everyone, and welcome to Entravision's 2021 first quarter earnings conference call. I hope everyone is staying healthy and safe. Joining me on the call today is Walter Ulloa, Chairman and Chief Executive Officer; and Chris Young, Chief Financial Officer.
Before we begin, I must inform you that this conference call will contain forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ. Please refer to Entravision's SEC filings for a list of risks and uncertainties that could impact actual results.
This call is the property of Entravision Communications Corporation. Any redistribution, retransmission or rebroadcast of this call in any form without the expressed written consent of Entravision Communications Corporation is strictly prohibited. Also, this call will contain non-GAAP financial measures.
The company has provided a reconciliation of these non-GAAP financial measures to their most comparable GAAP measures in today's press release. The press release is available on the company's website and was filed with the SEC on Form 8-K.
I will now turn the call over to Walter Ulloa, Entravision's Chief Executive Officer.
Walter Ulloa
Thank you, Kimberly, and good afternoon, everyone. We appreciate you joining us for Entravision's first quarter 2021 earnings call. Entravision posted strong results for the first quarter with net revenue of $148.9 million, up 132% year-over-year.
On a pro forma basis including Cisneros Interactive revenue in our prior year results, revenue increased 43% over the first quarter of 2020. Growth during the quarter was driven by our core broadcasting businesses excluding political, along with the continued strong performance of our digital segment.
We are pleased to see our underlying businesses continue on an upward course, since a pandemic driven lows in 2020. I'd like to thank all of our employees for an excellent first quarter as we continue to navigate the pandemic. Each of our businesses is now firmly on the path to recovery. And our first quarter results gives us confidence and an optimistic outlook for the balance of 2021.
Adjusted EBITDA totaled $14.2 million for the quarter, which is up 47% from the prior year period. On a pro forma basis, accounting for Cisneros Interactive, adjusted EBITDA increase a solid 35% year-over-year. From an expense management perspective, we continue to operate as a much more efficient business.
Our lean cost structure is helping propel our company forward as macro economic conditions continue to improve. Chris Young, our CFO will speak further about our first quarter expenses later in today's call. Now let's take a look at our segment performance for the quarter.
Our television division generated $36.1 million for the first quarter, down 8% compared to the prior year, primarily due to lack of non returning political revenue compared to the first quarter last year, excluding $5.3 million of non returning television political spend in the first quarter of 2020. Core television advertising increased by 3%.
With national advertising revenues increasing by 4% and local advertising revenues up 1%. Strength in core television revenues in the first quarter was driven by growth in services, up 13%, healthcare improved 23% and groceries and finance were up 11% compared to the prior year period.
Auto, our largest television advertising category decreased 1% year-over-year. Although the auto category did face some supply chain issues during the quarter. With more Americans heading back on the road, we anticipate this to be a short term disruption to our auto performance.
Approximately 16 million cars are forecasted to be sold in the United States this year, which equals an increase in cars sold of almost 10% over the last year. Consumer demand for auto definitely remained strong. In terms of television ratings for winter 2021 or Univision television stations finished ahead of or tied with their Telemundo competitor among adults 18 to 49 for early local news in 12 of the 17 markets where we have head to head competition with Telemundo.
For late local news, we finished ahead of our or tied our Telemundo competitors in 11 of the 17 markets where we have head to head competition. During a full week, our Univision and UniMás television stations have a cumulative audience of 4.4 million people ages two plus across all of our markets, compared to Telemundo 3.5 million people ages two plus.
We have 26% more viewers in Telemundo, in our Univision and UniMás television footprint, which is 4% higher than the November 2020 range release. Turning to our digital operations. Digital revenues total $101.5 million for the first quarter compared to $13.3 million in the prior year period, an increase of 661%.
Digital revenues represented 68% of total revenues for the company in the first quarter. The primary driver of this growth was our acquisition of majority interest in Cisneros Interactive in the fourth quarter of 2020. On a pro forma basis, our digital revenues increased 90% compared to the prior year period.
Other drivers of growth for our digital unit in the first quarter were our U.S. local advertising solutions business, up 21% and Smadex are global programmatic and performance product grew its revenue 21% compared to the first quarter of 2020.
Entravision continues to provide our clients, brands and marketers, the best platforms, the strongest reach and complete advertising campaign transparency. Our highly proficient digital sales operation now serves more than 4600 clients each month in 21 countries.
Now let's turn to your audio segment. Our audio revenues for the first quarter 2021 totaled $11.3 million, a decrease of 4% year over year. Local audio revenues decreased 10% year over year, while national audio revenues were up 9% year-over-year, excluding radio political spending $1.1 million the prior year period, core radio revenues increased 6% versus the first quarter of 2020.
In the 12 markets where we subscribe to Miller Kaplan Data for total spot revenue, we outperformed the market by 13 points in total revenue combined. We outperform the total market in 10 of the 12 markets to which we subscribe. This includes exceptional performance in three of our top radio markets.
Our Los Angeles radio cluster beat the market by 23 points. Our Phoenix radio stations outperformed the market by 15 points, and our McAllen radio cluster surpassed the market in total spot revenue by 31 points. These three markets are all Top 10 U.S. Hispanic markets.
In terms of advertising categories, services remains our largest category representing 42% of total audio revenue. Services improved 22% year-over-year. Auto, our second largest ad category declined 36% for the quarter as compared to the first quarter of 2020. As with television, radio, auto ads were impacted by supply chain issues during the quarter, which had a larger impact on Tier 2 and Tier 3 auto dealer spending across all our radio markets.
Our audio division rates remains very strong, and as more people increase their driving time, we should see these rates improve even more. In Los Angeles, the nation's number one radio market, Jose was the number one Spanish language radio stations, Monday through Friday 6am to 7pm for the winner measurement period among Hispanic adults 18 to 49 and Hispanic adults 25 to 54, including ties.
El Show de El Genio ranked as a number three Spanish midday show among Hispanic adults 18 to 49, outperforming eight of our Spanish language competitors and Erazno y La Chokolata show is the leader in afternoon drives, outperforming all other Spanish language radio stations in Los Angeles among Hispanic adults 18 to 49 and Hispanic adults 25 to 54.
Overall, we have an outstanding 2021 first quarter performance. We believe that our first quarter earnings results will provide strong momentum for renovations throughout the year.
And now, I'm going to turn the call over to Chris Young, our CFO to speak further about our first quarter 2021 performance and second quarter 2021 pacings. Chris?
Christopher Young
Thank you, Walter, and good afternoon everyone. As Walter discussed revenue for Q1 2021 totaled $148.9 million, an increase of 132% from the first quarter of 2020. When comparing on a pro forma basis and including Cisneros Interactive's revenue in 2020. results, revenues was increased 43% year over year.
For our TV division, total ad and spectrum related revenue was $26.4 million, down 11% at year-over-year, excluding political core ad and spectrum related revenue was up 9% year over year. Retransmission revenue totaled $9.6 million and was up 1% year over year.
For our digital division, digital revenues totaled $101.5 million, up 661% year over year. When comparing on a pro forma basis and including Cisneros Interactive's revenue in our 2020 results, digital revenues increased 90% year over year. Lastly for our audio division revenues totaled $11.3 million, down 4% over the prior year period, excluding political core audio revenue was up 6% over Q1 of last year.
As we spoke to our last quarters call during the second half of 2020, we took strategic steps to limit our expenses due to market conditions. Following a strong finish to the year we were pleased to fully reinstate all employee salaries to pre COVID levels. And while salaries have been reinstated, we were able to maintain most of the remaining expense guts in 2021.
SG&A expenses were $13.9 million for the quarter, an increase of 2% compared to the $13.6 million in the year ago period. Excluding the Cisneros acquisition SG&A expenses were down 19%. Direct operating expenses totaled $26.6 million in Q1 of 2021, down slightly from $26.7 million in Q1 of 2020.
Excluding the Cisneros acquisition direct operating expenses were down 9% year over year. Finally, corporate expenses for the quarter increased 5% to a total of $7.2 million compared to $6.8 million in the same quarter of last year. The primary driver of corporate expense was audit related expense and salary expense.
During the first quarter, our share buyback remained on hold. We also maintained a dividend at $0.250 and continue to eliminate expenses at the operating and corporate level been secondary to serving our core media businesses. We will continue to evaluate our buyback and dividend each quarter, which will be at the discretion of our board of directors.
Looking forward, we expect that our operating expenses excluding digital cost of goods sold and corporate will be up approximately 3% in the second quarter as compared to the first quarter of this year. Excluding expenses related to Cisneros, operating expenses are expected to be approximately flat compared to the first quarter of this year.
Consolidated adjustment EBITDA totaled $14.2 million for the first quarter, up 47% compared to the first quarter of last year. On a pro forma basis, accounting for the Cisneros acquisition, adjusted EBITDA was up 35% year-over-year. This was a strong quarter of EBITDA generation despite the lack of political revenue. Entravision’s 51% portion of Cisneros interactive adjusted EBITDA represented a $3 million contribution to our total EBITDA in the first quarter.
Free cash flow as defined in our earnings release was approximately $13 million in the quarter, up 149% compared to the first quarter of last year. Strong free cash flow has been a cornerstone of Entravision’s business and supported our ability to grow both organically and through acquisitions without the need to take on leverage. We expect this high free cash flow conversion rate to continue for the foreseeable future.
Earnings per share for the quarter in 2021 were $0.06, compared to a loss of $0.42 per share in the same quarter of last year. Net cash interest expense was $1.4 million for the first quarter compared to $1.9 million in the same quarter of last year. Cash capital expenditures for Q1 totaled $1.8 million compared to $2.7 million in the prior year. Capital expenditures for the year are expected to be approximately 8 million.
Turning to our balance sheet, which remains very strong. Cash and marketable securities as of March 31, totaled $165.7 million, total debt was $214.5 million, net of $75 million of cash and marketable securities on the books are total leverage as defined in our credit agreement was 2.15 times at the end of the first quarter. Net of total accessible cash and marketable securities, our total net leverage was one turn of EBITDA.
Turning to our pacings for the second quarter of 2021. As of today, our TV advertising business is pacing 44% over the prior year period with core TV, excluding political pacing at a plus 55%. Our digital business, including revenue from Cisneros Interactive is pacing plus 900%, factoring in Cisneros revenue generated in Q2 of last year, our digital business on a pro forma basis is pacing plus 115%.
Lastly, our audio business is pacing plus 84% with core audio, excluding political pacing plus 103%. All-in our total revenue compared to last year is pacing at a plus 360%, pro forma on Cisneros acquisition, our total revenue is currently pacing at a plus 87%.
With that, I'll turn the call back to Walter, Walter?
Walter Ulloa
Thanks, Chris. As I mentioned at the beginning of my prepared remarks, we are very pleased with our results for the first quarter with our core broadcasting businesses performing well, along with our digital segments that continues to see exceptional growth.
A majority investment in Cisneros Interactive has performed strongly since the closing of the acquisition in the fourth quarter of last year. And we are excited to continue to expand and enhance our digital offerings.
We're also very optimistic about Entravision’s continued growth given the overall improvement of macro economic conditions. With a more streamlined cost structure, we will continue to operate our businesses more efficiently while at the same time delivering high quality and dynamic services, content and products to our customers.
We appreciate your continued support of Entravision. Chris and I would now like to open up the call for your questions. Operator?
Question-and-Answer Session
Thank you. We will now begin the question and answer session. [Operator Instructions] Our first question comes from Michael Kupinski with NOBLE Capital Markets. Please go ahead.
Q - Michael Kupinski
Thank you, and congratulations on an amazing quarter. You did a much better job in digital than I expected. And I was wondering how did your legacy digital businesses perform in the quarter? And then if you could just give us a flavor of Cisneros and how did it perform better than you expected? And maybe give us a flavor of what's driving maybe their growth outside of you adding the business to your digital business. I'm just trying to understand that how core is growing and what's driving that growth at this point?
Walter Ulloa
Well, thank you, Michael. So I'll start with this a sales question first. It did perform much better than expected. I think the budget was plus 40% versus first quarter last year, and we wound up finishing, over 100% growth in the first quarter with that business. And, it's just a combination of, of our team. Our sales teams executing better and providing more better solutions to our advertisers in Latin America. And yes, the popularity and call it the performance of Facebook, Spotify and LinkedIn, primarily Facebook, of those three products.
As for the other -- as for the rest of our digital businesses, we have three digital businesses. I started off by giving you some color on our Cisneros international sales rep business. But we also have a U.S. digital business, which includes providing digital advertising solutions to advertisers, mostly SMBs, who primarily want to reach Latino consumers in the more than 29 markets, we operate across the U.S. So this team works alongside our broadcast sales team as well. And then another core part of our U.S. digital business is our audio programmatic business where we are connected to major audio buying platforms, including Cats, Adways and Triton. And then we offer our own audio inventory to these major audio platforms, as well as our audio exchange network.
So together -- and these two businesses are the core businesses of our, what we call our U.S. digital unit. And they were up 39% compared to the first quarter of last year. And then, the third leg of the stool is our Entravision International, which is another important part of our digital next. Our core product in this unit is Smadex. It's our programmatic mobile-first DSP. And it's -- call it, core mission is to provide marketers with the downloads of apps, primarily gaming, Fintech and entertainment categories. This business operates internationally with about 68% of the sales generated in international territories. And about 32% of sales coming from the U.S. in the first quarter. And Smadex grew its revenue 21% over the prior year period. So that just gives you kind of a summary of our digital business as a whole.
Michael Kupinski
Do you started to see political advertising related to the California recall? And can you give us your thoughts on political advertising for this year?
Walter Ulloa
Well, I'll just give you my thoughts. And then Chris, I'm sure, we'll have some other thoughts. We all believe here that in order for Newsom to continue as governor of California, he has to have a big turnout by the by the Latino voter electorate. So I think it's all going to depend on the Latino voter in California, in terms of who wins the election. And I believe that Newsom has the -- certainly has the advantage. He's well familiar with the Latino community. He appointed __ to the US Senate. I'm sorry, for that Alex Padilla to the U.S. Senate, which was a major appointment. And certainly I know that the Latino community was very pleased with that decision.
So, what the number maybe? We don't know. We've kind of thrown numbers around as to what it might look like at somewhere between maybe $2 million to $4 million of additional revenue primarily in the fourth quarter. Chris?
Christopher Young
I agree. I think $2 million, $4 million is probably the right number, at least as we stand here today. So…
Walter Ulloa
Michael?
Michael Kupinski
Yes. I was wondering if you could just talk a little bit about the soccer tournament and what the revenue impact might be in the upcoming quarters as well?
Walter Ulloa
So we've got three tournaments coming up. Its going to be a lot of soccer, both on TV and radio. You've got the Euro Cup. You've got Copa America, and then you've got the Gold Cup. The right number to think about those incrementally as far as revenue is concerned, it's probably an incremental $2 million to $3 million, primarily falling in Q2, but some will bleed into Q3. And again, that will be a both on TV and radio.
Michael Kupinski
All right. Thank you very much.
Walter Ulloa
Thank you, Michael.
Operator
[Operator Instructions] I'm showing no further questions. This concludes our question and answer session. I would like to turn the conference back over to Walter Ulloa for any closing remarks.
Walter Ulloa
Thank you, Sarah. And thank you again, everyone for joining us today and for your support. We are optimistic about the future of Entravision and look forward to sharing our progress with you on our second quarter earnings call in August. Thank you.
Operator
The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
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