Entravision Communications Q4 2022 Earnings Call Transcript

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March 9, 2023

Key Takeaways

  • Record FY2022 performance: Revenue reached $956.2 million, up 26% YoY, driven by digital growth (78% of revenue, +35%), with adjusted EBITDA at a record $103.1 million and free cash flow of $63.3 million.
  • Digital segment strength: Q4 digital revenue grew 30% YoY, with all regional units gaining traction—Smadex +29%, LATAM +7%, Asia +72%, Africa +92%—and new Chief Revenue Officer Phil Gauthier to expand global sales.
  • Political boosts TV and audio: Q4 TV revenue rose 14% to $45.8 million and audio climbed 26% to $20.4 million, largely due to $19.1 million in political ad sales, though core TV (–9%) and core audio (–2%) ex-political were flat to slightly down.
  • Strong Q1 2023 pacing: Digital is pacing +21% YoY and overall revenue +16%, offsetting a modest broadcast decline and underscoring Entravision’s digital-first growth strategy.
  • Dividend hike and M&A focus: The Board doubled the quarterly dividend to $0.05 and intends to deploy robust free cash flow toward complementary digital M&A to fuel further expansion.
AI Generated. May Contain Errors.
Earnings Conference Call
Entravision Communications Q4 2022
00:00 / 00:00

There are 5 speakers on the call.

Operator

Good day, and welcome to the Entravision 4th Quarter and Full Year 2022 Earnings Conference Call. All participants will be in a listen only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Kimberly Esterkin in Investor Relations.

Operator

Please go ahead. Thank you, operator. Good afternoon, everyone, and welcome to Entravision's 4th quarter and full year 2022 earnings conference call. Joining me today are Chris Young, Interim Chief Executive Officer and Chief Financial Officer and Jeffrey Lieberman, President and Chief Operating 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.

Operator

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 include non GAAP financial measures. The company has provided a reconciliation The press release is available on the company's website and was filed with the SEC on Form 8 ks.

Operator

I will now turn the call over to Chris Young.

Speaker 1

Thank you, Kimberly, and good afternoon, everyone. We appreciate you joining us for Entravision's 4th quarter and full year 2022 earnings call. Before we begin, I want to note that it has been 2 months since the sudden and tragic passing of our Founder and CEO, Walter Ulloa. Walter's vision was to build a leading global advertising solutions, media and We are moving forward and we are as focused as ever on the successful execution of our long term strategy to deliver value for our partners and shareholders. Let's begin by discussing our full year results, which were very strong.

Speaker 1

Total revenue of $956,200,000 for 2022 was up 20 6% year over year and represented a new company record. Digital, which comprised 78% of our total revenue, increased by 35% compared to 2021. Television and Radio segment revenues, which made up the remaining Consolidated adjusted EBITDA was also a record $103,100,000 for the year, up 17% over last year. Free cash flow totaled $63,300,000 for the year or a conversion rate of 61% of our consolidated adjusted EBITDA. For the year, earnings per share were $0.21 compared to $0.34 in 2021.

Speaker 1

With such stellar annual performance, In February, our Board of Directors approved an increase in our dividend, doubling the dividend from $0.025 per share to $0.05 per share. This increase returns the quarterly dividend payment to pre pandemic levels. With that as a background on the year, I'll now turn the call over to Jeff Lieberman, Entravision's President and Chief Operating Officer, to speak further on the Q4. Jeff? Thank you, Chris.

Speaker 1

Like most of our management team, I've been part of Intravision for over 2 decades, working side by side with Walter and I worked together since Entravision became a publicly listed company

Speaker 2

on the New York Stock Exchange in August of 2000. Having known Walter for such a long time, I can say with certainty, he would be proud of our financial results we are reporting today. Let's begin with our largest revenue segment digital, which similar to the full year comprised 78% of 4th quarter's revenue. Digital revenue was $230,100,000 for the 4th quarter improving 30% year over year. Entravision now provides a full suite of digital marketing services in 40 countries, including traditional brand awareness solutions Along with transactional performance based services.

Speaker 2

In the United States, our digital solution complements our existing television and audio offering with results driven services for local clients. These services include digital audio, Lead generation, OTT Digital Video Solutions and Branded Content Production. Outside the U. S, Entravision has achieved strong results based on our unique and extensive audience reach and superior technology. By partnering with premier digital platforms such as Meta, Spotify, TikTok and Twitter, our solutions based sales organization provides Cutting edge results for our clients in developing countries where these platforms have yet to have the reach they have established in the United States.

Speaker 2

All of our digital companies experienced growth. Smadex, our programmatic ad platform, once again performed well during the quarter With revenue improving 29% year over year as we grew our business across multiple verticals, most notably gaming apps. Entravision LATAM, which is our business previously known as Entravision Cisneros Interactive also delivered strong results for the 4th quarter With revenue increasing approximately 7% over the prior year, driven largely by a commercial representation partnership with Meta. Entravision Asia, known formerly as Media Donuts, saw revenue improved 72% year over year. Revenue growth was largely driven by success with Twitter and TikTok along with the strong performance of our mobile user acquisition operation Now servicing 11 countries in Southeast Asia.

Speaker 2

Turning to Africa, Entravision Africa known formally as 365 Digital Achieved a 92% increase in revenue for the Q4 compared to the prior year, driven by our TikTok relationship. Beyond enhancing our digital product offerings, we continue to broaden our sales leadership. In December, Spadix welcomed Phil Gauthier as our Chief Revenue Phil is the former head of mobile for Twitter in Europe, the Middle East and Africa. He will continue to accelerate Smadex's global revenue growth by leading our sales team around the world. Let's now turn to the television segment, which comprised 15% of revenue for the 4th quarter.

Speaker 2

Television revenue was $45,800,000 in Q4, up 14% compared to the prior year's period, benefiting from strong political advertising revenue. Excluding the 3 discontinued Univision affiliates, Washington DC, Tampa and Orlando, total television revenue was up 38% year over year. Excluding these 3 affiliate markets and incremental political revenue, core television revenue decreased 9%, national core revenue decreased 21% And local core revenue increased 3% year over year. Retransmission revenue for the quarter totaled $8,900,000 which was down 1% year over year mainly due to the discontinued Univision affiliates. Operating cash flow margin for our television division was 50% for the quarter.

Speaker 2

Political revenue totaled $19,100,000 in the 4th quarter, bringing our total political revenue to a record $32,100,000 for the year. Out of this total, television generated $14,800,000 of political revenue in Q4 $25,200,000 for the year. Lastly, our Audio segment comprised the remaining 7% of 4th quarter consolidated revenue. Audio revenue totaled approximately $20,400,000 for the 4th quarter, an increase of 26% year over year, again largely driven by political ad revenue. Excluding incremental political revenue of $4,200,000 in the Q4 of 2022, core audio revenue 2% versus the Q4 of 2021.

Speaker 2

Even more impressive was our audio operating cash flow margin, which was a record 43% In the quarter, I want to thank our entire team around the world for a strong Q4 year and will now turn the call back to Chris

Speaker 1

$196,300,000 an increase of 27% from the Q4 of 2021. As Jeff just mentioned in the segment breakouts, for our Digital Segment revenue totaled $230,100,000 in the 4th quarter, up 30% year over year and up 20% on a pro form a basis as compared to Q4 of 2021. For our TV segment, total revenue was $45,800,000 in the 4th quarter, up 14% year over year. Lastly, for our Audio segment, revenue totaled $20,400,000 in the 4th quarter, which was up 26% compared to Q4 2021. Operating expenses in the Q4 of 2022 totaled $57,200,000 up 19 percent from $48,100,000 in the prior year period, primarily due to our variable expenses related to revenue growth and increases in salaries.

Speaker 1

Corporate expenses increased by 101% $22,600,000 for the quarter compared to $11,200,000 in the same quarter of last year. The primary driver was severance expense incurred upon the passing of our late Chief Executive Officer increases in non cash stock based compensation and an increase in salaries. Consolidated adjusted EBITDA totaled $36,500,000 for the 4th quarter, up 11% from $32,900,000 in the prior year period. Free cash flow as defined in our earnings release was $19,300,000 compared to $30,900,000 in the prior year quarter or a conversion rate of 53 percent of adjusted EBITDA. Net income attributable to common stockholders was a negative one point $6,000,000 compared to $3,900,000 recorded in the prior year period.

Speaker 1

Diluted earnings per share for the Q4 2022 were a negative $0.02 compared to a positive $0.04 per share in the same period last year. With that said, it is important to note that we incurred Total of $18,800,000 in one time charges that impacted net income in the 4th quarter and $27,700,000 that impacted the full year. These charges included the following: an increase in fair value contingent consideration of $7,400,000 for the quarter and $14,200,000 for the full year resulting from the outperformance of our various digital platforms compared to original expectations. $4,600,000 in non cash charges related to the acceleration of Mr. Uyoa's unvested RSUs upon his death.

Speaker 1

$4,300,000 in cash severance charges also primarily relating to Mr. Uyoh's passing, dollars 1,600,000 in non cash impairment charges relating to our broadcasting assets and finally foreign currency losses of approximately $900,000 in the quarter $3,000,000 for the full year. Excluding these one time charges, adjusted EPS was $0.19 in the 4th quarter and $0.52 for the full year. Cash paid for income taxes was $5,500,000 for the 4th quarter compared to $600,000 in the same quarter of last year. For the year, cash paid for income taxes totaled $16,900,000 in 2022 compared to $4,100,000 paid in 2021.

Speaker 1

Net interest expense was $2,500,000 for the quarter, up 57% from $1,600,000 in the same quarter of last year. Cash capital expenditures for Q4 totaled $3,600,000 bringing our full year capital expenditures to $11,500,000 for 2022, up from $5,800,000 in 2021. Turning to our balance sheet, cash and marketable securities as of December 31, 2022 Turning to our pacings for the Q1 of 2023. As of today, revenue from our digital segment Is currently pacing at a +21 percent over the prior year. Our TV segment is pacing a minus 3% over the prior year period With core TV revenue excluding political book thus far in the quarter pacing at a +2%.

Speaker 1

Lastly, Our audio segment is pacing a minus 3% over the prior year period with core audio revenue excluding political pacing at a minus 1%. All in, our total revenue compared to last year is pacing at a +16%. As we look ahead to the remainder of 2023, despite the prevailing choppy macroeconomic conditions, Entravision Remains well positioned for another year of growth as we continue to expand our operations globally. With the benefit of a solid balance sheet, Strong cash flow generation and a talented management team, you can expect us to continue to seek out opportunities that will further You should also expect to see continued growth from our digital platform. Our strengthening relationship and overall business model with Meta in particular Continues to be validated through the recently announced launch of operations for this platform in Honduras, El Salvador, Ghana, Iceland and Mongolia over the past 12 months.

Speaker 1

To summarize, 2022 was an amazing year of growth for Entravision that was unfortunately capped off by the sudden death of our Co Founder, Chairman and CEO, Walter Ulloa. As we continue to reflect on Walter's loss, I want to take a moment to thank all of our stakeholders, including our employees, our Board and our shareholders for your support during this difficult time. A significant part of Walter's legacy was his installment of highly talented leaders across all of Entravision's business platforms And through their leadership, we will continue to succeed. With that, we'll open up the call to questions. Operator?

Operator

We will now begin the question and answer session. The first question today comes from Michael Kupinski from NOBLE Capital Markets. Please go ahead.

Speaker 3

Thank you for taking my question. And first of all, my condolences to the Intravision family. And also congratulations on a great quarter. Couple of questions. Chris, can you update us on now that you've rolled up some of the earn outs, are there any additional possible earn outs that may be coming up For some of the past acquisitions?

Speaker 1

There are earn outs that are coming up as far as payments are concerned. We'll have about a $30,000,000 payment In April. And in addition to that, there will be something in the low single digits as far as the payment is concerned also in April. And then that's it for the year.

Speaker 3

Got you. And then can you talk a little bit about the M and A environment? I know that you have been making acquisitions. Can you talk a little bit about that?

Speaker 1

Yes, it's been busy on that front. I mean, we've got a pipeline that's pretty robust, and we continue to work through it. And again, You're not talking transformative. You're talking about smaller deals that will be complementary to our existing digital portfolio.

Speaker 3

Got you. And then if you want to just chat a little bit about Cisneros, we see some deceleration in the rate of revenue growth there. You just kind of give us an update on what's going on with Facebook, Latin America? And I know it sounds like you're adding some additional markets there. Can you just kind of give us a flavor of what and maybe some color on what you want?

Speaker 1

I mean, it's still in growth mode, right? So the Cisneros, LatAm in Q3 did plus 10, Q4 they did a plus 7. We're looking to do a little better than plus 7 in that Pace that we gave out for Q1, so it's still a relatively stable region of the world for Facebook. And of course, we've got the new markets that we're also working on that will be incremental growth on top of that.

Speaker 3

And Chris, I don't know if you can give us this, but if you can just Chad, a little bit about pacings, obviously, still very strong 21% in Q1. What's driving that? Is it some of the new markets? And if you can just talk us a little bit about what percentage of the new markets are driving the 21% growth?

Speaker 1

Sorry, I didn't mean to talk over you. The new markets aren't really contributing to the growth. If you took that plus 21 And factored in if you took the plus 16 pace that we talked about and factored in the acquisitions on a pro form a basis that looks more like a plus 11. But it's clearly we've got a minus 3 on the broadcast side. We've got a +21 ish on the digital side.

Speaker 1

It's all about digital We've got a broadcast environment that's choppy. National has gotten soft on us. Local is still pretty resilient. With that said, we're still pushing ahead and but clearly digital is driving the show as far as our growth is concerned at this point.

Speaker 3

Got you. And then my next question was about national. If you can just kind of give us a flavor of national versus local in your core TV and audio as

Speaker 1

Yes. For TV, local is a +1, but national is a minus 18. And from all the channel checks that we've been doing, we're hearing the same numbers coming out of other folks in the So, look, if you look at our top 3 categories for broadcast, you got auto, which is pacing at a +10th Q1 Services minus 3 and Healthcare plus 22 and then everything else is kind of a mixed bag. So but clearly, look, this is a government Sponsored slowdown that this economy is seeing and national is not that atypical for national to pull back Because those branding campaigns are the first ones that go out with the tide, but local remains resilient.

Speaker 3

Got you. And then can you kind of give us a little thought about Expense growth in the quarter?

Speaker 1

Yes. The expense growth in the Q4, you're talking about radio is a little bit higher than usual because We are in the process of moving the radio folks here to corporate, so that drove it. And then TV was a +5. You've got variable expenses associated with the revenue growth. Well, you've got variable expenses on both sides associated with the revenue growth.

Speaker 3

And then we talked about how we should look at that in terms of the run rate and going into the Q1?

Speaker 1

Yes, that will be a function of the revenue, right? We don't like to generally guide on expense, but There will be radio will look a little higher than usual because of that move that we're doing. TV will be a bit more subdued and the digital just purely a function of the revenue growth. So digital you should expect to see double digit growth on the expense front.

Speaker 3

Got you. Thank you. That's all I have. Thank you.

Speaker 1

Thanks, Michael.

Operator

The next question comes from Edward Riley with

Speaker 4

The recent dividend increase is interesting. I just maybe wondering if You could talk about capital allocation priorities for 2023?

Speaker 1

Yes. The dividend increase was just getting it back to pre COVID levels. Think what we're going to do going forward is allocate capital towards M and A. That's kind of where it needs to be. Dividend is kind of where it needs to be as well.

Speaker 1

So the we'll observe and monitor the debt accordingly with our operations. But we've got plenty of cash. We're going to generate plenty of free cash And we're going to work to applying that to continued M and A opportunities.

Speaker 4

Okay. Got it. Thank you.

Speaker 1

Thanks, Edward.

Operator

And one to enter the question queue. The next question comes from David Marsh with Singular Research. Please go ahead.

Speaker 4

Thank you for taking the question. I also offer my condolences to Walter and the entire family.

Speaker 1

Thank you, David. With

Speaker 4

regard to the M and A landscape, could you talk about Your focus with regard to M and A, is it New markets, is it more focused internationally? Could you just talk about the landscape and what opportunities that you are seeing

Speaker 1

Sure. Digital, international complementary to our existing digital footprint, Not necessarily thinking geography by geography in this day and age technology is such that it could be in a different geography, but it's complementary to our existing Infrastructure. So but that's our focus. We've got a lot of smart folks out of our Barcelona office who are helping with some opportunities that we're working on and again they're going to be complementary to our existing digital footprint. Not much Along the lines of stuff here in the United States, there are 1 or 2 deals in the U.

Speaker 1

S. That we are looking at as well, again, on the digital landscape, but nothing really on the Guest front at this time.

Speaker 4

Anything in particular that might be on the table for divestiture here Next 12 to 18 months?

Speaker 1

No, it's steady as she goes as far as our asset base, so nothing that we're looking to sell.

Speaker 4

And then just turning to the advertising side, I mean, obviously, Political will be down significantly for the first half of this year certainly and maybe even to the Q3, but Obviously, a big election year next year. Do you see political coming back? Are you starting to get Some interest in terms of political ads for the back half of the year at this point already?

Speaker 2

Yes, David. We are already starting to see some small buys that are coming through right now. We had a really robust political year last year And we are anticipating that the presidential election year is going to be as good if not better than what we delivered As we go forward and we are going to see a ramp up of that digital spending through each quarter of the year, but mostly in Q4 coming this year.

Speaker 1

Yes. In California, it's got a Senate race coming up. The primaries for that are going to be really interesting. And that's something that we should expect to see in the second half of the year. It's going Hyper, hyper competitive.

Speaker 4

Got it. Thank you. That's great color. That's all for me. Thank you.

Speaker 1

David, thank you.

Operator

This concludes our question and answer session. I would like to turn the conference back over to Chris John, for any closing remarks.

Speaker 1

Thanks again for joining us today. We look forward to sharing our progress with you on our Q1 earnings call in May. Betsy, with that, we'll sign off. Thank you all for your time. Appreciate it.

Speaker 1

Thank you.

Operator

The conference has now concluded.

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