Entravision Communications Q2 2024 Earnings Call Transcript

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Provided by Quartr
August 8, 2024

There are 4 speakers on the call.

Operator

Greetings, and welcome to the Entravision Second Quarter 2024 Earnings Conference Call. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Roy Neer, Vice President, Financial Reporting and Investor Relations. Thank you. You may begin.

Speaker 1

Good afternoon, everyone, and welcome to Entravision's Q2 2024 Earnings Conference Call. Joining me today are Michael Christiansen, Chief Executive Officer and Mark Belke, 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 will also include non GAAP financial measures.

Speaker 1

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 Investor Relations page and was filed with

Speaker 2

the SEC on Form 8 ks. I will now turn the call over to Michael Christiansen. Thank you, Roy, and thank you to all of you for joining us on this call today. In our Q2 of 2024, we completed the transformation that we outlined for you in our Q1 report. We reached an agreement to divest our digital platform representation business to Aleph Group, and we closed that transaction on June 28.

Speaker 2

The transaction included all of our digital platform representation operations, including those in Latin America and Asia, more than 320 people in 32 countries serving a dozen digital advertising platforms. Earlier in the Q2 on May 6, we sold our controlling 51% interest in Adsmirail, a marketing technology and services company based in Barcelona to our partners who own the other 49%. That transaction included another 350 people in 2 countries. These actions represent a positive step forward for Entravision. We now have the opportunity to focus on our core U.

Speaker 2

S. Media business at a critical time as we navigate the unprecedented changes in the broadcast industry. Entravision is a trusted source of news, information and entertainment for our Latino audience. This is an audience that we have served for 3 decades. We have made significant investments this year to expand our news production capabilities and the amount of news that we provide for our audience.

Speaker 2

We now have morning, midday, early evening and late news in all of our markets. And we have weekend, early evening and late news in San Diego, Las Vegas, Denver, El Paso and McAllen, Texas. We've also invested in our sales organization to build a team that can engage directly with political decision makers and educate them about our audience and how Entravision can help them reach our audience. 1 in 5 of the Latinos in America are in our broadcast markets. We believe our audience will be critical to determining the outcome of the 2024 elections and future elections.

Speaker 2

In addition to our investments in U. S. Media, we are also making significant investments in our remaining advertising technology and services businesses, Smadex and Adwake, to improve their platform and operational capabilities. Both of these businesses are now growing faster than their industry growth rates and they are profitable. These combined actions are all good for Entravision.

Speaker 2

They put us in a stronger financial position with positive momentum. We're excited about the opportunities ahead and we are looking forward to building value for our company and our shareholders. Now I'll pass the call over to Mark Bauchi, our CFO to provide the financial report. Thanks, Mike. As Mike stated, during the Q2 of 2024, Entravision completed the sale of our global sales representation business known as Entravision Global Partners or EGP.

Speaker 3

As a result of this sale, financial results for EGP are reported in our financial statements as discontinued operations for both the Q2 and prior periods, and I will review Q2 financial results for our continuing operations. On a consolidated basis, revenue for the Q2 was $82,700,000 up 12% compared to the Q2 of 2023. The increase was driven primarily by our digital segment and political advertising revenue in our television and audio segments, partially offset by decreases in overall advertising revenue, spectrum rights usage revenue and retransmission consent revenue. I'll now review each of our operating segments. Starting with our digital segment, revenue for the Q2 was $41,100,000 up 36% compared to the Q2 of 2023.

Speaker 3

The growth in the digital segment was driven primarily by Smadex, our programmatic ad purchasing platform and AdWake, our mobile growth solutions business. During the 2nd quarter, operating margin for the digital segment was 6% compared to negative 1% in the Q2 of 2023. Operating margin on net revenues minus the cost of revenue was 16% compared to negative 2% in the Q2 of 2023. The improvement in digital segment operating margins was attributed to better performance and margins in somatics and Adwait. Looking ahead to the Q3, revenue from our digital segment is currently pacing plus 17% compared to the Q3 of 2023.

Speaker 3

Moving on to our television segment, revenue for the Q2 was $28,600,000 down 5% compared to the Q2 of 2023. The decrease in television revenue was driven by decreases in overall advertising revenue, Spectrum Rights usage revenue and retransmission consent revenue, which was partially offset by increased political advertising revenue. During the Q2, television segment operating profit was $3,100,000 down 59% compared to the 2nd quarter of 2023. Operating margin was 11% compared to 25% during the Q2 of 2023. As we discussed on our last investor call, the decline in television operating margins was primarily due to our decision to expand our local news beginning in January 2024.

Speaker 3

We made this strategic decision in order to provide more local news and information to our audiences and to provide more opportunities to generate additional revenue in connection with highly valued news inventory, particularly for political advertising during an election year. As a result of this decision, we hired 70 additional news employees. And as Mike mentioned, we now provide news in the morning, midday, early evening and late night in all of our Univision, Fox and NBC markets as well as weekend news in 5 key markets. We now produce more than 2 80 hours per week of local news across our television portfolio. For the Q3, revenue from our television segment is currently pacing plus 9% compared to the Q3 of 2023 and we currently expect that pace to increase as political advertising picks up throughout the quarter.

Speaker 3

Turning to our Audio segment, revenue for the Q2 was $13,000,000 down 4% compared to the Q2 of 2023. This decrease was primarily driven by a decrease in overall advertising revenue, partially offset by an increase in political advertising revenue. For the Q2, Audio segment operating profit was $1,900,000 up 21% compared to the Q2 of 2023. Audio segment operating margin was 15% compared to 12% for the Q2 of 2023. The increase in our Audio segment operating margins was primarily due to savings in rent expense related to our move from a standalone operations facility into our corporate headquarters and a decrease in variable expenses associated with the decrease in advertising revenue.

Speaker 3

We've taken steps to strengthen our audio content and radio station footprint that we believe will provide stronger ratings and advertising revenue. For example, we've had a 10 year partnership with the NFL as the exclusive Spanish language audio home in the U. S. And this week, we announced that we expanded and extended this relationship for additional 3 years. And we believe the NFL continues to see the value and power of connecting with our audiences.

Speaker 3

For the Q3, revenue from our Audio segment is currently pacing flat compared to the Q3 of 2023. Similar to our television segment, we currently expect this pace to increase as political advertising picks up throughout the quarter. Corporate expense for the Q2 was $10,800,000 a decrease of 10% compared to the Q2 of 2023. This decrease was primarily due to decreases in professional services expenses and non cash stock based compensation, partially offset by an increase of severance expense resulting from recent changes made to our corporate structure. Turning to our balance sheet, we had a total of $88,300,000 in cash and marketable securities as of June 30, 2024.

Speaker 3

Indebtedness under our credit facility at quarter end was $187,800,000 During 2024, we have prepaid $20,000,000 of our bank debt, including a prepayment of $10,000,000 during the Q1 and an additional $10,000,000 during the 2nd quarter. Under our credit agreement, our leverage ratio is calculated net of $50,000,000 of cash. And as of June 30, 2024, our leverage ratio under our credit agreement was 3.0x. Calculating our leverage ratio, net of total cash and marketable securities, our total net leverage was 2.2 times. Leverage calculations under our credit agreement are based on consolidated EBITDA for the trailing 4 quarters and consolidated EBITDA for Q2 2024 was $10,500,000 Cash capital expenditures during the 2nd quarter were 2,000,000 representing 11% of net cash provided by operating activities compared to 78% during Q2 'twenty three.

Speaker 3

Cash capital expenditures for the year to date period of January through June 2024 were $4,700,000 representing 9% of net cash provided by operating activities compared to 32% for the prior year period. The higher CapEx during 2023 was driven primarily by the build out of our new office headquarters, which was completed in the Q3 of 2023. Capital expenditures are expected to be approximately $7,000,000 for full year 2024. During the Q2, free cash flow defined as cash provided by operating activities less cash capital expenditures was $15,700,000 compared to $2,300,000 in Q2 of 2023. We paid $4,500,000 in dividends to stockholders in the 2nd quarter or 0 point $5 per share, representing 25 percent of our net cash provided by operating activities.

Speaker 3

We paid $9,000,000 in dividends to our stockholders in the 6 month period year to date or $0.10 per share, representing 18% of our net cash provided by operating activities during the period. Our Board of Directors has approved a $0.05 dividend per share for the Q3 of 2024, which will be payable on September 30 to stockholders of record as of September 16, 2024 for a total dividend payment of $4,500,000 This concludes our call. Thank you for joining us. If you have questions, please connect with us through the Investor Relations page on our website where you will also have access to the transcript of this call, the press release for our results and a copy of our Form 10 Q, which has been filed with the SEC. We welcome feedback and input from our shareholders and we look forward to hearing from you.

Speaker 3

Thank you. Operator?

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Key Takeaways

  • Entravision completed its transformation in Q2 by divesting its global digital representation business to Aleph Group and selling its majority stake in Adsmirail, sharpening its focus on the core U.S. Media operations.
  • Significant investments in local news now deliver morning, midday, early evening and late broadcasts across all markets (plus weekend news in five key cities), supported by 70 new hires to capture political advertising demand.
  • The digital segment generated $41.1 million in Q2 revenue, up 36% year-over-year, driven by Smadex and AdWake, and achieved a 6% operating margin versus –1% in the prior year.
  • Television revenue was $28.6 million (down 5%), with a 59% decline in operating profit to $3.1 million largely reflecting expanded news production costs, though Q3 advertising pacing is +9% and expected to rise with election spending.
  • Entravision ended Q2 with $88.3 million in cash, prepaid $20 million of debt year-to-date, generated $15.7 million in free cash flow (versus $2.3 million last year) and maintained a net leverage ratio of 2.2 times.
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Earnings Conference Call
Entravision Communications Q2 2024
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