Entravision Communications Corporation (NYSE:EVC) Q1 2022 Earnings Conference Call May 5, 2022 5:00 PM ET
Kimberly Esterkin – Investor Relations
Walter Ulloa – Chairman and Chief Executive Officer
Chris Young – Chief Financial Officer
Conference Call Participants
Michael Kupinski – Noble Capital Markets
James Dix – Industry Capital Research
Lisa Springer – Singular Research
Greetings, and welcome to Entravision First Quarter 2022 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. Now, I’d like to turn the conference over to your host, Kimberly Esterkin of Investor Relations. Please go ahead.
Thank you, operator. Good afternoon, everyone, and welcome to Entravision’s first quarter 2022 earnings conference call. I hope everyone is staying healthy and safe. Joining me on the call today are 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 include 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. In addition, all pro forma figures, including revenue, operating expenses and consolidated adjusted EBITDA noted throughout the prepared remarks, include the contributions from MediaDonuts and 365 Digital in the prior year period.
I will now turn the call over to Walter Ulloa, Chairman and Chief Executive Officer.
Thank you, Kimberly, and good afternoon, everyone. We appreciate you joining us for Entravision’s first quarter 2022 earnings call. Entravision is off to a very strong start for the year, demonstrated by all-time first quarter record revenue, EBITDA and free cash flow as we continue to generate organic growth, as well as expand our strategic partnerships. Net revenue for the first quarter totaled $197.2 million, up 32% year-over-year.
On a pro forma basis, revenue increased 24% over the first quarter of 2021. The continued growth of our digital segment, combined with improvements in our core television and audio businesses drove our strong growth during the quarter. Consolidated adjusted EBITDA totaled $18.1 million for the first quarter, up 28% year-over-year. On a pro forma basis, adjusted EBITDA improved 17% compared to the prior year period.
What is so impressive about our first quarter EBITDA growth is that we had $5.2 million of non-returning operating cash flow from the prior year same period, and we still managed to grow EBITDA 17% on a pro forma basis and post a record $18.1 million of first quarter EBITDA for Entravision. Importantly, as even as our top line continues to grow, we maintain a lean cost structure, having significantly reduced our expenses, particularly in television and audio over the past few years.
Our continued focus on expense management has helped drive our EBITDA and free cash flow generation, along with our ability to provide solid returns to our shareholders. Speaking of shareholder returns, I am pleased to announce that our board of directors has approved a cash dividend for the second quarter of 2022 of $0.025 per share payable to shareholders on June 30, 2022.
We also bought back approximately 1.1 million shares during the first quarter under our new $20 million share repurchase program. With that as a background, let’s take a further look at each of our three segments, beginning with our largest, digital. Over the past decade, we have transformed Entravision into a digital-first powerhouse. We started this journey 10 years ago with a plan to reach the newly connected consumer first in the U.S.
And in Spanish-speaking territories and then everywhere around the globe. Today, we serve over 1,800 clients each month with operations across 35 countries and campaigns running on five continents. We use advanced technology and best-in-class compliance protocols to unlock Entravision’s full potential as a leading global digital player. Back in 2012, our annual digital revenue totaled less than $5 million.
Fast forward to the first quarter of 2022, our digital revenue totaled $153.7 million or 78% of consolidated revenue, up 51% compared to the prior year period. This substantial digital revenue growth over the past decade is made possible by our diversified digital advertising and technology solutions, which include our global commercial digital partnerships and Smadex, our programmatic ad purchasing platform. In addition, we offer other marketing solutions to small and midsized businesses across the globe. These solutions include branding and mobile performance digital marketing services featuring our mobile video ad network and Audio.ad, our digital audio network.
Our global commercial digital partnerships unit includes Entravision Cisneros Interactive in Latin America, Entravision MediaDonuts in Southeast Asia, and Entravision 365 Digital in Africa. Entravision’s Cisneros Interactive continues to execute large digital ad campaigns on Facebook and Spotify throughout Latin America. Advertising and marketing spend patterns of Facebook and Latin America still lagged behind the United States. So the platform is in a high-growth mode, due to its unique sales operation, platform, commercial partnerships and client relationships, Entravision’s Cisneros Interactive revenue grew 27% in the first quarter as compared to the prior year.
During the first quarter, Entravision Cisneros Interactive further expanded its commercial partnerships to become the exclusive partner of Roku in Mexico. Through this partnership, Entravision is connecting brands and marketers in Mexico with Roku’s advertising solutions, enabling better customer targeting and measurement, along with access to premium advertising inventory. Then just after quarter end, Entravision Cisneros Interactive announced an exclusive partnership in Latin America with Anzu, one of the world’s most advanced in-game advertising platforms. This partnership with Anzu allows Entravision to be at the forefront of innovation when it comes to in-game advertising.
Entravision MediaDonuts and Entravision 365 Digital also delivered very strong growth in the first quarter. Entravision MediaDonuts in Southeast Asia grew its revenue on a pro forma basis 80% in the first quarter versus the prior year same period. 365 Digital also saw a significant expansion of its top line following the launch of its exclusive sales representation with TikTok in South Africa in the second half of last year. 365 Digital also exclusively represents Anzu in South Africa.
Meanwhile, just yesterday we also announced the expansion of Entravision 365 digital into Kenya as we expand to new emerging markets. It is clear that our global commercial digital partnerships base is growing. And importantly, we continue to work with leaders across the digital media and technology spaces that are early movers in their respective geographic regions. I’d like to focus briefly on Smadex, our programmatic proprietary DSP ad tech platform.
Since we acquired Smadex roughly five years ago, the unit’s revenues have increased 10 times. And for the first quarter of 2022, Smadex revenues improved 160% as compared to the prior year period. Smadex’s highly competitive, efficient and transparent offerings, including hyper-targeted ads, machine learning algorithms and multidimensional custom reporting remain a go-to for the gaming, fintech and mobile delivery industries. Smadex continues to accept monthly revenue records, and we are committed to bringing this offering to our existing client base across the globe. Even with its exceptional performance, as I highlighted last quarter, we believe Smadex is still in the very early stages of its growth potential.
Now, let’s turn to our television segment, which comprise 16% of revenue for the first quarter. Television revenue was $30.9 million in the first quarter, down 14% compared to the prior year period. We anticipated our television revenue to decline this year, primarily due to the loss of three Univision affiliations at the end of 2021.
Excluding those three affiliate markets, total television revenue was up 1% year-over-year. Excluding those three affiliate markets and $1.3 million in political spend in the first quarter of 2022, core television advertising increased 4%. National core advertising revenue decreased 2% and local core advertising revenue increased 8% year-over-year. In terms of advertising categories, the audio category and, in particular, new car sales continue to face supply chain pressures.
Excluding the three Univision affiliations that we no longer operate, auto ad revenues were down 7% in the first quarter year-over-year. On a favorable note, we are seeing some improvements in auto edge spend as we begin the second quarter and believe that auto advertising will continue to slowly improve throughout the year as inventory supply returns to meet demand. Offsetting auto declines, excluding the three Univision appliances that we no longer operate, travel and leisure was up 141% compared to last year’s same period. Telecom grocery retail and product brands also had strong growth in the first quarter compared to the prior year same period.
We’re also looking forward to the return of political ad spend this year and continue to anticipate approximately $11 million of total political ad revenue in 2022. Entravision’s local television markets are situated in the states where political messaging to Latino voters remains a top priority for both parties, as well as special interest groups. Case in point, in the first quarter, on our owned and operated television stations, we booked approximately $1.3 million in political ad spend, largely related to the primaries in Texas. In addition, with California considering legalizing sports betting, we anticipate a robust year for political ad spend.
Turning to our ratings performance. Our Univision television affiliates built upon their market leadership in the February 2022 sweeps. For adults 18 to 49 in early and late local news, our Univision television stations finished ahead or tied with their Telemundo competitor in 12 of 14 markets where we have head-to-head competition. Additionally, our early local newscasts are ranked number one or two against English and Spanish competitors in eight markets. Our late local newscasts ranked number one or two against English and Spanish competitors in 11 markets.
Finally, let’s turn to our audio segment, which comprised the remaining 6% of first quarter revenue. Audio revenue totaled $12.6 million for the first quarter, up 11% compared to the prior year period, primarily due to an increase in local revenue. Excluding political spend of $327,000 in the first quarter of 2022, core audio revenue increased 9% versus the first quarter of 2021. Execution across our audio business remained best-in-class as we continue to manage our expenses and our local advertising business grew, the audio segment’s cash flow generation during the first quarter improved 97% year-over-year. Entravision’s unique audio content attracts the vast and growing Latino audience.
In fact, buyers of advertising space on our 46 radio properties and partner radio stations can reach nearly 95% of the U.S. Latino listernership in a single ad placement. With regards to advertising spend during the first quarter, services, retail, travel and leisure, restaurants, product brands, healthcare and finance all delivered strong growth for our audio segment in the first quarter of 2022 versus the prior year period. Auto advertising, though softer than the prior year, is trending better in the second quarter in our audio unit.
We continue to outperform the market in a number of our key territories, such as Phoenix, Los Angeles, Las Vegas and Mcallen in total spot revenue according to Miller Kaplan. Looking at our audio segment ratings performance for the winter book among Hispanic language radio stations, the Erazno y La Chokolata show is ranked number one in afternoon drive in six out of our six PPM markets released for winter among Hispanic adults 18 to 49 and Hispanic adults 25 to 54, including ties. Across our six O&O radio stations, the Erazno y La Chokolata show reached more than 425,000 Hispanics 18 to 49.
On our Tricolor network, our mid-day programming ranked as a top choice among Hispanics. During midday, La Plebe ranked as the number three Spanish language radio station in three out of our three Tricolor markets released for winter among Hispanic adults 18 to 49, including ties. Overall, our first quarter performance for our audio segment sets the stage for a strong 2022, and I want to thank our entire team for their incredible effort and performance.
Before I speak further, I will turn the call over to Chris Young, our CFO, to discuss our first quarter performance in further detail and to provide our second quarter 2022 pacing. Chris?
Thanks, Walter, and good afternoon, everyone. As Walter discussed, revenue for Q1 2022 totaled $197.2 million, an increase of 32% from the first quarter of 2021. For our digital segment, revenue totaled $153.7 million in the first quarter, up 51% year-over-year and up 38% on a pro forma basis as compared to Q1 of last year. For our TV segment, total revenue was $30.9 million in the first quarter, down 14% year-over-year.
Excluding political, core advertising revenue was down 20% year-over-year. However, excluding the revenue impact from the three discontinued Univision affiliates at the end of 2021, total revenue increased 1% year-over-year. Retransmission revenue for the quarter totaled $9.2 million, which was down 5% year-over-year, also due to the loss of the three discontinued Univision affiliates. Lastly, for our audio segment, revenue totaled $12.6 million in the first quarter, up 11% from the prior year.
Excluding political, core audio revenue was up 9% over Q1 of last year. Operating expenses in the first quarter of 2022 totaled $43.9 million, up 9% from $40.4 million in the prior year period. Excluding operating expenses related to our Media Donuts and 365 Digital acquisitions, operating expenses were up 3%. corporate expenses increased by 22% to total $8.7 million for the quarter compared to $7.2 million in the same quarter of last year.
The primary drivers of corporate expense increases were increases in noncash stock-based compensation expenses, salaries, and audit fees. Consolidated adjusted EBITDA totaled $18.1 million for the first quarter, up 28% from $14.2 million in the prior year period. Free cash flow, as defined in our earnings release, was $14.3 million in the quarter, or a conversion rate of 79% of adjusted EBITDA compared to $13 million in the first quarter of the prior year. Diluted earnings per share for the first quarter 2022 were $0.02 compared to $0.06 per share in the same period last year.
Excluding a noncash charge of $5.1 million relating to a change in fair value of contingent consideration, earnings for the first quarter 2022 were $0.08 per share. Cash paid for income taxes was $1.2 million for the first quarter. Net cash interest expense was $1.2 million for the first quarter compared to $1.4 million in the same quarter of last year. Cash capital expenditures for Q1 totaled $1.5 million.
We expect cash CapEx to total roughly $12 million for the full year. Turning to our balance sheet, which remains rock solid, as illustrated by our recent debt ratings upgrade by Standard & Poor’s, cash and marketable securities as of March 31, 2022 totaled $211.6 million. Total debt was $211.8 million. Net of $75 million of cash and marketable securities on the books, our total leverage, as defined in our credit agreement, was 1.5 times as of the end of the first quarter.
Net of total cash and marketable securities, our total net leverage was 0.0 times. Turning to our pacings for the second quarter of 2022. As of today, revenue from our digital segment is pacing plus 34% over the prior year. Factoring in MediaDonuts and 365 Digital revenue generated in Q2 of 2021, our digital segment on a pro forma basis is pacing at plus 23%.
Our TV segment is pacing minus 10% over the prior year period, with core TV advertising, excluding political booked thus far in the quarter, pacing at a minus 14%. As we noted last quarter, we do expect our TV revenue to decline in 2022 from the loss of the three of our Univision affiliates. That said, we more than make up for any TV revenue decline with our digital segment performance. Excluding the impact of our three lost TV affiliates, TV is pacing plus 1%.
Lastly, our audio segment is pacing plus 3% over the prior year period, with core audio excluding political, pacing at a plus 2%. All in, our total revenue compared to last year is pacing at a plus 23%. On a pro forma basis, our total revenue is currently pacing at a plus 15% over last year. With that, I’ll turn the call back over to Walter.
Thanks, Chris. Last year marked our 25th year as a company. At that time, if you look at a map of our operations, you’d see our television and radio stations plotted across the United States. Today, we are a global advertising solutions, media and technology company with operations spread across five continents and 35 countries.
It is apparent from both our first quarter performance and second quarter pacings that Entravision’s business remains on an upward track. We are excited about the enormous opportunities in front of us as we continue to invest in the future of digital. Just last week, we announced that we entered into a definitive agreement to make a strategic investment in Jack of Digital, which has an exclusive commercial partnership with TikTok IN Pakistan. Subject to regulatory approval and other closing conditions, we anticipate that the investment will be completed during the second quarter of 2022.
With this investment in Jack of Digital, we expand our global commercial partnership reach into South Asia, a region which comprises 23% of the world’s population. As you’ve seen with each of our digital acquisitions thus far, all of which have been accretive, Entravision provides the infrastructure to entrepreneurial digital-first companies so that their teams can focus their local expertise on crafting solutions and growing their business, while Entravision expands and enhances its digital offerings and capabilities. As Chris noted earlier, we have a very solid balance sheet that provides us the ability to make additional investments based on cash on hand. We can also take on additional leverage down the line should a larger acquisition opportunity arise.
With the transformation of our business and overall go-to-market strategy, we continue to believe that our value proposition for both our investors and advertising clients has never been stronger. We’ve positioned ourselves to partner with some of the largest, most innovative digital companies today, and we look forward to sharing our success along the way. That concludes our prepared remarks. I want to thank you again for your continued support of Entravision.
Chris and I would like to open the call to your questions. Operator?
Thank you very much. [Operator Instructions] We have our first question from the line of Michael Kupinski with Noble Capital Markets. Please go ahead.
Thank you. Thanks for taking the questions. Good afternoon. Congratulations. I mean, just spectacular numbers. You guys are just kicking it right now. A couple of questions I have here. First of all, just a line item here. Can you talk a little bit about direct operating expenses? That number came in lower than I was looking for. And I was just wondering if you can just kind of give us some thoughts. I know that some of the station stuff might be factored in there. But can you kind of – was there anything special in that quarter that I should have looked for?
Michael, TV was down 4%. All in, radio was down 4%. All in, digital was up consistent with where the revenue growth was. So there wasn’t anything extraordinary in particular about the quarter as far as expenses were concerned.
Got you. And then just in general, we’re hearing that national advertising is a little softer and maybe because of concerns over inflation and that people were talking recession and so forth. But could you just – is there any variance in terms of what you’re seeing? I know it’s very difficult to break out national out of some television radio. But are you seeing any variance among key categories and things like that, that might be viewed as national advertising versus local?
Well, auto is obviously choppy for reasons that we’ve talked about before the call. I don’t think there’s anything – clearly, the local business is strong. The national business is a little choppy, but that’s probably going to persist for a couple of more quarters. But yes, generally speaking, the local side of the business is stronger than the national side.
And certainly, your digital businesses are just growing so rapidly. I mean, what – how would you anticipate that business would react if we do see a slowdown, maybe a global slowdown? What are your thoughts in general about how your digital business could perform in that environment?
Well, I think the digital business is primed for growth regardless. We’re not in Russia. We’re not in the Ukraine. We’re in an area, particularly in Latin America, that is in still high-growth mode. Facebook talked about their numbers in their first quarter call. They did 23% in Latin America and the Middle East, and we outpaced that as far as our own Latin American growth was concerned with Facebook. So we think we’re in great shape regardless and we’re going to have to see how things play out on the macro scale.
Plus obviously, Michael, we’re in a unique place in the world and high-growth countries that we operate in. So we’re also very pleased with the growth in – with Media Donuts that grew 80% pro forma versus Q1 2021.
So obviously, you guys are building a big cash position with this lots of free cash flow. What is the allocation of cash at this point? Are there M&A opportunities that you’re looking at? Certainly, I’m looking at the stock in the aftermarket here, $5.14 or $5.01. It’s just incredibly – I’m scratching my head why the stock is so cheap. But can you have any thoughts in terms of maybe increasing the share repurchase? Keynotes just did a – is doing a Dutch auction. I mean what are your thoughts about being more aggressive on the stock repurchases here?
Well, we don’t necessarily disagree with you. We have a share buyback program in place. We are actively working on the M&A front to put the cash to work that we do have. We’ll revisit the dividend policy and the buyback policy at the next board meeting, and we’ll keep everybody posted.
Okay. Well, that’s all I have. Congratulations. Great quarter.
Thank you, Michael. Appreciate it.
Thank you. We have next question from the line of James Dix with Industry Capital Research. Please go ahead.
Good afternoon, guys. I just want to drill down a little bit on what Michael was asking about on the digital side. Are you seeing – are there any particular regions? I mean, now that you’re in over 30 countries where you would call out either some positive or negative variances versus what you were expecting in terms of the growth?
Any regions that are operating differently than we had anticipated? Is that your…
Yes. On the top line side, anybody who’s really either outperforming or maybe even lagging a little bit versus what you expected across your geographies?
Our Smadex platform is really beginning to shine. They increased revenue almost two times over prior year. And what we’re doing is we’re getting that product distributed globally now on the sales front, and that’s really exciting. Other than that, regionally, just looking across the board, we had stellar performances from basically all of our digital platforms. And I wouldn’t necessarily call – beyond Smadex, they all just outperformed our expectations.
Our global commercial digital partnership has excelled everywhere in Latin America, in Southeast Asia, in South Africa. As Chris pointed out, Smadex had a tremendous quarter, and we were expecting even that growth to continue into Q2 and beyond. And our U.S. digital business had a great quarter.
Gaming and fintech, in particular, are two verticals that have really taken off across the board with us, and that’s exciting to see. And I don’t see that realistically changing materially, even with this turbulent macroeconomic environment that we’re in.
Okay. Now you mentioned you’ve been rolling out Smadex to more and more clients. Any sense as to roughly how much more of your client base is yet to really be pitched hard with Smadex to understand what its potential is. Like is it another half of your client base?
Yes, more than half, we think the potential for Smadex is tremendous. We’re now marketing the product in the Southeast Asia region. We’re looking at opening an office in Japan. We’re doing well in the United States. We’re doing well in Europe. So I think the potential for increased revenue and the kind of growth we’re seeing with Smadex is very, very strong.
Okay. Great. And then just on the M&A front, any sense as to how long it’s going to take? I mean, is it kind of another six months or before you’d be able to decide on pulling the trigger on some of these? I’m just curious, given the macro and everything, is the pace is the cadence of the deals kind of slowed down or sped up.
Well, we spent a lot of time on M&A, James. And we’re looking for companies, particularly in our digital business, that are – that have the right valuation and the right strategic fit. And so we’re looking at a number of companies right now, and we’ll see how trends it out.
Okay. And then just following up on the share repurchases. I mean how should we think about the maximum scale of repurchases that you consider? I mean, is it daily volume limitations in the stock? Or I mean, just relative to the cash on your balance sheet, it doesn’t seem like cash in your balance sheet would really be much of a limitation. So I’m just trying to understand a little bit about how you look at the rest of the authorization being applied.
Well, I don’t think we want to get into the details of how we’re going about it. We’ve got a little less than half of that $20 million debt basket – buyback basket approved used. So we’ll continue to be active on that front, and we’ll see how that goes.
Okay. You say a little less – so you did around $7 million, correct, in the quarter?
Right. And then we did some in Q2. So we spent about $11 million so far, $11 million out of the $20 million, yes.
Okay. And then on the noncash charge, I guess, that relates to the contingent consideration for some of your deals. Anything in particular we should be looking at, like what that related to?
Well, the digital businesses are outperforming. So we still know the sellers on the back end of that payment. So as the business outperforms, the amount that we potentially could owe them on the back end also increases. So you got to run that through the P&L below the line.
Okay. So that wasn’t just related to one particular deal; it was kind of across more than one?
That’s. A multitude of – yes.
Okay. And then just last for me. Anything we should be thinking about in terms of the income statement impact from your deal for Jack of Digital? Or is it still a little early to say just given it hasn’t closed yet.
Yes, it’s still early.
Yes. Okay, okay. Great. Thanks very much.
Thank you. We have next question from the line of Lisa Springer with Singular Research. Please go ahead.
Good afternoon, guys. My question concerns your partnership with Anzu in Latin America. Could you comment on the opportunities and what kind of growth rates you’re seeing in the in-game advertising market versus more traditional digital advertising like Facebook and TikTok?
Well, we just launched that business, or I should say that partnership here recently. So it’s still early. But Anzu is one of the premier game manufacturers or producers in the world. And so we think that the potential for, particularly in Latin America, for that business is pretty strong. And so we have great hopes about it as we roll into the second half of the year and into 2023.
Okay. And regarding the Jack of Digital investment, are they strictly in Pakistan? Or do they already have reach into surrounding countries as well?
No, it’s strictly Pakistan. But there is an ambition internally to expand into other countries as that business develops.
Okay. Thank you.
Thank you. Ladies and gentlemen, we have reached the end of the question-and-answer session. And I’d like to turn the call back to Walter Ulloa, Chairman and CEO, for closing remarks. Over to you, sir.
Thank you, again, everyone, for joining us today and for your support. We look forward to sharing our progress with you on our second quarter earnings call in early August. Have a good rest of the day.
Thank you very much, ladies and gentlemen. This concludes today’s conference. You may disconnect your line at this time. Thank you for your participation.