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Greetings, and welcome to the Entravision Second Quarter 2023 Earnings Conference Call. As a reminder this conference is being recorded. It is now my pleasure to introduce your host Kimberly Esterkin with Investor Relations. Thank you. You may begin.

Thank you, operator. Good afternoon, everyone, and welcome to Entravision's second quarter 2023 earnings conference call. Joining me today are Michael Christenson Chief Executive Officer; Chris Young, Chief Financial Officer; and Jeff Liberman, 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. 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 the most comparable GAAP measures in today's press release. In addition, all pro forma figures noted throughout the prepared remarks include the contributions of various acquisitions to the prior year period. 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 Michael Christenson.

Thank you, Kimberly. I'm excited and honored to join the Entravision team and to be here on my first earnings call as Entravision's CEO. Entravision has great opportunities for growth and value creation in each of its business segments, and I'm looking forward to being part of that effort. I also want to thank Chris for the heroic job he did leading Entravision as Interim CEO and CFO during a difficult time for the company. Today, Chris and Jeff will discuss our 2Q results and answer your questions, and I'll be here as well if you have any questions for me. But for now, Chris, over to you.

Thanks for the kind words, Mike. We're excited to have you on board and look forward to our continued growth and success under your leadership. Let's begin with an overview of our second quarter results. On a consolidated basis, we had a record quarterly revenue of $273.4 million, an increase of 23% year-over-year and ahead of our previously disclosed d pacing's of plus 18%. Our digital segment revenue was $229.9 million for the quarter, up 32% year-over-year. The main drivers were our commercial partnership business with revenue up 26%, our digital audio business, which saw a revenue increase of 13%, and various acquisitions which did not contribute to revenue in the comparable period. This increase was partially offset by a decrease in our programmatic business, primarily due to the performance of sematics, which continued to face headwinds from crypto and fintech advertising. On a pro-forma basis, digital revenues improved 18% compared to the prior year period. Our TV and audio segments revenue declined 8% and 9% respectively year-over-year. As Jeff will address, both the TV and audio segments continued to see weakness on the national front and face tough comparisons as we copped against last year's strong political revenue performance. Our local TV business, however, remained fairly resilient as the team has done a fantastic job executing despite challenging conditions. I'll now turn the call over to Jeff to speak further to our television and audio business segments. Jeff?

Thank you, Chris. Let me start with a television segment. Television revenue was $29.9 million in the quarter, down 8% compared to prior year period, largely due to decline in political revenue and continued pressure on national advertising spending. On a more granular basis, core television revenue increased 1%, national core revenue decreased 12%, and local core revenue increased 4% year-over-year. Retransmission revenue for the quarter was $9.3 million, which was up 3% year-over-year. Cash flow margins for our television segment was 36% for the quarter. While we continue to see softness on the national advertising front, which has extended into July, we may see improvement in political spending for the back half of the year, in key states like California, Arizona, Colorado, Nevada, and Texas, which all have primaries in the first quarter of 2024. Now let's shift to audio. Audio revenue totaled approximately $13.5 million for the quarter and decreased 9% year-over-year, largely driven by the lack of political ad revenue, as well as national and local revenue declines as compared to second quarter of 2022. On a core basis, exploding political, total revenue was down 6%, with local revenue down 5%, and national revenue down 7%. Fortunately, Spanish language radio has been performing better than the general market, and while our national clients are being very cautious based on the current economic conditions, political spending may increase in key states discussed earlier, which will help support our national sales. I will now turn the call back to Chris to discuss the second quarter financials and third quarter pacing in further detail. Chris?

Thanks, Jeff. Since we already covered revenues for each of our segments, let's move to expenses for the quarter. Cost of revenue in the quarter totaled $195.8 million, up 35% from $145 million in the prior year period, and was driven by the increase in our digital segment revenue. On a pro-former basis, factoring in recent acquisitions, which did not contribute to cost of revenue in the prior year period, cost of revenue increased 22%. Operating expenses in the quarter totaled $56.6 million, up 20% from $47.4 million in the prior year period. This increase was primarily due to several factors. First, we had approximately $3.2 million in incremental expenses attributable to various acquisitions, which did not contribute to our financial results in the comparable period last year. Second, our rent expense was $1.1 million higher than the prior year, as we were in a temporary office space until we moved to our newly renovated headquarters in Santa Monica at the end of June. Third, there was a $1.8 million increase in non-cash stock-based compensation as a result of the timing of the annual RSU grant being in Q1 of this year compared to Q4 in the prior year. And fourth, variable expenses associated with the increase in digital advertising revenue were up approximately $400,000. On a pro-former basis, operating expenses increased 14% compared to the prior year period. Corporate expenses increased by 41% to total $12 million for the quarter compared to $8.5 million in the same quarter of last year, which is mainly a result of the timing of the annual RSU grant I just mentioned and increases in professional service fees. Consolidated EBITDA totaled $14.2 million for the quarter, down 37% from $22.5 million in the prior year period. The decline was primarily driven by a combination of both non-returning political revenue at our broadcasting business coupled with an increase in cost of revenue operating expenses and corporate expenses that I just spoke to. Free cash flow as defined in our earnings release was $1.6 million in the quarter or a conversion rate of 11% of consolidated EBITDA compared to $14.3 million in the same quarter of last year. That cash interest expense with $3.2 million in the quarter compared to $1.2 million in the same quarter of last year. Cash capital expenditures for Q2 totaled $8.1 million. The increase compared to the same quarter of last year is mainly due to the build out of our new headquarters in Santa Monica completed during the quarter. We expect cash CapEx to total roughly $16 million for the full year. Cash paid for income taxes was $3.5 million for the quarter compared to $6.2 million paid last year. Diluted earnings per share for the quarter, 2023, were negative $0.02 compared to a positive $0.10 in the same quarter of last year. In addition, we were pleased that our board of directors once again approved a quarterly $0.05 dividend. Turning to our balance sheet, cash and marketable securities as of June 30th, 2023, totaled $126.5 million. Total debt was $212.6 million. Our total leverage as defined in our credit agreement was 1.8 times as of the end of the second quarter. Net of total cash and marketable securities, our total net leverage was 1.0 times. Turning to our pacings for the third quarter of 2023. As of today, revenue from our digital segment is pacing plus 25% over the prior year. Factoring in acquisitions, our digital segment on a pro-forma basis is pacing at a plus 17%. Our TV segment is pacing minus 17% over the prior year period, with core TV advertising excluding political both thus far in the quarter and the prior year, pacing at a minus 10%. Lastly, our audio segment is pacing minus 15% over the prior year period, with core audio excluding political both thus far in the prior year quarter, pacing at a minus 12%. All in, our total revenue compared to last year is pacing at a plus 15%. On a pro-forma basis, our total revenue is currently pacing at a plus 11%. To conclude, looking ahead, we will continue to seek ways to drive growth and expand our footprint with an increased focus on organic growth. TV and audio remain resilient, and while macro conditions are uncertain, Entravision continues to be well positioned to benefit from increased political ad spend in the back half of this year. Lastly, I'd like to note that we were pleased to announce during the quarter that Entravision once again earned the Great Place to Work certification. This certification speaks to our strong company culture, and I would like to thank all of our employees for their contribution and dedication to our success. Thank you for your time this afternoon. We appreciate your continued support of Entravision, and we'll now open up the call to questions. Operator?

Thank you. We will now begin the question and answer session. [Operator Instructions] And, ladies and gentlemen, our first question today comes from James Dex, a retail investor. Please go ahead.

Hi, everybody. Mike, welcome. Chris, I tell you welcome, but, you're here before. I've been here before.

Hello, James.

I guess just in terms of just looking at the demand versus expectations, just on the revenue side, and I guess in particular on advertising, it's looking like TV and radio on the core basis are a little weaker than expected, digital, maybe a little stronger. Is that the way you see demand at the moment as you look at the third quarter versus your internal expectations as you went into the year? And what are you hearing from? Yeah, and what are you hearing from advertisers across the segment?

Local's more resilient than national. National's really the problem of the mix. Local's hanging in there. The thinking is that agencies at the national level are waiting for some signs that this economy is in a recovery mode, and then they're going to start committing budgets on a longer-term basis in the second half of the year. The feeling, the sentiment is that we're through the worst of it, but now agencies want to start seeing that data come out before they start making commitments. Local has been pretty resilient. We're still kind of in the positive, particularly for TV. That's part of the business that we have a bit more control over, but national's really the problem. And as far as digital is concerned, look, digital demand continues to be there. Meta, our largest platform, continues to outperform. They produce the plus 21% in Q2, up from a plus 15% in Q1, and up from a plus 7% in Q4 last year. So they're clearly with the meta-platform on track for continued growth.

Okay, great. And then just in terms of your margin expectations, at least according to my model, kind of broadcast, actually despite the weakness, was relatively in line in terms of cash flow. Digital did miss. So how are you thinking about margins going into the back half of the year, in particular on the digital side of things, especially given what you've said previously about changes in commission rates from partners, potentially?

Yes, TV margins should continue to be kind of in that high 30% range before corporate radio should be back into kind of the mid to high 20% range in the back half of the year. But to your point, digital, we were south of 5% at 4.7% in Q2. Probably expect to see something along similar lines for Q3. Seasonality-wise, Q4 is usually a breakout quarter for us for digital. So expect those margins to be more in the mid-single digit, kind of in the 6 or 7-ish range, provided that revenue and the seasonality will continue as we expect.

Okay, great. And then just one last one. What are you seeing in terms of the M&A outlook across, I guess, primarily digital, but if there's anything else that's been popping up of interest, what would that be?

I think right now, James, we're focused on organic growth. We're focused on digesting the three deals in this past quarter, as well as the rest of the portfolio. Mike has been working on that strategy and has us all focused on working to improve the margins of our existing assets. And that'll be our focus, at least, for the near term.

Okay, great. Thanks very much.

Thanks, James.

Thank you. [Operator Instructions] The next question comes from David Marsh at Singular Research. Please go ahead.

Hey, thanks for taking questions, guys.

Hey Dave.

Just to start, can you talk a little bit more? Can you give us a little bit more granularity around political and what you're seeing so far? I mean, I know, you're in the market, but I sit in, we're already starting to see some ads towards the 24th election, so I'm just hoping for a little bit more help around what you guys are seeing.

So, David, we are seeing a little bit of political, not very much, nothing to really count in, but we do expect the second half of the year to become more robust. There are some key primaries in states that we operate media properties in that are in the first quarter, California, Arizona, Nevada, Texas, Colorado, which we do feel that we're going to start seeing money, maybe very close to the end of the third quarter, if not in the fourth quarter.

California in particular should be a big deal for us, because that's a lot of the initiatives here in California are done by mail and vote, and so to get that message out in front of that March deadline, that Election Day, you've got to start messaging, in September or October, and that's when we expect that advertising to come online.

And the political stuff would all be categorized more as a local advertising product, correct?

Usually, National is where we classify it, because it usually comes in from national agencies, except for any local race in the individual market that we're in.

But we're happy in the future to give you the breakout of what national is without the political versus with the political, just the nuance.

Okay, yes, yes. Nationally, are there any particular sectors that are actually doing some meaningful advertising with you guys and broadly, and any in particular that are just really, really super sluggish and any catalyst to perhaps get those off the bench?

Are you talking about verticals or specific advertisers?

Yes, industry verticals, yes, sorry.

Yes, so services is our number one category. They were flat, but that's kind of the legal and insurance services business. Automotive is finally coming back around. It was up 14% for a TV. It represents about 27% of our book. Retail is up 7%, health care is up 7%. The one category that's down for us, which was a bit of a surprise, but quick service restaurants, the likes of McDonald's and whatnot, they've pulled back somewhat. But that's really the only flip on the screen as far as the major categories are concerned. That's for TV.

Yes, that's really helpful. Just lastly for me, on the digital side, I mean, just kind of a follow on the prior dollars question. I mean, what is it that you guys could do to grow the margins in the digital business a bit? I mean, is there anything specifically from a lever pulling perspective that you all can do, or is it just really a volume game for you?

Well, it is a volume game, but what we have been doing over the past several quarters is tailoring back the headcount in certain specific business platforms. So the headcount's down around 60 people over the last two quarters as we kind of work to restructure some of our divisions. That will likely continue into the back half of the year as we continue to work on that. But yes, so the margins will be largely, to the extent that we have some control, will continue to work on the headcount and efficiencies. But in large part, it's going to be the revenue that's going to drive those margins. And our expectation is to get, as the seasonality of the business really kicks in the high gear in the fourth quarter, we'll have those margins back into the kind of mid-single-digit range.

Got it. That's really helpful. Thanks, guys.

Thank you.

Thank you. And our next question today comes from Michael Kupinski with NOBLE Capital Markets. Please go ahead.

Thank you. Thanks for taking my questions. Mike, congratulations. I look forward to working with you. I know this might be a little early for you to opine on this, but how do you view the company and what particular changes do you think you would like to make, possibly, in terms of areas of growth, acquisitions, focus, maybe your perception about radio, the TV assets, and so forth?

What I'd say at this point, three or four weeks into the adventure is, we're looking at all of the businesses. And as Chris mentioned, we've been active on the acquisition front over the past few years, and we're going through the portfolio and looking for organic growth opportunities. So that's the priority for now, figure out ways to grow revenue and grow free cash flow organically. And we're looking at every business to find those opportunities.

And would I assume, could we assume that you would also look at acquisitions in both TV and radio or would you be concentrating on just the digital assets?

Right now, we're really not looking at any acquisitions. I mean, we're obviously watching, leading the company. We watch M&A activity in all of the sectors where we're a participant to help kind of formulate our own strategy and make our own decisions, understand valuations in the marketplace, but we are not looking at any specific transactions at this point. We're focused on our own portfolio.

Got you. And then in terms of those margins, I want to kind of go back to that question on the digital side. Did the margins change for any of your Facebook or Meta relationships? I know that there was some talk about Meta and the digital margins and so forth, and I was just wondering if how those discussions went or if you had them, and if we are seeing that reflected in the margins, in the digital margins already. Can you give us some thoughts about that?

Yes, Michael. So we were informed by Meta a few months back that our commissions or our Meta business would be dropping from 10% to 7%. That was effective July 1st, so that's not reflected in the Q2 print, but certainly it will put some margin pressure in the back half of the year. To offset that, we are in discussions with Meta about expanding our relationship with them into new territories, but we really don't have anything of note to specifically speak to that point right now.

And Chris, in terms of the potential expansion into new territories, I'm certain that they probably gave you some insight on those. Would those be more than offset the types of, kind of missed cash flow opportunities that you would have from the margin improvement? I mean, could we look, in other words, are we anticipating that we would see substantial growth given those market opportunities that they're presenting you?

It's too early to tell, but our hope is yes, but we don't have that in writing at this point, but that is obviously the goal.

Yes, and then I know that you answered the question a little bit about the prospect for margins and how you want to focus on the digital segment. What do you think are the sustainable margins in the digital segment, and what maybe you are trying to drive toward? I know that in the past you had indicated that 10% margins was kind of like what you would anticipate in the digital segment. It seems like we're going to trend lower than that, and it was just wondering if you have a new benchmark of what the digital margins should be or what sustainable margins might be.

Yes, I think we're going to have to peel back that 10% goal given what happened with Meta this year. The goal right now, I think, is somewhere between 7% and 8%. Let's get to that target through efficiencies and through volume, and then we're going to retool and go for another goal once we achieve that target.

Got you. And then, of course, the free cash flow is still significant at the company, and I was just wondering what might be your thoughts in terms of capital allocation at this point, given that you've got a lot of cash balance sheet looks pretty good. I know that you just announced the dividend, but what are your thoughts of that capital allocation from here?

Invest in organic growth inside the company. We're obviously committed to the dividend, and at that point, that's what we're focused on. Those two primary allocations.

Would share repurchases be up the table at this point?

Yes.

Okay. That is all I have. Thank you.

Thanks, Mike.

Thank you. And this concludes our question-and-answer session. I'd like to turn the conference back over to Michael Christenson for the closing remarks.

Thank you for joining us today and for your support of Entravision. We'll look forward to sharing our progress with you on our third quarter earnings call in November.