Greetings, and welcome to the Entravision Communications Corporation Fourth Quarter and Full Year 2020 Earnings Conference Call. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Kimberly Esterkin of Investor Relations. Thank you, you may begin..

Thank you, Operator. Good afternoon, everyone, and welcome to Entravision's Fourth Quarter and Full Year 2020 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..

Thank you, Kimberly, and good afternoon, everyone. We appreciate you joining us today for Entravision's fourth quarter and 2020 earnings call. Entravision had a very strong fourth quarter. As a result, we are well positioned for growth in the first quarter and full year 2021.

Beginning with the top line, revenues for the quarter totaled $171.7 million, up 142% year-over-year and 173% sequentially. On a pro forma basis, including Cisneros Interactive, revenues improved 51% over the fourth quarter of 2019. Our digital segment performed well due in large part to our acquisition of Cisneros Interactive.

While I will speak to the digital segment in further detail shortly, we are particularly pleased with our performance of Cisneros Interactive led by Victor Kong. Cisneros Interactive continues to be additive to our cash flow and EBITDA, and we have the utmost confidence that they will successfully execute their business plan in 2021.

As highlighted last quarter, political ad sales were all a strong driver of our fourth quarter revenues. In total, political advertising revenue for the fourth quarter was $14.2 million, surpassing our prior record set in the fourth quarter of 2012.

Excluding political ad sales, and including Cisneros Interactive on a pro forma basis, revenue increased by 39% in the quarter. Adjusted EBITDA totaled $32.6 million for the fourth quarter of 2020, an increase of 195% compared to $11.1 million in the prior year period. On a pro forma basis, EBITDA increased 159% in 2020 versus 2019.

Moving beyond the fourth quarter and turning to the full year results. For 2020, revenues totaled $344 million, up 26% over 2019. Adjusted EBITDA totaled $60.4 million for full year 2020 as compared to $41.2 million in 2019 or a 47% EBITDA growth in 2020 versus 2019.

2020 was a very challenging year, but thanks to the strength of our business model, our proactive and conservative cost-cutting measures and the dedication of all our employees, our business continued to improve each quarter from the lows of the second quarter in 2020. We entered 2021 primed for growth.

With the onset of COVID-19, we made a number of expense cuts in anticipation of a prolonged economic impact from the virus. Fortunately, due in part to these proactive reductions in our SG&A, our business continued to grow quarter-over-quarter. As a result, we were able to reinstate certain expenses back in the business, namely employee salaries.

I could not be prouder of the team we have assembled at Entravision. Their commitment to both our clients and our company this past year never wavered. I was pleased to be able to reinstate our well-deserved employee salaries to the pre-COVID-19 levels.

Even though salary expenses have been reinstated, the rest of our expense cuts remain in place, and we will continue to operate as a leaner, more efficient business, with strong free cash flow generation..

Thanks, Walter, and good afternoon, everyone. As Walter has discussed, revenue for the fourth quarter 2020 totaled $171.7 million, an increase of 142% from the fourth quarter of 2019 and up 173% sequentially. When comparing on a pro forma basis and including Cisneros Interactive's revenue in our 2019 results, revenues increased 51% year-over-year.

For our TV division, ad revenues totaled $41.8 million, up 48% year-over-year. Retransmission revenue totaled $8.8 million and was up 1% year-over-year. For our audio division, revenues totaled $16.2 million, up 17% over the prior year period. Lastly, digital revenues totaled $105 million, up 424% year-over-year.

When comparing on a pro forma basis and including Cisneros Interactive's revenue in our 2019 results, digital revenues increased 67% year-over-year. As Walter spoke to earlier in today's call, over the past few quarters, we've taken strategic steps to limit our expenses due to market conditions.

Throughout this process, it has become apparent to us that we maintain most of these cuts in 2021 while still running the business at an optimal level. SG&A expenses were $14 million for the quarter, a decrease of 1% compared to $14.1 million in the year ago period. Excluding the Cisneros acquisition, SG&A expenses were down 23%.

Direct operating expenses totaled $31.9 million for Q4 of 2020, an increase of 6% compared to Q4 of 2019. Excluding the Cisneros acquisition, direct operating expenses were down 2%. Finally, corporate expenses for the fourth quarter increased 18%, totaling $9.3 million compared to $7.9 million in the same quarter of last year.

The primary driver of corporate expense was salary expense as we retroactively restored salary cuts executed earlier in the year, along with bonus expense. During the fourth quarter, our share buyback program remained on hold.

We also maintained a dividend of $0.025 per share and continued to eliminate expenses at the operating and corporate levels deemed secondary to serving our core media business. We will continue to evaluate our buyback and dividend each quarter, which will be at the discretion of our Board of Directors.

Expense-wise, we expect that our operating expenses, excluding digital cost of goods sold and corporate, will be roughly flat in the first quarter as compared to the prior year period. Excluding expenses related to Cisneros, operating expenses are expected to be down approximately 13%.

Consolidated adjusted EBITDA totaled $32.6 million for the fourth quarter, up 195% compared to the fourth quarter of last year. On a pro forma basis, accounting for the Cisneros Interactive acquisition, adjusted EBITDA was up 159% year-over-year.

This was a record quarter for EBITDA generation due in part to the 2020 presidential election cycle and the contribution of Cisneros Interactive. Entravision's 51% portion of Cisneros Interactive adjusted EBITDA was $3.6 million for the fourth quarter.

Free cash flow, as defined in our earnings release, was approximately $28.6 million in the quarter, up 495% compared to the fourth quarter of last year. Similar to adjusted EBITDA, the fourth quarter of 2020 also represented a record quarter for Entravision's free cash flow generation.

Strong free cash flow has been the cornerstone of Entravision's business and supported our ability to grow both organically and through acquisitions without the need to take on significant leverage. We expect this high free cash flow conversion rate to continue for the foreseeable future.

Earnings per share for the fourth quarter 2020 were $0.24 compared to $0.09 per share in the same quarter of last year. Net cash interest expense was $1.3 million for the fourth quarter compared to $2.2 million in the same quarter of last year.

Cash capital expenditures for fourth quarter totaled $1.3 million compared to $4.1 million in the prior year. This brought us to $9.1 million in cash capital expenditures for the full year of 2020. Turning to our balance sheet, which remains very strong. Cash and marketable securities as of December 31, 2020 totaled $147.2 million.

Total debt was $215 million. Net of $75 million of cash and marketable securities on the books, our total leverage, as defined in our credit agreement, was 2.3x as of the end of the fourth quarter. Net of total accessible cash and marketable securities, our total net leverage was 1.3x. Turning now to our pacings for the first quarter of 2021.

As of today, our TV advertising business is presently pacing a minus 14%, with core TV, excluding political, pacing at a minus 4%. Our audio business is pacing a minus 8%, with core audio, excluding political again, pacing at a minus 6%. And our digital business, including revenue from Cisneros Interactive, is pacing plus 500%.

Factoring in Cisneros revenue generated in Q1 of last year of approximately $42.2 million, our digital business on a pro forma basis is currently pacing at a plus 65%. Now before I turn the call back to Walter, there's one other item I would like to review.

As part of our expanding business operations and geographic footprint, Entravision acquired a majority interest in Cisneros Interactive during the fourth quarter of 2020. As a result, we've experienced a longer audit process, and our auditors have informed us that they have not yet completed their audit procedures as of the time of this call.

As a result, we anticipate that we won't be in the position to file our 10-K by the standard SEC filing deadline of next Tuesday, March 16. If that's the case, we will file a notice with the SEC to extend our 10-K filing deadline for an additional 15 days.

Our auditors have informed us that they anticipate completing their audit procedures by the end of March, and we expect to file the 10-K as soon as practical.

As a result of all of this, please note that the financial results reported in our press release and this call are subject to completion of our audit and we refer you to our Form 10-K for audited financial results. All this said, we believe Cisneros Interactive has been an excellent addition to our digital business.

We're excited about the future of Cisneros Interactive and how this business has enhanced our product portfolio and service offerings and aligns with our mission and sales operations. With that, I'll turn the call back to you, Walter.

Walter?.

Thanks, Chris. As is evident from our fourth quarter performance, Entravision enters 2021 at a very strong revenue run rate. Even without political revenues this year, with a leaner cost structure, we expect higher profitability from each of our operating segments.

As Chris noted, our free cash flow generation remains high and our balance sheet is strong. As a result, our leverage is very low, which leaves us with a lot of dry powder to continue to make acquisitions while still investing in our organic growth.

In addition to growing our digital business organically, we also look to grow our digital efforts through acquisitions, including acquiring complementary businesses in similar geographic regions as Cisneros Interactive. We plan to target companies with similar multiples to that of Cisneros Interactive and that are accretive to earnings.

It is clear there is a solid runway ahead for Entravision. And while this past year was challenging, we learned to operate our business units more efficiently and have positioned our company for continued success.

I would like to thank all of our employees for their hard work in 2020 as well as express my strong gratitude to our incredible on-air talent who kept our radio and television audiences well informed during the most newsworthy and volatile year. Thank you again for your time today and your continued support of Entravision.

Chris and I will now open up the call for questions.

Operator?.

. And our first question is from Michael Kupinski with NOBLE Capital Markets..

And congratulations on your quarter. First of all, you took a lot of cost out of the business, obviously, last year.

And you retroactively increased the salaries, I guess, and the bonuses, and that was all in the fourth quarter, so that was like a true-up? Or I'm just trying to get a sense of how much of the reinstatement of the salaries, what would that mean for the full year cost increases this year? And if you can just tell us when you will lap the significant part of the cost cuts this year..

Hey, Michael. Yes, that was a true-up payment. So what we did was everyone who took a pay cut back on April 15, we went back in December and did the math on how much they had given up and we turned around and cut them a check for the difference in December. That was a total onetime payment of approximately $2 million.

And then what you - what you're trying to do is just restore a run rate expense bank for your model.

And what you basically need to do is take - I would take our third quarter expense, that's the last then kind of clean look without the moving parts there on the salary front, and then you would add around $250,000 a quarter for TV and corporates each and then another, call it, $200,000 for radio expense.

That will take you forward to where you should be..

Okay. Got you.

And then can you just kind of give me a sense of what did Cisneros do in revenues year-over-year and the quarter on a stand-alone basis? So what was the rate of growth that they experienced? And then embedded in your Q1 pacings, could you just kind of give us a sense of how much Cisneros is growing? And then, I guess, finally, on that front, what are the prospects that Cisneros grows beyond the Facebook, Spotify and LinkedIn? Are there - is there another platform, Twitter or anything else, that you could see in terms of the prospect of growth there? Or can you just kind of give us a sense of where you're seeing the growth?.

Sure. Well, I'll cover the numbers, and maybe Walter will chime in on the other platforms. So this - at fourth quarter of 2019, Cisneros did about $42.8 million of revenue. And in 2020, just remember, we acquired them on October 13. So you've got a stub period of 12 days that's not on our books.

But just a portion that was on our books, that was $89.2 million. So you've got a growth there of, call it, 110%..

Right. And then in terms of what would you - you gave us pacing data for Q1.

What would Cisneros be growing at in Q1?.

Oh, if you factor in that same logic there for first quarter, it's probably another 100%, in other words, same growth trajectory, consistent with what we did in the fourth quarter..

Can you give us a sense of where you're seeing the growth? Or what - is it growing platform, just growing volume? What - how should we look at the growth there?.

Well, it's the three - there are three primary platforms, are really the drivers of that business, and really, if you had to kind of decipher through the three, it's really Facebook. The Facebook business in the emerging markets where Cisneros operates is just performing really, really well, and that's really the primary driver..

And then what's - in terms of - I haven't done the math here, Chris.

But if you factored out Cisneros in the first quarter, what would be - what would your digital revenues be then in terms of pacing?.

In terms of pacing, oh, I don't have that broken out. You know what, I'll - let me come up with that number and get back to you on that..

Okay. And then maybe if you could just talk a little bit about the M&A environment right now. I know that it sounds like you would love to be able to make more digital acquisitions. Walter, in the past, you've made some comments about what you would like to see in terms of the contributions from digital in terms of the total company.

Maybe - I wanted to see if you wanted to update that - those - that expectation or maybe give us some guidance on what your thought with how this company might look in the next 3 to 5 years..

Well, I'll just make a couple of comments, Michael. And thank you for your questions. Our total digital revenue was about 60% of total revenue in Q4, and we expect that trend to continue in 2021. We also are looking to grow our digital portfolio and then identify, I'll call it, accretive, complementary assets to our digital businesses.

And so that is something that we are actively involved in. We're looking at opportunities all the time and then - and doing whatever analysis we need to do and trying to find the right fit, just like we did with Cisneros Interactive..

And Walter, do you have any thoughts in terms of what you would like to see your digital contributions be in terms of total company revenues in the next couple of years?.

I won't make a comment on that more than what I've said already. I mean it's already 60% of total revenue. We expect that to continue this year in 2021. As we add more digital businesses to the portfolio, it will increase, but to what level, I don't know.

But we're certainly - one of the great, I'll call it, benefits of building our digital portfolio is the talent that comes with it. We've got some great talent around the world working in our digital businesses. And it just makes everything better and not only our global digital business, but also our U.S. digital business.

And we're - we continue to integrate digital assets and talent into our U.S. digital business and expand our offering to - particularly expand our offering to advertisers that want to reach the Hispanic market and using digital solutions to do that. So we complement our broadcast business with our digital - our U.S. local digital business..

Well, congratulations. It was a great quarter, and it seems like Cisneros is off to a strong start. Congratulations on that as well..

Thank you, Michael. Yes, we're very proud of the fourth quarter and certainly in terms of what we've been able to achieve over the last year despite a very difficult environment..

. Our next question is from Lisa Springer with Singular Research..

And congratulations on a strong quarter.

Regarding M&A coming up in 2021, are we likely to - how - is it more likely to see small acquisitions, a number of small acquisitions, or do you think you might be making another large one? What's the environment out there? What kind of assets are available?.

Well, Lisa, we continue to look for, like I said, assets that are complementary and assets that are accretive, so - to the business. We're just constantly looking for opportunities that might be - might help the business grow.

Certainly, growth has been one of our #1 goals, to not only to achieve the growth we have today, but to continue to grow going forward. So I can't really give you an answer on the size of the business.

I mean it just depends on what we run across and how it pencils out in terms of is it a business that's strategic to our growth, does it fit our current portfolio, is the culture of the business that we're buying, the talent that we're buying, do they fit the needs of our businesses, and then finally, what's - is it accretive to our stock..

Okay. And my next question concerns the dividend.

What factors would have to fall into place for a restoration of the dividend to the former level?.

Well, it's tough to define the factors per se. It's an issue that's going to be looked at by the Board accordingly for the balance of the year. And all I can say to that is stay tuned..

And our next question is from Michael Kupinski with NOBLE Capital Markets..

Just a couple of quick follow-ups. On the TV side of the business, a 1% retransmission revenue growth is kind of anemic, it seems, relative to the industry. I was wondering if you could give some thoughts about what we're likely to see in 2021.

And then in terms of your core pacing down - being down 4%, it seems a little lighter than the rest of the industry. The rest of the industry is indicating that Q1 core is up, which is a little surprising, I guess. And I was wondering what factors might be going into your core pacing data, if you can just kind of give us some color there..

Sure, Michael. On the retrans front, our deal with Univision is basically locked in at high single-digit rate increases year-over-year. I think we're at $0.27 for 2021 - $0.26? $0.26, I just got corrected. But the problem therein is that the subscriber counts keep offsetting those rate increases.

So we saw subs decline by around a little more than 2% in the last quarter. And it's just where the industry is headed right now. So you take one step forward with the rate increase, but then another step backwards with the sub count. So until those sub counts start to normalize, so that's the pattern that we're going to be up against.

I would say retrans for the Spanish language side of the business is going to be maybe flat to maybe up 1% or 2% for the balance of the year. And then the retrans, however, on the English language side should be growing in the, if not, 10% to 15% range for the balance of the year as well.

So that's a separate - that's a completely separate retransmission process. That's a negotiation that takes place with us directly with the cable companies as opposed to Univision representing us on the Spanish language side..

And Chris, just to remind me, do you not get the benefit of the OTT platforms? Or how do you....

We do not. For Univision, no, there's no OTT arrangement between Univision and ourselves. It's been talked about from time to time, but we've never really hunkered down and gotten a deal done. So we do have an OTT arrangement with NBC, our Palm Springs affiliate, but that's the only one at this time. And Fox - sorry, Fox as well.

And then the core business being down 4%, what we're seeing is that's actually been improving pretty significantly over the past several weeks. So that would have been a very different answer maybe 4 or 5 weeks ago. So vis-à-vis the industry, auto as a category for TV is still kind of pacing in the minus 7%, minus 8% range, and that's our #2 category.

What's been offsetting that is the legal services category, which has really been growing nicely, close to double digits. Restaurants or - for the first time, restaurant advertising spend with us is flat. We haven't seen that since pre-COVID. So that's a sign of better things to come as well as the vaccine takes hold.

But the minus 4%, we're not so concerned about. It's the trends that we're focused on, and the trends tell us that we may end up a little better than minus 4.25% by - once the quarter is all done..

And we have reached the end of the question-and-answer session. I'll now turn the call over to Walter Ulloa for closing remarks..

Thank you, Sumali, and thank you, again, everyone, for joining us today and for your support. We are optimistic about the future of Entravision. And we look forward to sharing our progress with you on our first quarter earnings call in May..

And this concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation..