Greetings, and welcome to the Entravision Communications Corporation Second Quarter 2021 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 2021 second quarter 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. 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. I will now turn the call over to Walter Ulloa, Entravision's Chief Executive Officer.

Thank you, Kimberly, and good afternoon, everyone. We appreciate you joining us for Entravision's second quarter 2021 earnings call. Entravision maintained strong upward momentum with all of our platforms continuing to perform well in the second quarter. Our business is firing on all cylinders, and I cannot be prouder of the success Entravision experienced over the last 12 months and this past quarter. At the time of last year's second quarter call, our business, like that of all global companies, was experiencing the brunt of the pandemic. We proactively approached the challenges of COVID-19 by making key changes to our expense structure to keep our business intact. As Chris Young, our Chief Financial Officer, will note later on today's call, we have been able to maintain our lean cost structure and have emerged from the pandemic even stronger than before. Net revenue for the second quarter totaled $178.4 million, up a tremendous 295% year-over-year. On a pro forma basis, including Cisneros Interactive revenue in our prior-year results, revenue increased 105% over the second quarter of 2020. Growth during the quarter was largely driven by our digital business, which is now our largest revenue segment as well as the continued sequential and year-over-year improvements of our core television and audio businesses. When we compare this year's Q2 results with our 2019 second quarter pre-COVID numbers, on a pro forma basis, total revenue grew 62% in Q2 2021 versus second quarter 2019. For the six months ended June 30, revenue totaled $327.3 million, nearly tripling compared to the same time period in 2020. Similar to the quarter, year-to-date revenue benefited from the continued sequential and year-over-year improvement of each of all three business segments with digital leading the way. Our second quarter and first half of 2021 results give us an optimistic…

Thanks, Walter, and good afternoon, everyone. As Walter discussed, revenue for Q2 2021 totaled $178.4 million, an increase of 295% from the second quarter of 2020. When comparing on a pro forma basis and including Cisneros Interactive's revenue in our 2020 results, revenue increased 105% year-over-year. For our digital division, revenue totaled $130.2 million, up more than 1,000% year-over-year. When comparing on a pro forma basis, including Cisneros Interactive's revenue in our 2020 results, digital revenue increased 144% year-over-year. For our TV division, total revenue was $34.1 million, up 26% year-over-year. Excluding political, core ad and spectrum-related revenue was up 57% year-over-year. Retransmission consent revenue for the quarter totaled $9.3 million, which was flat year-over-year. Lastly, for our audio division, revenue totaled $14.1 million, up 108% over the prior-year period. Excluding political, core audio revenue was up 129% over Q2 of last year. Now let's turn to expenses, which, as Walter mentioned, remained very lean. SG&A expenses were $13.1 million for the quarter, an increase of 20.3% compared to $10.9 million in the year ago period. Excluding Cisneros-related SG&A, SG&A expenses were down 9.1% compared to the prior-year quarter. Direct operating expenses totaled $28.3 million for Q2 '21, up 28% from $22.1 million in Q2 of 2020. Excluding the Cisneros acquisition, direct operating expenses were up 15.7% year-over-year. Finally, corporate expenses for the second quarter increased 36% to total $7.3 million compared to $5.4 million in the same quarter of last year. The primary drivers of corporate expense increases were audit-related expenses, salary expense and due diligence costs related to our acquisition of MediaDonuts on July 1. During the second quarter, our share buyback remained on hold. We also maintained our dividend at $0.025 per share and continued to eliminate expenses at the operating and corporate levels deemed secondary to…

Thank you, Chris. As I mentioned at the beginning of my prepared remarks, we are very pleased with our results for the second quarter with our digital businesses surging and our core broadcasting businesses also performing very well. Now I'd like to take a few moments to speak to Entravision's global growth strategy. The heart of the Entravision platform has been the Hispanic media industry, targeting Latino consumers throughout the United States and Mexico. The US Latino population alone is a $1.7 trillion market, the largest US ethnic or racial group and continues to grow significantly. It's expected that Latino spend in the US will reach $2.3 trillion in the next three years. We recognize the strength of this target market, and we'll continue to grow our business with Latino consumers. At the same time, Entravision continues its digital transformation into a leading global marketing technology and digital media company. As part of this transformation, at the beginning of the third quarter, we acquired MediaDonuts, a leading marketing performance and branding company with operations in Thailand, Malaysia, Indonesia, Vietnam, Singapore, the Philippines and India. MediaDonuts maintains strategic partnerships with some of the world's leading technology platforms, including Twitter, TikTok, Spotify and Criteo, adding to the partnerships we have developed through a majority investment in Cisneros Interactive. MediaDonuts' digital solutions experts serve a client base of more than 500 technology and consumer brands. With this addition, Entravision is now also a key digital player in Southeast Asia, which has some of the world's fastest-growing populations, something we understand from our year of serving the rapidly growing Hispanic population in the United States and beyond. We are seeing significant consolidation in the digital space, the type of consolidation that reminds me of the broadcast market in the 1990s. That said, we will continue to be opportunistic when it comes to investing in strategic assets with great management that bring us new clients and opportunities for growth. We will continue to expand our geographic footprint in key emerging markets with connected growing middle classes where Entravision's decades of expertise, substantial digital platform and solid balance sheet can be a leverage to quickly take hold and succeed. I could not be proud of the growth Entravision produced in the second quarter and so far this year. I would like to thank our entire team for their efforts and contribution to our strong performance to date. Going forward, now, with the incredible talent and capabilities of our team, we will continue to offer the best in digital, Spanish language television, and audio advertising services. At the same time, we will continue to ensure that we are running our business efficiently to produce strong returns for our shareholders. That concludes our prepared remarks. I want to thank you again for your continued support of Entravision. Chris and I will now open the call to your questions. Operator?

Our first question is from Michael Kupinski with NOBLE Capital Markets. Please proceed with your question.

Good afternoon. My first comment is, wow, congratulations on a great quarter. A couple of questions. If we can just go back to Cisneros for a second, I know that you were able to increase the credit facility there, which drove a lot of revenue growth. I was just wondering, are you cycling against that now or have you - were you able to once again increase the credit facility there? And what's the key driver that you're seeing at Cisneros before I get into the other aspects of digital.

That credit line, Michael, continues to grow without getting into specifics. But we've not cycled up against - the ramp-up really happened in the fourth quarter of last year. So we've got another third quarter in front of us of, we'll call it, easier comps without the restrain on that credit line issue, so.

Gotcha. And then can you kind of just frame a little bit about MediaDonuts and the opportunity there. Obviously, there's some thought there that you might be able to pick up Facebook. There's also a thought that if it's similar to the Cisneros in terms of the credit facility, if you have the ability to kind of see that type of growth that you did with Cisneros, I was just wondering maybe if you could just frame for us what type of revenue opportunity might be there?

Michael, it's Walter. We think that the acquisition of MediaDonuts adds even greater scale to our digital business, particularly our international rep business. It's a region where you've got some of the fastest-growing economies and populations in the world. All of these territories and economies border China. We certainly know and understand the strength and the power of China as an economic force. So we believe that there's a possibility or there's a strong possibility we'll be able to expand our current relationships with partners in the region. We already have a strong relationship with TikTok and with Twitter and with Spotify, and we think there's opportunity to even increase that or expand the number of partnerships that the company currently enjoys. Additionally, we've got a great management team in Southeast Asia based in Singapore. We're very pleased with this team. We think they're going to be able to manage the business efficiently and, with our support, grow it beyond what our expectations are.

I'm just trying to understand like the growth opportunity because obviously, Cisneros grew at triple digits versus what we were anticipating in the double-digit ramp. Can MediaDonuts grow in triple digits or is that - I mean, with picking up or I guess I'm just trying to understand what type of growth rate would - trajectory would you expect with MediaDonuts at this point?

Well, I mean, I'll just say that the growth rate that we anticipate for third quarter, which is when we will be including MediaDonuts in our financial information, right now, is expected to be above 50% for the quarter versus the 2020 third quarter results.

Okay. Gotcha. And then can you frame for me what's going on with radio again? The numbers seem exceptionally strong. And was that all driven by LA, or what was the - is that just the key growth driver there, or what else is happening on there?

Well, you're correct in your comments, Michael. We're seeing great growth in radio this quarter. I think it's a combination of strong content programming. It's the management that we have in place right now, headed by Karl Meyer, our media group revenue officer or Chief Revenue Officer, is doing a terrific job. And we've got a great executive in Chris Munoz, former Univision executive who joined us about a year ago. And Chris has just done a tremendous job in raising the level of national sales. One of the standout units within national sales is our network radio sales, and that business just continues to amaze us in terms of how well it's performing, not only in Q2 but in Q3. So - I'm sorry. Sorry, you go ahead.

No, I'm sorry, I didn't mean to interrupt you, Walter.

No. So anyway, of course, Los Angeles is performing well, as I pointed out in Q2. It continues to perform well in Q3, but national sales in radio just exploded. And the local is doing very well as well, but national, and particularly led by network radio, the performance there has surprised - not surprised at all, but certainly, we're pleased. We knew it was going to do well, but it's gone beyond our expectations.

Gotcha. And you switched some stations to English language, I understand, is that right?

We made a switch in - well, in Sacramento, we made a switch to a country line - a country format. That's correct. And we've also switched some stations to our Fuego format, which is kind of a bilingual format, in a sense.

Gotcha. And then can you talk a little bit about M&A? Obviously, you kind of hit upon a - struck a chord with Cisneros and MediaDonuts and I was wondering if there are other opportunities in the digital space, anything pressing anything imminent at this point that you're looking at?

Well, we continue to seek opportunities where there's high growth and certainly acquisitions that are accretive and come with a positive cash flow. And we're looking all the time to whatever is presented to us in terms of potential opportunity, but I can't speak to anything specific at this time.

And what are the benchmarks in terms of increasing the dividend, or maybe looking at other return to capital to shareholders, including the buyback. Are there certain benchmarks that you would like to see at this point because it seems like you're generating free cash now at this point and debt leverage obviously is very low. The opportunity seems a little bit like maybe there might be a little bit of allocation to return of capital to shareholders.

Right. Well, as you recall, we reduced the dividend in the middle of the COVID crisis. And then the economy did improve, our business improved. We had a strong fourth quarter, excellent first quarter, now a good second quarter. We continue - the board will continue to review what else it might be able to do to return value to shareholders. We're also looking at acquisitions at the same time. So we're in a high-growth phase of our business right now. Chris, do you want to add something there?

No. Michael, we're taking it quarter by quarter being mindful of our cash position, but also being mindful of potential acquisition opportunities. So, it's a quarter by quarter process.

All right, guys. Thanks so much. That's all I have. Thank you.

Thank you, Michael. Thank you.

Thank you, Michael.

And our next question is from James Dix with Industry Capital Research. Please proceed with your question.

Hey, guys. Good evening.

Good evening.

Just one thing on the digital growth. I know a lot of Cisneros' business at the moment relates to Facebook as a partner. Facebook had a particularly strong growth. They don't break out results by Latin America per se, but the rest of world business grew quite a bit. I'm just wondering like, as we think about the fundamentals of Cisneros, beyond just what you've done at a company level, expanding the credit line, how much is what's going on at Facebook kind of the key context to what's going on at Cisneros?

Well, Facebook has been the key; I'd say the co-driver of the Cisneros results. We're seeing strength in the other platforms, but nothing in the same zip code as what we're seeing with the Facebook numbers. It's operating in markets that are just - they're less mature than the US market as far as the Facebook platform is concerned and we're capturing that growth just as that platform blossoms in those markets.

And is there any platform that's similarly significant for MediaDonuts, or is that more spread across the kind of the three platforms that you highlighted?

James, let me just add to what Chris has said. The Spotify, we just launched it in Latin America last year, or I should say Cisneros Interactive did. And we're seeing pretty strong growth with the Spotify as well, not only in the fourth quarter but through this year, through the first half. And your question about MediaDonuts was what? Can you repeat it, please?

Yes. It sounds like at the moment, Facebook is the dominant partner for Cisneros. Is there any similar dominant partner for MediaDonuts among the three that you described or is it a little bit more evenly split for them at the moment?

Twitter right now is the strongest partner, I'll call it, within MediaDonuts. But another social media partner that we see with tremendous potential is TikTok in Southeast Asia.

Okay. And just on the M&A side of things, I mean is there some prospect for you to expand kind of organically to some significant degree internationally? So, supporting Cisneros business, as it moves into other markets or doing a similar thing with MediaDonuts, or is the growth strategy internationally, a little bit more focused on buying additional companies?

Well, I mean part of our growth strategy is to continue to increase the high growth of both Cisneros Interactive and MediaDonuts, and to produce as much operating cash flow as possible. We're also looking at adding - with our current roster of partners, we're also looking at adding more partners in each of these territories or these regions, I should say, Latin America and Southeast Asia. That's something that we're thinking about and working on every day. We're also - we've also got other digital products, our US digital business a great second quarter, and is having a very strong third quarter. And that business is focused in our US territories, our US markets where we offer our broadcast sales in the 29 markets in the US and it's performing, like I said, beyond our expectations in the second half as well as . Within our US digital business, we have an audio programmatic business. We're connected to major audio buying platforms, including Katz, AdsWizz and Triton, and we offer our O&O inventory on these major audio platforms as well as our audio exchange network. And then thirdly, we have our international - we call it EVC International, our core product here in this is Smadex, our mobile-first programmatic DSP, and this product focuses on - or drives downloads of apps by users. That business is doing well as we speak, had a good second quarter that has carried that momentum into third quarter. We've got three businesses, three digital businesses that we think have strong potential, both our international rep business, our Smadex product, as well as our US digital business.

Okay. Great. Just turning to the rest of the business. Chris, do you have any outlook for kind of - it sounds like expenses, if anything, were a little less than at least what I was expecting. I know last quarter, you gave a little bit of an outlook as to what to expect in terms of core expenses in the second quarter versus the first. Any outlook that we should be expecting in the third quarter versus the second kind of relatively small growth or what are you seeing there?

Yes. Well, since we've got the comps, we're comping against the quarter where we didn't have - we had neither Cisneros or MediaDonuts, you're going to see some expense creep. So call total expenses in the mid-30% range year-over-year with our core business without Cisneros and MediaDonuts being about 8% to the positives, and then the balance of that being driven by the acquired entity expenses, and that's at our operating level. And at the corporate level, call it, low single-digits. We did have due diligence expense associated with Cisneros in the third quarter of last year that we don't have this year, so that will keep that number in the low single-digit range.

Okay. So that core expense number, if you're excluding kind of the acquisitions, I mean, it looked like in the second quarter, it was up maybe 2.5% versus the first, which is a little bit lower than I was expecting. Any way of thinking about it that way in the third quarter versus the second?

Third quarter versus the second, call it, maybe 10% or 11% sequentially, with the acquired businesses representing the bulk of that. If you take the acquired businesses out, it's more in the 3% range sequentially.

Okay. So somewhat similar to what you saw in the last quarter, this quarter.

Correct. Yes.

Okay. Cash taxes were a little higher than I was expecting. Any reason for that? And do you have any updated outlook on what those are going to be for the year?

Yes. Cash taxes usually run around $3 million a year. Where the cash payments are falling, it sometimes gets a little lumpy, and this was a quarter where we saw that. So you had about $1.5 million of cash tax payments in this past quarter that related actually to 2020. And if you're modeling our cash taxes out for the balance of the year, probably $750,000 per quarter is the right way to think about it, another $1.5 million. That will take you to an overall annual of about $4.5 million, which represents that original $3 million plus that $1.5 million that we didn't see coming as far as that 2020 look back payment was concerned.

Okay. Great. And then just one last one for me. In terms of the auto category, I know it's important. It sounds like, Walter, you were flagging that the supply chain disruptions have been a little bit greater than perhaps the industry is expecting. Any material impact you think that's going to have on your growth at TV or audio versus your expectations for the balance of the year?

I think we're going to see some of the impact in third quarter, James, in our international business. We're just finishing up the Summer of Champions and the Gold Cup, Copa America and Euro Cup. And we've seen - we have some pretty strong budgets that we had in place for those three events. And we did well, but not as well as we wanted, as well as we planned. And we all believe it's because of the weakness in national auto sales. But this is temporary. We think that by fourth quarter, we'll be back on track with our national sales in television.

Okay. And those two events, I mean, do you have a sense as to how much they're going to bring in now between them total?

Our current calculation is between $2 million and $2.5 million.

Okay.

Right.

You didn't miss by much. Okay. Great. That's it for me.

Thank you, James.

Thank you, James.

Our next question is from Lisa Springer with Singular Research. Please proceed with your question.

Thank you. Well, congratulations on a really great quarter.

Thanks, Lisa.

And I just had a quick question, probably for Chris. How does the gross margins on MediaDonuts compare to Cisneros? Are they in similar range or a little bit higher for one than the other?

They're actually a little bit higher than what we see at the Cisneros.

Okay.

The cash flow margins for that business are going to be in the 10% range versus what we're seeing right now with Cisneros.

Okay. Thank you.

Great. Thank you.

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

Thanks. I just have a quick follow-up to the expense question. So obviously, you kind of re-margined this business in a way because you're now such - the majority of the digital is - the vast majority has a little bit lower margins than some of your other businesses, legacy businesses. And so can you give us a sense of where you see margins, how you anticipate margins to grow, and how you see the margin outlook, maybe even as we go into next year or the year after.

Michael, so yeah, I think if you look at the business platforms, there's obviously some disparity between all of them, right. So TV cash flow margins were 43% in second quarter, radio cash flow margins were 30%. By the way, the last time we had 30% margins in our radio business was back in 2010, so we're really pleased with the way that unit is performing, right. And digital margins, all in before the minority interest shuffle that you have to do on the accounting, digital margins right now are at 7%. And we think those digital margins are capable of growing. It's a function of scale as far as revenue growth is concerned. But we don't want to guide as far as what growth capacity there is in front of us. But I do think there is definitely room for improvement and that's kind of how we're seeing. And the radio margins should continue in this range as should TV.

Okay. All right. Perfect. Thank you.

Thank you.

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

Thank you. Thank you again for joining us today and for your support. We remain optimistic about the future of Entravision and look forward to sharing our progress with you on our third quarter earnings call in early November. Thank you.

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