Good afternoon, and welcome to the Entravision First Quarter 2023 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the call over to Kimberly Esterkin with Investor Relations. Please go ahead.

Thank you, operator. Good afternoon, everyone, and welcome to Entravision's first quarter 2023 earnings conference call. Joining me today are Chris Young, Interim Chief Executive Officer and 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. 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 Chris Young.

Thank you, Kimberly, and good afternoon, everyone. We appreciate you joining our first quarter 2023 earnings call. In the first three months of the year, Entravision saw the continued strength of our digital businesses combined with the resiliency of our TV and audio segments. Revenues for the quarter totaled $239 million, an increase of 21% year-over-year, and ahead of our previously disclosed pacing's of plus 16% for our consolidated business. This performance is particularly impressive given the current difficult macroeconomic conditions, along with the anticipated year-over-year headwinds from decreased political spend in our broadcast business. These results are also a strong testament to our ability to evolve our business and adapt to the rapidly evolving technology, media and entertainment industries. I want to thank our entire team and Entravision for your hard work this past quarter in making this growth possible. For the quarter, digital comprised 82% of total revenue and was up 28% as compared to the prior year period. TV accounted for 13% of revenue and declined 2% year-over-year, while audio made up the remaining 5% of revenue and declined 3% year-over-year. As Jeff will speak about shortly, both the TV and audio segments saw weaknesses on the national front as advertisers became more cautious with spending, particularly in light of the recent regional banking crisis. That said our local TV and audio businesses remained fairly resilient, even without the benefit of political advertising during the quarter. Consolidated EBITDA for the quarter totaled $13 million, a decrease of 28% year-over-year. This decline in our consolidated EBITDA is largely the result of both non-returning political revenue at our broadcasting business coupled with increased operating and corporate expenses which I will cover in more detail later on the call. In addition, during the quarter we entered into a new $275…

Thanks Chris. Let's turn to our Television segment, which comprised 13% of the revenue for the first quarter. Television revenue was $30.3 million in Q1, down 2% compared to the prior year period, largely due to national advertising revenue declines and the declines in political revenue as compared to the prior year's quarter. Core television revenue increased 2%. National core revenue decreased 8% and local core revenue increased 2% year-over-year. Retransmission revenue for the quarter totaled $9.6 million, which was up 5% year-over-year. Operating cash flow margins for the TV segment was 34% for the quarter. Following the failure of Silicon Valley Bank, we saw a number of national television advertisers pause their marketing efforts. Although this slowdown for our national television business was not as drastic as the effect of the 2008, 2009 financial crisis, the softness in national advertising has continued into April. With that said, we expect to see improvement in the second half of the year. With an open Senate seat in California, we anticipate this race to heat up in the late summer or early fall. We should see a boost in political revenue, helping improve national TV advertising dollars for the year. Lastly, our audio segment comprised the remaining 5% of first quarter consolidated revenue. Audio revenue totaled approximately $12.2 million for the first quarter and decreased 3% year-over-year, again largely driven by the lack of political ad revenue as compared to the prior year's first quarter. Local audio was down 1% for the quarter, while national audio declined 6%. On a core basis, excluding political total local and national revenue were all down 1%. Overall, 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, we expect increased political spending in key states such as California, Arizona, Colorado, New Mexico and Texas, which will help support our national sales particularly in the back half of the year. I will now turn the call back to Chris to discuss the first quarter financials and second quarter pacing in further detail. Chris?

Thanks Jeff. As we already covered the segment's revenues, let's jump to operating expenses for the quarter. Operating expenses in the first quarter of 2023 totaled $52.6 million, up 20% from $43.9 million in the prior year period. This increase was primarily due to several factors. First, we had expenses attributable to our recent Adsmurai and Jack of Digital investments, which did not contribute to our financial results in the comparable period last year. Second, our rent expense was significantly higher than the prior year as we are currently in a temporary office space until we combine our offices here in Santa Monica. Third, there was an increase in non-cash stock-based compensation as a result of the annual RSU grant being done in Q1 this year compared to Q4 in the prior year. Fourth, variable expenses were up associated with the increase in digital advertising revenue. Excluding the expenses related to Adsmurai and Jack of Digital expenses were up approximately 13%. The Corporate expenses increased by 20% to total $10.5 million for the quarter compared to $8.7 million in the same quarter of last year, which is mainly a result of non-cash stock-based compensation given the annual RSU grant timing I just mentioned, an increase in professional service fees and an increase in audit fees. Consolidated EBITDA totaled $13 million for the first quarter, down 28% from $18.1 million in the prior year period. Free cash flow, as defined in our earnings release was $3.9 million in the quarter or a conversion rate of 30% of consolidated EBITDA compared to $18.1 million in the first quarter in the prior year. Diluted earnings per share for the first quarter 2023 were $0.02, consistent with the same period last year. Cash paid for income taxes was $100,000 for the first quarter. Net…

We will now begin the question-and-answer session. [Operator Instructions] Our first question will come from Michael Kupinski with NOBLE Capital Markets. You may now go ahead.

Thank you for taking the question. And first of all congratulations on a solid quarter. A couple of questions, it seems like your Latin American digital business was better than expected. Was there anything special about the quarter with Facebook there?

It was just that, Michael, it was Facebook. Facebook is on a fun turnaround, particularly what we're seeing in Latin America and we were really pleased about it. So you've seen Q3 for Latin America – LATAM, we did a plus 10% year-over-year; Q4 was plus 7%. We were a little worried about it getting into Q1. They turned out a plus 15% and Q2 is looking to pace along the same line. So Facebook is back. They've tweaked the model. They've enhanced the technology and they've refocused their efforts and we've been pleased to see the growth to come back.

That's terrific. So, and then if we could just turn to Smadex because that was surprisingly weak, as you mentioned, coming off of a very strong 2022 performance. You indicated that you think that's going to turn. So is that more of a second half story? Or do you think it's going to show some better revenue trajectory in the second quarter? Can you just kind of give us some color there?

Yes. Smadex had some tough comps. They did a ton of business with the crypto space and the fintech space in the first quarter and second quarter of last year. Obviously, those two verticals have been really hit by the macro turn down. So we're expecting once we cycle through those tougher comps that second half of the year will be a better story for Smadex.

Got it. And then just turning to radio and TV, a lot of other broadcasters have indicated that auto has turned. How big of a category? I know I've asked this in the last quarter because we kind of – I think hit a peak a couple of years ago in terms of auto as a category and it kind of fell off dramatically. Where are you at now with auto? And are you trending positive in auto at this point?

Yes. Michael, on the TV side we are trending positive with auto. We saw a 12.5% increase in first quarter. We also saw other categories improve in the first quarter also. Retail was up 4%, health care up 33%, and finance was up 7%.

Got it. And then you talked briefly about the M&A environment. I was wondering if you can just add some color on what you see out there, multiples, whatever in terms of just the overall environment and what you might be looking at?

Yes, there are deals out there that we're working on, I'd say, a handful, mostly digital. There is some stuff in broadcast out there. Multiples haven't really come down. There's still a disconnect between what the sellers are looking for and what the buyers are looking to pay for. So we'll see how that progresses during the year if the macro contends to be on a downward trend. But there are definitely deals out there that we're working on.

And Chris, can you just talk a little briefly about your leverage? Obviously, you have one of the best balance sheets in the industry. Do you have any thoughts in terms of if you are looking at M&A, what your thought process might be in terms of leverage?

Sure. It's a really compelling opportunity. I think the 3 times kind of handle is what we're looking at to max out at. So being mindful of the cash balance that we have, we do have an undrawn or relatively undrawn revolver that we can access, but we don't want to take our leverage to be above 3 times, not in this macro, and again that has to be a pretty compelling opportunity. I think for now we're looking to fund acquisitions through the cash balance that we have.

Got it. I'll let others ask questions. Thank you so much.

Thank you, Michael.

Our next question will come from James Dix with Industry Capital Research. You may now go ahead.

Hey guys. It looks to me just revenue first – it looks like it was a little stronger than I was looking for in the first quarter. It looks like your pacings are in line to maybe a little better. I mean is your sense – how is your sense of how the year is unfolding versus what your expectations were thus far across the three segments?

Well, I'll answer that first with; we were feeling really good about this year until the week after Silicon Valley Bank went down. And that subsequent week, that was the first week we've experienced cancellations where we actually went backwards with the pace. And ever since then, it's gotten gradually better, but that really freaked the market out, particularly on the national front. So we've been kind of taking things one-week at a time ever since. I'm still an optimist. I still think the balance of this year is going to play out like we planned it. But again, we have to see that play through. Latin America is doing really well. Asia for us is doing really well. Broadcast has got the political overhang that not returning this year. So we'll just have to contend through that. And then National has been choppy, and as National goes, so does the broadcasting business. So we're just going to have to see how that plays out. Jeff, do you have anything to add?

Yes. The only thing I'd ask add to that, James, is that I'm really proud of our local sales teams on both TV and radio. They have been able to get to their numbers in the first quarter. And we do think that since that's the side of the business that we control more of that that will be strong throughout the year.

Yes. Our local sales force has been amazing through this whole process. They've been really resilient and very focused, led by Karl and his team.

Okay. Great. Just one follow-up. Jeff, you mentioned on the audio side that Spanish is outperforming the market. Any sense of how the TV advertising is doing versus the market? I mean my assumption is the financial-related pullback, if the general market as much if not more Spanish, but just any color there might be helpful?

Yes. James, there are too. I would say when we look at local; we are ahead of the marketplace. When we look at National, I think we're probably a little bit behind the marketplace because, unfortunately, usually on advertisers when they pull back they pulled back their multicultural advertising first before they go to the general market.

Okay. Great. And then...

I think to add to that, I thought I saw Paramount TV numbers where they were, give or take a minus 8% for the quarter and certainly, that wasn't what our TV did. So if that's one bullet point for the comparison between demand market and Spanish, so be it.

Okay. And then in terms of – I saw there was a change, I think in the contingent consideration during the quarter, which affected the cash flow reconciliation. Chris, if you could just give an update, it looks like the non-controlling interest is around $14 million at the end of the quarter. What's the contingent consideration...

Well, the contingent consideration ended up being adjusted to the upside, and that's because the performance of a couple of our digital platforms underperformed what the original expectation was. So as that happens, that adjustment gets made to that line item, which basically means we have to pay the other less once the payment comes due. But there's nothing – there's no one silver bullet answer to that. It was a handful of platforms that underperformed relative to budget. And that's a test that's done quarterly, right, so that will ebb and flow every quarter as we go.

Okay. So just in terms of my balance sheet, I should be reducing what you had for that by the amount that you showed in your income statement.

That's exactly right, James.

From the end of last year. Okay. Great. And I guess – yes, I guess the only other thing was just the outlook at Smadex. I know Michael asked about that a little bit. But any particular things you're looking for in terms of that business or just kind of what I consider the legacy business at all going forward? Or is it just largely a matter of just waiting out the comps on crypto and fintech?

Well, they're focused on the gaming industry. They're hyper focused on the gaming industry, and that's starting to really come online for them, but they do have those tough comps. And I think those tough comps are going to outweigh what they're doing with that gaming vertical until the second half of the year.

Okay. Great. Thanks very much.

Thanks James. Appreciate it.

[Operator Instructions] Our next question will come from Edward Reily with EF Hutton. You may now go ahead.

Hi. Thanks for taking my question. Most of my questions were covered. So I just have one. On the move to the Santa Monica office, just wondering how much maybe you're expecting to save some move versus the temporary offices you're in right now?

Versus the temporary offices, so the problem with that move that's come up is that move is now six months behind schedule in part due to COVID-related delays in getting permits and whatnot. So that line item alone is going to cost us probably an incremental $1.5 million in rent for the first half of the year that was unforeseen, it's unfortunate but it is what it is. We're just cycling through that. Once we get everyone back under the same roof, we're looking to save at least call it $0.5 million a year in rent expense. Plus it's the right thing to do to bringing everybody under the same roof. We're both here in L.A. We've been here in L.A. for decades and we just felt it was time to bring everybody together here in L.A. [ph] So it's the right move from an operations standpoint, it's the right move from a financial standpoint.

Yes. Makes sense. Thanks. Got it.

Thank you.

Our next question will be a follow-up from Michael Kupinski with NOBLE Capital Markets. You may now go ahead.

Yes. Thank you. Thank you. Just a quick question. Chris, I know that you entered into some developmental markets with your digital agency business. And I was just wondering if you can give us some thoughts about the profitability of those that you entered and maybe the growth trajectory of what you're seeing. And I know that incrementally, it's not as big as maybe your Latin America business, but maybe just kind of give us some thoughts about how those business and the trajectory of revenue and cash flow are [ph] looking for those developmental markets you entered?

So Mongolia is really well so far. It's ramping up. It's tough to put a number on it on an annualized basis, but I'll try. Maybe a $3 million to $4 million market by the end of the day – at the end of year one, but we're really pleased with it. Ghana is the other market. It's a bit more challenging to operate in Ghana. It's probably a $2.5 million to $3 million market as it stands today, but we continue to work on that angle. The good news is these are really test markets for Meta for us. And as we execute in those markets, the hope for us is to obviously do more with Meta going down the road. And as we execute in these markets, the expectation is that we'll be doing even more markets.

And I know they're pretty lean in terms of the operations there. Are they already profitable? Or are they are close to being profitable at this point?

Mongolia is profitable, has been since day one. Ghana is not yet profitable, probably won't be profitable for a year, I'd say in Ghana.

Got it. Okay. All right. Thank you.

Thank you.

Our next question will come from David Marsh with Singular Research. You may go ahead.

Hey guys. Congrats on the quarter. Quickly, can you just talk about the acquisition landscape and what some of the types of things that you might be looking at interested at this point?

Sure. We're looking at digital deals, both domestic here in the U.S. and internationally, complementary to our existing digital platforms. And there's a couple of broadcast opportunities here in the U.S. that we're looking at, kind of in line with our existing broadcasting footprint, Spanish language, and that's what we're looking at.

Specifically, within the radio space, Chris, I just saw that there have been a couple of transactions recently. I know that the DC based company acquired a couple of stations. Could you talk about valuations in that space that you're seeing and the relative attractiveness of those?

Valuations for radio?

Yes.

I'd say valuations for radio 5 to 6 times on a good day, and the hope is you have enough synergies to make that a 3 or 4 times deal once it's all said and done. But to be clear, there are a handful of deals, but they've been tiny. And it's hard to glean anything from any kind of valuation multiple with deal of that size. They're just really small deals. There aren't a lot of buyers in the radio space right now, as you can imagine.

Right. Yes. I guess, question is kind of – my question in that area, are you seeing any potential like distressed sellers out there that might give you some opportunities to pick up some assets at fairly attractive valuations?

It is possible. And the short answer to that is yes. But look the opportunity has to be really compelling for us to put more capital for radio. But yes, there are a few sellers out there or at least a few potential sellers out there who've got balance sheets that are burdened and they're looking for relief. So you know what, we'll look at all the opportunities that are out there. But again, it's got to be really compelling for us to put more capital into radio.

Sure. That makes a lot of sense. Thanks. Appreciate it.

Thank you.

This concludes our question-and-answer session. I would like to turn the conference back over to Chris Young for any closing remarks.

Thank you, Anthony. Thanks, everyone for joining us today. We look forward to sharing with you our progress on our second quarter earnings call in August. I also hope to see some of you next week at the EF Hutton Conference in New York. Everyone, be well, and we'll talk to you soon. Thank you.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.