Entravision Communications Corp (EVC) Q2 2025 Earnings Call Transcript

Greetings, and welcome to the EntraVision Second Quarter 2025 Earnings Conference Call. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Roy Neer. Thank you. You may begin.

Good afternoon, everyone, and welcome to EntraVision Second Quarter 2025 Earnings Call. I am Roy Neer, Vice President of Financial Reporting and Investor Relations. Joining me today are Michael Christensen, our Chief Executive Officer, and Mark Belke, our Chief Financial Officer. Before we begin, I would like to inform you that this call will contain forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ. Please refer to EntreVision's SEC filings for a list of risks and uncertainties that could impact actual results. The press release is available on the company's investor relations page and was filed with the SEC on Form 8K. I will now turn the call over to Michael Christensen.

And thank you to all of you for joining our call today. As you saw in our press release, on a consolidated basis, EntraVision increased revenue 22% to $101 million in 2Q25 compared to 2Q24, and we had an operating loss of just under $1 million. dollars. As we've discussed on prior calls, we are committed to growing our business and earning a profit. So we do acknowledge that we have work to do to improve our operating performance and profitability. As you all know, this year we report our results for two segments, media and Advertising Technology and Services, what we call ATS. For our media segment, revenue declined 8% in 2Q25 compared to 2Q24. We had fewer active local advertisers in 2Q25 compared to 2Q24, and advertisers cited economic uncertainty and the impact of federal immigration enforcement actions for their decisions to pull back from Spanish language media. Now, although we had fewer active local advertisers in 2Q25 compared to 2Q24, the average spend per average local advertiser was up slightly in 2Q25 compared to 2Q24, but not enough to make it a positive growth number. And the number of active local advertisers in 2Q25 was higher than 1Q25, and our local revenue has increased each month in 2025. We saw similar trends and pressures in our national business. In terms of operating expenses and profitability, as we've discussed in the past, we're making a number of important investments in our media business in 2025. We're adding capacity to our local sales teams, more sellers, and we're adding digital sales specialists and digital sales operations capabilities so we can sell more digital solutions. When we analyze our local markets and our local advertiser base, we see an opportunity to increase revenue by adding sales capacity. In addition, with virtually all of our local advertising customers, they're advertising in digital channels, search, social, streaming video, and streaming audio, and we believe we can serve their needs in digital channels as well as our traditional broadcast video and audio channels. The increase in operating expenses in our media segment, these investments, was a little less than $2 million in 2Q25 compared to 2Q24, or about $8 million on an annualized basis. So the combination of lower revenue and increased operating expenses reduced the operating profit of our media segment to $354,000 in 2Q25 compared to $6 million in 2Q24. Moving on to advertising technology and services, ATS revenue was 66% higher in 2Q25 compared to 2Q24. We had more customers and higher spend per customer. We continue to invest in our ATS segment in 2Q25 to grow revenue and operating profits. We're investing in our engineering team to continue to improve our technology and to build more powerful AI capabilities into our platform. And we're investing to increase the capacity of our sales organization and our customer operations in ATS. In addition, our infrastructure costs, primarily cloud computing costs, will grow as our revenue grows. They're currently growing at a slightly higher pace than the revenue growth. But as this business gets larger, we do expect to see some operating leverage, so these costs will grow at a slightly lower pace than revenue. The combination of these investments, again, investments in increased operating expenses, resulted in operating expenses for ATS. That's direct operating expenses plus selling general and administrative expenses, mostly selling expenses in that line. They were $6 million higher in 2Q25 compared to 2Q24, or $24 million higher on an annualized basis. operating profit in ATS was $5 million in 2Q25. This is almost three times higher than our operating profit in 2Q24. Now, as you'll see in our numbers, it was slightly lower than our operating profit in 1Q25. This sequential decline, slight this sequential decline from 1Q25 to 2Q25 for ATS was really just the timing of certain expenses, not a change in trend. Finally, we funded these operating expense investments for both media and ATS in part by reducing our corporate expenses. We reduced our corporate expenses by $4 million in 2Q25 compared to 2Q24, nearly $18 million on an annualized basis. So to summarize, in media, we're investing to increase our local sales capacity and to expand our digital sales and digital sales operations capabilities, more sellers and more digital. In ATS, we're investing to add more engineers, to advance our technology, and to increase our sales capacity. More technology, better technology, and more sellers. We believe that these investments will help us build a stronger company. So with that, I'll ask Mark to share with you more details of our financial results for 2Q25. Mark?

Thank you, Mike.

Let's start by reviewing revenue performance. On a consolidated basis, revenue for second quarter 2025 was $100.7 million, up 22% compared to second quarter 2024. In our media segment, second quarter revenue was $45.4 million, which was down 0% compared to second quarter. As Mike noted, our media business began here slowly, in part due to advertisers around certainty in a new political climate and the impact of immigration enforcement actions. And in addition, there was political advertising in 2024 that was not present in 2025. However, we've seen sequential monthly and quarterly improvements as we go through 2025, and we are seeing progress and momentum on executing our sales strategies, including hiring additional sales, digital marketing staff, and growing the local digital sales. In our ad tech and services segment, second quarter revenue was $55.3 million, which was up 66% compared to second quarter 2024. We believe we've had success executing our strategies in this business so far during 2025, including expanding the sales team and geographic sales coverage and strengthening our platform technology and AI capabilities. One of our goals is to optimize our organizational structure and the expense of support services in order to align them with revenue. With that in mind, let's look at total operating expenses for each of our segments, and this refers to the sum of direct operating expenses and selling general and administrative expenses, or SG&A, as those two line items are reported in our segment results. For our media segment, total operating expenses in second quarter 25 increased 5%, about $1.9 million, compared to second quarter 24. Looking back at third quarter 24, we reorganized our business units and reallocated $4 million of expense on an annual basis from corporate expense to media operating expense. This was the expense of personnel and resources that, following the integration, were focused entirely on the media business. For second quarter 2025, the amount of reallocated expense was $700,000, or about 2% of the 5% total increase. We continue to evaluate the organizational structure of our media business in order to provide compelling content, drive sales, and minimize the expense of supporting services. For example, we've made investments in our local and digital sales teams, as we've discussed, although we also reorganized the management of our local sales teams to reduce one layer of management while also, at the same time, adding more sales staff on the street. We expect these changes will result in more sales activity, a stronger sales organization, and approximately $1 million in annual savings, beginning primarily in Q325. We are continuing to evaluate ways to streamline our organizational structure. Total operating expenses in our AdSec and Services segment increased by 60% in the second quarter of 2025 compared to 2024. The ATS expense increase was primarily related to the increase in revenue. For example, as Mike mentioned, the expense of cloud computing services increased as a result of processing more transactions and using stronger AI capabilities that have been built into the ad tech platform over the past year and a half. There was an increase in sales commissions and performance compensation as a result of the revenue increase and achievement of other performance metrics. And the ATS business has also hired additional sales, engineering, and ad operations staff since Q224 in order to drive ATS growth and expand to new geographic areas. An additional contributor to expense in Q2 was the timing of accruals for annual sales performance compensation, which should even out on an annualized basis. The combination of these investments resulted in an increase in total operating expenses of $6.1 million in Q2 25 compared to Q2 24, or $24 million on an annualized basis. ATS revenue grew faster than total operating expenses in terms of percentage and in terms of absolute dollars. As Mike noted, as this business gets larger, going forward, we expect to generate positive operating leverage in the growth of revenue relative to expense, including for greater efficiencies in the use of cloud computing services and the benefits of additional staff that have been hired. Another one of our goals is to be profitable in each of our operating segments and on and overall consolidated basis media segment operating profit was positive 350 000 this represented a decrease of 94 percent versus q224 due to a combination of lower revenue and increased operating expenses but again that was a sequential improvement versus q125 continue to focus on our initiatives to grow revenue and reduce expense in the media segment at second services operating profit was $5.2 million, an increase of 190% versus Q224. Once again, we expect this business to generate positive operating leverage, and the ATS revenue increase did exceed the expense increase in terms of percentage and absolute dollars. Buying operations of both segments generated a consolidated segment operating profit of $5.5 million. This was a 28% decrease compared to second quarter 24, attributable to the decrease in media segment operating profit discussed earlier. We achieved an operating profit for each segment in Q2, although we incurred an overall operating loss of $800,000. This was an improvement over second quarter 24 and also a sequential improvement from first quarter 2025. Our goal is to be profitable for each segment and generate a consolidated operated profit, and we have additional work to do and remain focused on growing revenue, reducing operating expense, and reducing corporate expense throughout the remainder of 2025 and beyond. Regarding corporate expense, we have taken significant steps to reduce corporate expense, which was $6.4 million for second quarter 2025. This was a decrease of 41% compared to second quarter 2024, or about $4.4 million in reduced CorpX. The decrease was primarily due to a reduction in personnel, a reduction in compensation paid to our executive team, including reduced salary bonus and noncash.com, and decreased general professional services and rent expense. As I discussed earlier, we reorganized our business units and operating segments in the third quarter of 2024, and approximately $700,000 of the corporate expense decrease in Q2 was due to reallocation of expense to the media segment. EnterVision's balance sheet remains strong, with over $69 million in cash and marketable securities at the end of the second quarter. Sorry for the pause. We're proud of our strong balance sheet, which we believe sets us apart from others in the industry. Our strategy regarding allocation of excess cash is first, reduce debt and maintain low leverage to about $178 million in stability and flexibility under our credit agreement. to navigate changes in the media industry and economic environment, focus on our business priorities and long-term goals to build shareholder value. In addition, we paid $4.5 billion in dividends to stockholders in the second quarter, five cents per share. In the third quarter, our Board of Directors has approved a five-cent dividend per share, available on September 30th to stockholders record on September 16th for a total payment.

We'd like to thank you for joining our call today.

We welcome our investors to connect with us through the Investor Relations page on our corporate website, and we will have access to a transcript of this call, the press release containing a copy of our Form 10-Q quarterly report from the SEC. At this time, Mike and I would like to open the call for questions from the investment community.

Thank you, Mark. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press the star followed by the one on your touchtone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press the number followed by the two. If you are using a speakerphone, please lift the handset before pressing any key. One moment, please, for your first question. Should you have a question, please press the star followed by the one on your touchstone phone. You will hear a prompt that your hand has been raised. Should you decline from the polling process, please press the star followed by the two. We have no questions at this time. I will turn the conference back to Mike. Thank you very much.

Thank you all for joining our call today. We look forward to talking with you our next quarter and report our third quarter earnings. Thank you very much.

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your line.