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Edited Transcript of SBSA earnings conference call or presentation 18-Nov-19 9:00pm GMT

Q3 2019 Spanish Broadcasting System Inc Earnings Call

Coconut Grove Jan 9, 2020 (Thomson StreetEvents) -- Edited Transcript of Spanish Broadcasting System Inc earnings conference call or presentation Monday, November 18, 2019 at 9:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Albert Rodriguez

Spanish Broadcasting System, Inc. - COO

* Jose I. Molina

Spanish Broadcasting System, Inc. - CFO

* Richard D. Lara

Spanish Broadcasting System, Inc. - Executive VP & General Counsel

* Brad Edwards

Spanish Broadcasting System, Inc. - IR, The Plunkett Group

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Presentation

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Operator [1]

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Good afternoon and welcome to the Spanish Broadcasting Third Quarter 2019 Conference Call. (Operator Instructions) Please note, this event is being recorded.

I would now like to turn the conference over to Brad Edwards, Investor Relations. Please go ahead.

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Brad Edwards, Spanish Broadcasting System, Inc. - IR, The Plunkett Group [2]

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Thank you, operator, and good morning, everyone. Before we begin, please recognize that certain statements on this conference call are not historical fact. They may be deemed, therefore, to be forward-looking statements under the Private Securities Litigation Reform Act of 1995. In particular, statements about future results expected to be obtained from the company's current strategic initiatives are forward-looking statements.

Many important factors may cause the company's actual results to differ materially from those discussed in any such forward-looking statements. These risks and uncertainties are described in further detail in the company's filings with the SEC. You are directed to these filings for more detailed information. Spanish Broadcasting System undertakes no obligation to publicly update or revise its forward-looking statements.

Please also note that we will be discussing non-GAAP financial measures within the meaning of the SEC rules. The company believes that operating income or loss before depreciation and amortization, gain or loss on the disposal of assets, recapitalization costs, executive severance expenses, impairment charges and other operating income, excluding noncash stock-based compensation or adjusted OIBDA, is useful in evaluating its performance because it reflects a measure of performance for the company's stations before considering costs and expenses related to capital structure and dispositions. This information is not intended to be considered in isolation or as a substitute for operating income, net income or loss, cash flows from operating activities or any other measure used in determining the company's operating performance or liquidity that's calculated in accordance with U.S. GAAP.

Reconciliation of the company's U.S. GAAP information to adjusted OIBDA is provided in the tables attached to the company's 2019 third quarter earnings release, which is available on the Investor Relations section of the company's website at www.spanishbroadcasting.com.

I will now turn the conference over to Mr. Albert Rodriguez.

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Albert Rodriguez, Spanish Broadcasting System, Inc. - COO [3]

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Good morning, ladies and gentlemen. Welcome to the SBS 2019 Third Quarter Conference Call. On today's call, we'll provide an overview of recent operating developments and review our financial results. Joining me today are Jose Molina, our Chief Financial Officer; and Richard Lara, our General Counsel.

Our third quarter results marked the continue -- continuation of several important trends. First, solid industry leader top line growth in our audio business, where revenues were up 7% compared to last year. Second, we are translating that top line growth into industry-leading adjusted operating margins. We delivered 40% margins in the third quarter.

Several of our audio stations remained top-ranked across the nation's largest Hispanic DMAs. All of our key digital mobile and social media engagement metrics are up significantly compared to last year as we continue transforming SBS into a Hispanic multimedia company and certified minority business enterprise. And lastly, our total aggregate multi-platform audience is growing as our commitment to innovation, compelling content and unique experiences further resonates with our audience.

The underlying power of our assets and the successful execution of our multimedia strategy is clearly working. We've made tremendous progress in 2019, and the entire SBS team is focused on building on the momentum across our business and finishing the year strong.

Turning now to an update of our operations, and we'll begin with our AIRE Radio Network. Performance at AIRE was solid in the third quarter as gross revenues increased 7%. This marked the third consecutive quarter of double-digit year-over-year sales growth at AIRE. In fact, year-to-date AIRE network sales are up 17% compared to the first 9 months of last year. Our consistent strong growth at AIRE is being driven by strong execution by our sales teams as well as the benefits of unmatched reach and increasing market share. AIRE's competitive offerings also include new innovative content opportunities and increased affiliate growth on all of our syndicated programs.

Today, AIRE operates in the nation's largest minority certified language audio group. AIRE reaches 15 million weekly listeners, of which 73% is unique in nearly 100 markets nationwide, including 47 of the top 50 U.S. Hispanic markets. Despite the fact that audio ratings have been down across the board, AIRE continues to maintain consistent audience share and ratings in key demos.

Our dominant reach, along with innovative content and leading industry talent relationships is driving new brand partners and sponsorship opportunities. Today, clients are increasingly looking to connect with the rapidly expanding U.S. Hispanic population given their sizable influence and increasing purchasing power. AIRE offers our partners opportunity to reach this growing and highly engaged audience through an affiliate network of over 300 stations nationwide, that reaches over 95% of U.S. Hispanic DMAs.

Given our national reach, strong DMA coverage, growing audience, leading content and integrated offerings and quarter-to-quarter out -- industry outperformance, the path forward at AIRE is bright. Our team is laser-focused on building on our successes to date in 2019 and finishing the year on a strong note. Thanks to our loyal listeners and viewers we have on our audio and video platforms, we are in a position of strength and great opportunity to capitalize on the 2020 election cycle.

Gross core audio revenue, local, national and digital, less political, increased by 8%. Gross core video revenue, local, national, digital, less political, increased by 33%. Gross consolidated core revenue, less political, increased by 10%. This marked our seventh consecutive quarter in the industry outperformance.

In our audio business, we remain well positioned across the nation's densest Hispanic markets, and once again, delivered industry-leading operating margins. Today, we operate the 2 top stations in the nation: the largest Hispanic DMA in New York and the top 2 in the second-ranked market, Los Angeles. We're building on this top DMA leadership through a focused approach to further growing our audience in Miami, the #3 Hispanic DMA as well as in Puerto Rico.

Importantly, we continue to drive notable ratings growth across major stations and are capturing increased share of key demographic groups, including Hispanic young adults and Hispanic millennials. We have built this national Spanish language audio leadership through an unwavering commitment to innovation, compelling station formats and the delivery of unique audience experiences. And in the third quarter, we made further progress leveraging our strong audio station brand across digital mobile and social channels as we continue building a Hispanic multimedia company.

As we consistently and proudly report, we continue with the unparalleled ratings performance coast-to-coast. In the most recent ratings book, SBS stations ranked #1 and #2 in the top markets among adults 18 to 34, including New York, Los Angeles, Puerto Rico and San Francisco.

WSKQ Mega 97.9, KXOL FM Mega 96.3, KLAX 97.9 FM La Raza and KRZZ FM, 93.3 FM, La Raza ranked as the #1 Spanish language audio stations and most-listened-to Spanish language stations in the nation, beating competitors in New York, Los Angeles, Puerto Rico and San Francisco. Several SBS stations ranked #1 and #2 total week versus Spanish language competition in their respective markets among adults 18 to 49, Los Angeles, KXOL, KLAX; New York's WSKQ and WPAT Puerto Rico; and San Francisco's KRZZ.

In New York, our 2 audio stations continue to dominate the ratings with an influential growing Hispanic audience. Both of our stations deliver more audience than New York Hispanic TV stations, WSKQ and WPAT. Amor leads a 10 combined Nielsen audience share with adults 18 to 49 and reach a combined 4.1 million weekly listeners. For most of the last decade, Mega 97.9 has been the #1 Nielsen-ranked station regardless of any language or format in the New York market.

Mega is also the most-listened-to Spanish language station in the country. And just recently, we announced that Mega 97.9 is the most-listened-to Hispanic station globally. While Mega delivers over 2 million average weekly listeners, we have worked, increased our online digital, social media engagement and our original Vacilon Podcast.

We are relentless in creating powerful concert brands, such as the upcoming Mega Bass show on Black Friday. Just recently, we sold out Romeo Santos at the MetLife Stadium with over 90,000 attendees. We have the 1-2 stellar combination with the Mega and Amor, the #2 station in the New York market. Amor has had a fantastic rating year and the station is capturing higher audience delivery across critical demos, including Hispanic millennials. And also WPAT's revenue growth has experienced double-digit revenue growth this year.

In the highly Hispanic-dense competitive market of Los Angeles, we continue to audience grow with a combined 2.8 million weekly listeners. We have the #1 Hispanic radio station in Los Angeles, KLAX, with 18- to 49-year olds. And we are #1, 18 to 34 with Mega 96.3. We continue to operate the 2 ranked Hispanic stations in Los Angeles, KLAX, La Raza and Mega.

Another essential market for SBS is Miami, the third-largest Hispanic market in the U.S. We continue to strengthen our audience by delivering what they want to hear with more than 1.8 million weekly listeners. Our 3 stations in Miami cluster consistently deliver a combined 14 general market share of the market.

WCMQ is the consistent #1 rated show with Oscar Haza, an award-winning journalist and confirm -- that confirms our rating strength. We have just launched a new afternoon show focused on political news with veteran and renowned journalist, Mario Andrés Moreno.

And finally, Puerto Rico remains a critical emerging market for SBS, and we're making steady progress building the leadership position. We've worked the last year to introduce new compelling station formats and leverage our exclusive content and strong talent roster to drive audience share. Advertising categories that were strong during the third quarter included entertainment, financial, retail and telecommunications. Categories that we experienced some softness included political and travel.

Lastly, according to Miller Kaplan, we continue to outperform our competition in the markets we serve. During the third quarter, we outperformed our markets by 600 basis points.

Turning now to our video group. Core video revenues increased in retail and political revenues decreased. Our events platform, SBS Entertainment in partnership with Mega 96.3 FM and our LaMusica is gearing up for our gigantic annual Calibash events to take place in the upcoming January in Los Angeles and Las Vegas.

Now turning to an update on our digital and mobile initiatives and the execution of our multimedia strategy. The third quarter demonstrated the ongoing success we are having strategically leveraging our strong audio station brands and building a Hispanic multimedia company. All of our digital, mobile and social media engagement metrics are up significantly compared to the last year, and we continue to generate strong aggregate audience growth. In fact, as of September 30, our aggregate multi-platform audience was up 18% compared to the same period last year.

Let's begin with mobile, where building a leading presence has been a strategic imperative for years. Our LaMusica app is the premier Spanish language mobile app that offers a compelling combination of exclusive daily video content, short-form shows, access to tens of thousands of songs, complete with the deep customization capabilities. LaMusica is a mobile platform unlike any other in the market as users are the primary architect of their experience and can easily connect with their favorite video content, artists and songs.

Today, LaMusica reaches over 1.9 million people with over 5 million streaming hours per month. Our efforts in growing our audio programmatic revenue is yielding results with revenue up 660% compared to the same time last year.

Monthly audio programmatic revenue is almost $200,000, and we expect to keep it going as we connect with more demand-side platforms. Digital sales increased 56% year-over-year. While initially launched to capture Hispanic millennials who overindex on mobile phone media consumption, we have generated much success transitioning LaMusica into a truly multi-platform brand. LaMusica's website is generating consistent and strong digital growth since its launch, and now averages approximately 700,000 monthly unique visitors. On social media, LaMusica's following is up significantly across key platforms, including YouTube, Instagram and Facebook.

On Facebook, LaMusica's page generated over 21 million video views and passed over 1.6 million likes in the third quarter. In addition, LaMusica's post and content currently reach approximately 6.6 million unique users per week with -- and 70 million impressions. We branded Mega 97.9 FM YouTube channel under LaMusica brand, which is leading strong year-over-year audience expansion. The rebranded channel has more than 260,000 subscribers as of September 30, and it's up 122% compared to last year.

Lastly, we have been broadcasting select exclusive video content in Puerto Rico and are currently averaging over 290,000 unique users who are consuming over 980,000 hours of live video each and every month. Our total streaming audience, including both digital and mobile passed 1.2 million unique listeners per month in the third quarter. This engagement included over 16.5 million listening hours and over 37 million total sessions. We also continue to see notable engagement increases across total portfolio of SBS websites, where we currently have in excess of 700,000 unique monthly visitors that drive over 8 million page views.

However, mobile continues to be the primary source of our total digital traffic. In Q3, mobile accounted for approximately 73% of our total digital traffic. This contribution is due largely to the rapid expansion of our active LaMusica app unique users over the past year. In fact, unique users are up 30% compared to this time last year and up 43% year-to-date in 2019.

In addition, as of September 30, our combined social media following was over 3 million people. And lastly, from second quarter to third quarter of this year, we have driven a 12% increase in engagement with the existing followers across our radio social media profiles.

In summary, our multimedia strategy is driving meaningful aggregate audience growth, audio industry-leading ratings and operating margins, and accelerating digital, mobile and social media engagement metrics. Our audio leadership in the nation's largest Hispanic DMA remains second to none. And today, we operate the leading Hispanic nationwide radio network, AIRE. Our multi-platform assets are clearly differentiated today as SBS offers compelling advertising opportunities to our brand partners across each and every media platform. We entered the fourth quarter with momentum across our business, and we are focused on building on our successes to date and closing out 2019 on a high note.

In summary, the certified minority business enterprise confirms our position in the Hispanic media space in the fastest-growing population in this nation that provides SBS with a strategic advantage.

Now let me turn the call over to Jose Molina for the financial overview.

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Jose I. Molina, Spanish Broadcasting System, Inc. - CFO [4]

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Thank you, Albert. Turning to our third quarter results. Our consolidated revenues totaled $36.3 million, up 7% compared to $34 million for the same prior year period. This increase was due to higher revenues in our radio segment. Excluding political sales for the respective period, our consolidated revenues totaled $36.2 million, up 10% compared to $32.8 million for the same prior year period.

Our radio revenues increased by 7% due to increases in local, digital, network, special events and barter sales, which were partially offset by a decrease in national sales. Excluding political sales for the respective period, our radio revenues totaled $32.5 million, up 10% compared to $29.5 million for the same prior year period.

Our television revenues remained flat due to an increase in local sales, which was partially offset by a decrease in national political sales. Excluding political sales for the respective period, our television revenues totaled $3.7 million, up 14% compared to $3.3 million for the same prior year period.

Our consolidated adjusted OIBDA, a non-GAAP measure, totaled $10.7 million compared to $11.1 million for the same prior year period, representing a decrease of 4%. Excluding political for the respective periods, our consolidated adjusted OIBDA totaled $10.6 million, up 7% compared to $9.9 million for the same prior year period.

Our radio adjusted OIBDA increased 11% primarily due to the increase in net revenues of $2.2 million, partially offset by an increase in operating expenses of $1 million. Our radio station operating expenses increased mainly due to increases in special event expenses and compensation and benefit-related expenses. These increases were partially offset by a decrease in barter. Excluding political for the respective period, our radio adjusted OIBDA totaled $13 million, up 17% compared to $11.1 million for the same prior year period.

Our television adjusted OIBDA decreased by approximately $800,000 due to increases in operating expenses in originally produced content cost and barter expenses. Excluding political for the respective period, our television adjusted OIBDA totaled approximately $600,000 compared to $1 million for the same prior year period.

Our corporate expenses increased approximately $800,000, mostly due to increases in compensation and insurance. Capital expenditures for the third quarter were approximately $1.1 million, and as of today, we have approximately $16.5 million of cash on hand.

As we previously stated, we continue to work with our advisers evaluating all available options to refinance the notes, which could include the issuance of new debt or equity, asset sale proceeds and the use of cash on hand. We do not have an expected time frame to complete the refinancing because our refinancing efforts have been complicated by our Series B preferred stock litigation and the current ownership issue. The recapitalization of this company is our highest priority in addition to continuing to run this company successfully.

This will conclude our formal remarks. And with that, I would like to turn the call over to the operator for any questions. Operator?

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Questions and Answers

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Operator [1]

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(Operator Instructions) This will conclude today's question-and-answer session. I would like to turn the conference back over to management for any closing remarks.

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Richard D. Lara, Spanish Broadcasting System, Inc. - Executive VP & General Counsel [2]

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Good afternoon, and I want to thank everyone for participating on today's third quarter financial overview and our results. And I look forward to in the next few months, discussing our fourth quarter results and our year-end results. So thank you for everybody participating today, and looking forward to hearing from you in the next one. Thank you.

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Operator [3]

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