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Edited Transcript of SBSA earnings conference call or presentation 13-Aug-19 3:00pm GMT

Q2 2019 Spanish Broadcasting System Inc Earnings Call

Coconut Grove Sep 7, 2019 (Thomson StreetEvents) -- Edited Transcript of Spanish Broadcasting System Inc earnings conference call or presentation Tuesday, August 13, 2019 at 3:00:00pm 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

* Raúl Alarcón

Spanish Broadcasting System, Inc. - Chairman, President & CEO

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Conference Call Participants

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* Brad Edwards;The Plunkett Group;Principal

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Presentation

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Operator [1]

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

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

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Brad Edwards;The Plunkett Group;Principal, [2]

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Thank you, Sean, 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, 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 is calculated in accordance with U.S. GAAP.

A reconciliation of the company's U.S. GAAP information to adjusted OIBDA is provided in the table attached to the company's 2019 second 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. Raúl Alarcón. Please go ahead.

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Raúl Alarcón, Spanish Broadcasting System, Inc. - Chairman, President & CEO [3]

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Thank you, Brad, and good morning to everyone on the call today. Regarding our second quarter results, SBS has once again demonstrated its strategic and operational strength and given further evidence as to withstanding as the undisputed leader of Hispanic radio as well as one of the premier owner operators in the nation's largest media markets.

Now I say strategic and operational because on the one hand, management knows strategically where to take the company in order to create long-term value. But as importantly, these results show that operationally we know how to get there. As you will recall, consolidated adjusted OIBDA finished up 37% last year significantly outpacing the industry. And as our second quarter results show, as measured by every conceivable operational metric, we continue to lead the radio sector in 2019. For example, in terms of audience delivery, SBS registered spectacular ratings growth of 13% in 2019, whereas the ratings of almost every other radio operator, including both our major Spanish-language peers, declined during the same period. And we have successfully sustained our ratings momentum now claiming the #1 and #2 ranked Spanish stations in the largest media markets of New York and Los Angeles as well as 3 out of the 4 most-listened-to Hispanic stations in the nation and the #1 Spanish station in America.

The other operational metrics were similarly in line: consolidated revenue of 11%, excluding political and special events; OIBDA up 2% even after strategic programming, selling and marketing investments; industry-leading radio margins holding steady at 44%; growth in our TV business; growth in our digital and mobile engagement metrics; growth in our concerts and events business; growth in our network radio business, and all of this momentum taking place as a result of our touching the lives of millions of Hispanics that make up a vital and thriving component in the fabric of U.S. society. For these and many other reasons, SBS is ideally positioned as the leader in Hispanic radio to turn in another banner year in 2019.

And with that, I'd like to turn it over to Albert Rodriguez and Jose Molina for a more in-depth commentary on our Q2 results.

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Albert Rodriguez, Spanish Broadcasting System, Inc. - COO [4]

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Thanks, Raúl. Good morning, ladies and gentlemen. Welcome to the SBS 2019 Second 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.

During the second quarter, we generated solid top line growth in consolidated adjusted OIBDA, growth via strong execution of our multimedia strategy in the power of our assets. Our top-ranked audio stations have once again extended their ratings leadership across key demographics and time slots. At the same time, our mobile, digital, social media engagement metrics remain at record levels.

As our Chairman noted, Nielsen Audio nationwide survey confirms SBS as the only audio group regardless of any language to have registered double-digit audience growth in 2018 as it compared to 2017. Our Minority Business Enterprise certification is one of the most-important initiatives as it certified SBS as a true minority-certified media company. Spanish Broadcasting System is in a historic moment with dominant marketing ratings and revenue. Overall, our strategy is clearly working, and we are making a number of strategic investments in our business to build upon our successes to date and drive accelerated growth in the years ahead.

Turning now to operations. We'll begin with an update on our AIRE Radio Network. AIRE continues to deliver strong growth and with gross revenues up 16% in the second quarter. This performance follows the 34% revenue growth we generated during the first quarter. In short, we continue to deliver unique opportunities for our advertisers, which enabled us to garner more of the market share throughout the first 6 months of the year. The revenue success of the first half of the year at AIRE is a direct result of the platform's capability to reach 11 million unique listeners, which can only be reached via AIRE.

The second quarter continued to exemplify the notable gains within key auto demos delivering 15% audio growth. AIRE's audience maintains its strength due to its presence in nearly 100 markets nationwide. Today, AIRE continues to offer an expanding audience highly engaged listeners across key demos and broad national reach. This combination along with innovative content opportunities such as leveraging influences is attracting new brand partners and sponsors as well as unlocking incremental advertising spend from existing clients.

As I mentioned, one of AIRE's key competitive strength is its tremendous reach. AIRE continues to operate one of the nation's largest Spanish-language network footprints. AIRE was available in 100 Hispanic markets, including 47 of the top 50 U.S. Hispanic markets and reached over 15.3 million listeners each week as of June 30. AIRE has an affiliate network with over 300 stations across the country. The network reaches over 94% of the U.S. Hispanic DMAs. The Spanish language, an industry-leading, network was built on the foundation of top-ranked stations and a commitment to compelling content delivered by the best talent the industry has to offer. AIRE's competitive differentiation and strength is best demonstrated by our consistent outperformance of all Spanish major networks.

In summary, today AIRE is capturing audience growth across key demo groups, has 94% nationwide coverage and continues to outperform the industry. While we have achieved much to date, we know there is significant growth opportunities ahead. We entered the second half of the year with a clear focus of capturing those opportunities. Gross core audio revenue, local, national, digital and network, less political, increased by 7%. Gross core video revenue, local, national, digital, less political, increased by 48%. Gross consolidated core revenue, less political, increased by 10%. This exceptional revenue growth beats all of our industry peers.

SBS operates the top 2 stations in New York, the nation's largest Hispanic DMA as well as the top 2 stations in Los Angeles, the nation's second-largest Hispanic DMA. We also continue to expand our presence in Miami and Puerto Rico, 2 additional key Hispanic markets. Our leadership in Spanish language audio is built on a steadfast commitment to delivering innovative experience, content and formats. Strong execution of this strategy has resulted in top-ranked stations among the nation's largest Hispanic DMAs and meaningful audience growth among key demos, including adults 18 to 49 and Hispanic millennials.

Importantly, we have leveraged our strong brands and audience following an extended our leadership across additional key platforms, including digital, mobile and social. Turning first to our ratings performance. In the most recent ratings book, SBS's audio stations ranked #1 and #2 in the top markets regardless of language among adults 18 to 34, including New York, Los Angeles, Puerto Rico and San Francisco. Additionally, we closed the second quarter with SKQ Mega 97.9, KXOL Mega 96.3, KLAX 97.9 FM and La Raza and KRZZ 93.3 FM, La Raza ranked as #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 in total week versus the Spanish-language competition in their respective markets among adults 18 to 49, Los Angeles' KXOL, KLAX; New York's WSKQ and WPAT; Puerto Rico's La Nueva and Mega; and San Francisco's KRZZ. We are particularly well positioned in the New York market, which remains the largest Hispanic DMA. Today, our 2 stations, WSKQ and WPAT, Amor deliver a combined 10 audience share per Nielsen adults 18 to 49 and reach a combined 4.1 weekly listeners. WSKQ Mega 97.9 has been the #1 Nielsen ranked station regardless of language or format in New York market for close to 6 years. In addition, Mega has been the most-listened-to Spanish-language station in the entire country for over a decade. Today, Mega delivers more than 2.5 million average weekly listeners and has a strong online social and mobile following as well.

The #2 station in New York market is PAT. Amor continues to pull solid ratings growth and gain share across key demos and time slots. The second-largest Hispanic market in the U.S. is Los Angeles, where today our station footprint delivers combined 2.8 million weekly listeners, KXOL Mega 96.3 remains the #1 ranked Spanish-language station among 18 to 34, 18 to 49, Monday through Sunday. Mega 96.3 is a great example of SBS's ability to merge strong talent relationship with an innovative and differentiated station format and capture increased audience share. In addition, we continue to operate the #2 ranked Hispanic station in Los Angeles, KLAX La Raza.

Now turning to Miami, the #3 largest Hispanic market in the nation, where we also have steadily grown our aggregate audience. As of June 30, our total Miami audience exceeded 1.8 million weekly listeners. This is up from 1.3 million compared to the same time last year. Our 3 stations in Miami have a combined 14 shares of the market and the #1 rated show with Alex Sensation. We now have the show simulcast in all of our markets, New York, Miami, Puerto Rico and recently, Los Angeles. We have the #1 rate in morning show with journalist Oscar Haza covering all the political and current events.

A key emerging market for SBS is Puerto Rico, where we continue to advance our market position. This includes the station format changes, compelling exclusive content and audience growth. Advertising categories that were strong during the second quarter, included media, entertainment and beverages. Categories where we experienced some softness included political.

Lastly, according to Miller Kaplan, we continue to outperform our competition in the markets we serve. During the second quarter, we outperformed our markets by 880 basis points.

Turning now to our video group. Core video revenues increased in the second quarter as higher local, national and digital sales offset a decrease in subscriber fees. SBSE sold out Mega Mezcla at the New York Prudential Center and MiamiBash at the AmericanAirlines Arena with over 30,000 combined attendees.

Now turning to an update on our digital and mobile initiatives and the execution of our multimedia strategy. The second quarter marked further growth of all of our major mobile, digital and social media metrics. We continue to successfully extend our leading audio brands across multiple platforms and expand our aggregate audience. Our rapidly growing digital and mobile properties deliver engaging content and experiences to users, while offering unique integrated and targeted advertising opportunities to our brand partners.

Our aggregate multiplatform audience was 22% higher at June 30 than the same time last year. One area of strategic emphasis is mobile, where we moved quickly to develop and launch a complete entertainment platform, LaMusica, given the expected usage and media consumption, particularly among Hispanic millennials. LaMusica is the premier Spanish language mobile app that offers exclusive daily video content, short-form access to tens of thousands of songs and deep customization capabilities. LaMusica users can truly design their own mobile experience and connect with their favorite content, artists and songs.

Today, LaMusica reaches over 1.8 million people including over 1.2 million downloads of LaMusica app with over 5.2 million streaming hours per month. I want to note that while LaMusica's mobile user base continues to grow, we view LaMusica as being a truly multiplatform brand. In fact, we began broadcasting some of our video content in Puerto Rico area, currently averaging 280,000 unique users who are consuming over 950,000 hours of live video each and every month.

In addition, our LaMusica website has experienced consistent and strong visitor growth since its launch and now averages approximately 680,000 monthly unique visitors. Also LaMusica social media following has grown significantly across key platforms including YouTube, Instagram and Facebook. In fact, LaMusica's Facebook page generated over 21 million video views and passed over 1.6 million likes during the second quarter.

LaMusica's posts and content currently reach approximately 6.6 million unique users per week and 70 million impressions. The rapid growth in LaMusica social media presence unlocked opportunities for us to run ad breaks. This enhances the value and breadth of opportunities we can deliver to advertising clients and opens new digital revenue streams for SBS. On YouTube, we chose to rebrand Mega 97.9FM's channel under LaMusica brand. This decision is driving meaningful audience growth. The rebranded channel has had more than 263,000 subscribers at June 30, up 122% compared to last year. In the second quarter, our total streaming audience, including both digital and mobile, passed 1.2 million unique listeners per month. This activity included over 16 million listening hours with over 34 million total sessions. Our total portfolio of SBS websites currently has over 680,000 unique monthly visitors that drive over 7.5 million page views.

During the second quarter, mobile accounted for approximately 72% of the digital traffic during the second quarter. Importantly, active LaMusica app unique users have grown significantly over the last year, up 52% compared to this time last year and up 23% in 2019. Our combined social media following passed 30 million as of June 30. And lastly, we have driven a 12% increase in engagement with existing followers across our audio, social media profiles from Q1 to Q2 of this year.

In short, our multimedia strategy is working. The success we're having, leveraging our audio brands, driving meaningful increases in our total aggregate audience as well as gains in all major digital mobile and social media listening and engagement metrics.

In closing, we continue to deliver industry-leading financial and ratings performance, while also strategically investing in our assets and teams. We operate top-ranked stations across the nation's largest Hispanic DMAs, have a leading national audio network in AIRE and accelerating digital engagement numbers. We have clearly differentiated audio and digital assets that are capturing incremental audience share and delivering targeted highly engaged Hispanic audiences to our brand partners. Today, we offer more unique and integrated advertising opportunities than ever before and are connecting brands and consumers across every major platform.

Moving forward, we are focused on building upon the momentum in our business and continue to drive aggregate audience growth. We believe our strategy will position SBS for continued industry outperformance, accelerated growth and long-term value-creation for all of our stockholders.

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 [5]

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Thank you, Albert. Turning to our second quarter results. Consolidated revenues totaled $36.9 million, up 6% compared to $34.8 million for the same prior year period. This increase was primarily due to revenue growth in both our radio and television segments. Excluding political and special event revenue for the respective periods, our consolidated revenues totaled $36.2 million, up 11% compared to $32.6 million for the same prior year period.

Our radio revenues increased $1.7 million or 5% due to increases in local, barter, network and digital sales, which were partially offset by decreases in special event revenue and national sales. Excluding political and special event revenue for the respective periods, our radio revenues totaled $32.2 million, up 10% compared to $29.3 million for the same prior year period.

Our television revenues increased by 13% due to increases in local, national and digital sales, which were partially offset by a decrease in subscriber fees. Excluding political and special event revenue for the respective periods, our television revenues totaled $3.9 million, up 20% compared to $3.3 million for the same prior year period.

As we discussed on our first quarter earnings call, we are making a number of strategic investments in our business with the goal of accelerating our future growth. Investments have been made in improving our sales force, programming, and our advertising and promotional efforts.

Our consolidated adjusted OIBDA, a non-GAAP measure, totaled $12.2 million compared to $11.9 million for the same prior year period, representing an increase of 2%. Our radio adjusted OIBDA increased 4%, primarily due to the increase in revenues of $1.7 million, partially offset by the increase in operating expenses of $1.1 million.

Our radio station operating expenses increased mainly due to the absence of the prior year positive impact of some legal settlements in addition to the increase in barter, commissions and facilities expenses. These increases were partially offset by decreases in professional fees, special event expenses and affiliate station compensation. Our television adjusted OIBDA decreased by approximately $700,000 due to the increase in operating expenses of $1.2 million, which was partially offset by the increase in revenue.

Television station operating expenses increased primarily due to increases in originally produced content cost, barter, commission and facilities expenses. Our corporate expenses decreased by approximately $400,000 or 14% mostly due to a decrease in professional fees. Our capital expenditures for the second quarter were approximately $1 million. And as of today, we have approximately $19 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 foreign ownership issue. The recapitalization of the company is our highest priority in addition to operating our business 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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Operator [6]

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(Operator Instructions) At this time, there are no questions in the question queue, and this will conclude the question-and-answer session. I would now like to turn the conference back over to management for any closing remarks.

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Raúl Alarcón, Spanish Broadcasting System, Inc. - Chairman, President & CEO [7]

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I want to thank everybody for attending our second quarter industry-leading earnings call. And I look forward to everybody joining our third quarter conference call in the next few months. I want to say thank you, again, for everybody. We appreciate it. Thank you.

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Operator [8]

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