Q2 2023 Spanish Broadcasting System Inc Earnings Call
Participants
Albert Rodriguez; President & COO; Spanish Broadcasting System, Inc.
Jose I. Molina; CFO; Spanish Broadcasting System, Inc.
Brad Edwards; MD; Brainerd Communicators, Inc.
Presentation
Operator
Good day, and welcome to the Spanish Broadcasting's Second Quarter 2023 Conference Call. (Operator Instructions) Please note this event is being recorded.
I would now like to turn the conference over to Brad Edwards. Please go ahead.
Brad Edwards
Thank you, operator, and good morning everyone. Before we begin, please recognize that certain statements on this conference call are not historical facts. 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. 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. The Company believes station operating income or SOI, and adjusted operating income before depreciation and amortization gain or loss under disposal of assets, and other operating expenses, excluding non-cash 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 to the Company's U.S. GAAP information to SOI and adjusted OIBDA is provided in the tables attached to the Company's second quarter 2023 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.
Albert Rodriguez
Good morning, ladies and gentlemen, welcome to the SBS 2023 second quarter earnings conference call. On today's call, we will 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 second quarter performance reflects continued aggregate audience growth, industry financial outperformance and continued investments across our multi-platform business. As we look to the second half of the year, we see additional growth opportunities and a clear path to accelerated performance.
Our recently added Orlando and Tampa stations continue to perform ahead of our expectations. They are strong additions to our already leading Spanish language national audio footprint that includes multiple top-ranked stations, regardless of language, in markets including New York and Los Angeles.
Our Orlando and Tampa stations will be profitable this year, and will make us the most dominant Hispanic audio broadcaster in the entire state of Florida. SBS has created a task force and plan to cut expenses aggressively that will improve EBITDA and margins.
Now, let's review our operations, and we'll start that with AIRE Radio Networks. For the second quarter of 2023, AIRE Radio Networks was up 1%. The Miller Kaplan Report network revenue was down 9%. The key categories for this period were automotive plus 375%, communications plus 138%, government plus 40%, and home products plus 22%. AIRE Radio Networks, the largest minority-owned Hispanic audio network delivering 95% of all Spanish-language listeners across the country, continues its commitment to super-serving Hispanics.
AIRE Radio Networks reaching 15 million weekly Hispanic listeners across more than 300 affiliates, NMSDC certified with presence in the top 50 U.S. Hispanic markets.
Some of the key highlights for AIRE's new initiatives include [KXOL Madre Natalia], El Terrible Show, La Mezcla with Alex Sensation, The Influencer Network delivering campaign messaging through a national platform, while penetrating local markets, and Artistas360, where brands are aligned with Latin artists.
Our audio division is a testament to our unwavering commitment to the Hispanic market. We've met our targets and surpassed them. Our ratings speak volumes, but what's even more heartening is the growth in listener loyalty and engagement we have experienced. The essence of our approach has been simple yet profound. Create unique, engaging, and high-caliber content that deeply resonates with our varied Hispanic listeners.
Our creative spark and collective teamwork have made this vision a reality. SBS Audio outperformed the entire audio total market with revenue growth and SBS was the only audio group that generated positive revenue growth for the quarter.
SBS National Audio Spot from January to June outperformed the total market spot that indexed minus 17% and SBS National Audio was plus 14% outperforming the total market by 31 points per Miller Kaplan.
SBS has 3 of the top 10 stream stations in America per Nielsen, WSKQ Mega New York, KXOL Mega LA, KLAX, LA, and SBS has 4 of the top 20 with WPAT Amor in New York.
Now, let's go over some of our accomplishments. New York, with respect to ratings, dominating with WSKQ Mega 97.9, which isn't just the #1 station in New York, but it's the nation's #1 online stream station.
Los Angeles, leading the mornings with KXOL Mega 96.3 with our show Omar and Argelia topping the charts. KLAX Morning Show also reached #1 in the market in all the key demographic groups. Miami, yet again is triumphing with WXDJ FM El Zol 106.7, #1 across the board in key demographic groups.
Orlando, a total success with WPYO FM El Nuevo Zol 95.3, continues its complete dominance in the Orlando market with El Despelote with Rocky and the Kid in the market, #1 in the market in every key demographic group.
Now, let's go to Puerto Rico. Puerto Rico is a force to be reckoned with via WMEG FM Mega 106.9 and WODA FM La integrado, successful rebrand of WRXD FM Estereo Tempo, 96.5 continues to dominate in the ratings of key demos.
San Francisco, La Raza, #1 in all Hispanic demos. In the competitive arena of New York, our programs and teams have not just entered but have won over one of the world's most discerning Hispanic audiences. Our foresight and adaptability have made us an intrinsic part of many of our lives.
Our success in Los Angeles underscores our knack for tuning into our listeners' preferences, and the phenomenal response to Omar and Argelia on KXOL Mega 96.3 is evidence. And in the most recent August ratings book, KLAX is #1 in the market when combining our FM and online stream. We revel in these achievements. We've grounded by our ethos of creativity and innovation. As we journey forward, our aim remains clear. Continue to be the go-to source of entertainment and information for our cherished Hispanic listeners.
Now, turning to our mobile and digital platforms and strategic initiatives, over the last several years we have had great success transforming SBS into a leading multimedia Hispanic media company.
Today, we connect brands with more Hispanics than ever before, and our aggregate audience continues to expand. For our brand partners, there has never been a more important time to have Latino-focused marketing strategy and outreach program. The Latino population is growing rapidly in size, cultural influence, and purchasing power.
SBS has the multimedia assets, the reach, and the over 4 decades of experience and commitment to the Latino community across the U.S. And as such, we can deliver compelling and integrated advertising opportunities that cross all major media platforms and offers access to coveted demographic groups.
As I stated, our aggregate audience continues to grow. As of June 30th, our total audience was up 13% compared to Q2 the prior year. June 2023, we had 3.2 million unique listeners to live audio compared to 2.1 million in 2022.
Our LaMusica platform reaches over 3.7 million people across all devices who combine for over 25 million streaming hours per month. Usage and adaptation of LaMusica continues to accelerate as it offers a truly unique mobile and digital experience, including original daily video content, short-form programming, millions of songs, and a personalized experience.
Overall, we have placed strategic emphasis on identifying new digital revenue streams as well as increasing our CPMs on existing digital offerings. We have launched Digidea, an in-house marketing agency to allow us to sell additional digital products to our clients that need such things as SEO, SCM, OTT ads, and more.
During the second quarter, our total streaming audience surpassed 3.2 million unique listeners per month. This audience delivered 36 million listening hours and over 80 million total sessions in the quarter. Given Hispanics' overly indexed on mobile phone ownership and usage, mobile remained the primary driver of our mobile digital traffic and accounted for approximately 95% of our total digital traffic in the quarter.
A key driver of growth in streaming hours and sessions has been the expansion of La Musica user base as well as increasing consumption of our podcasts and playlists with products with an average time spent listening of over 45 minutes in the most popular categories.
In summary, today we operate the leading Spanish language audio footprint in the entire U.S. and our multi-platform engagement metrics remain significantly up compared to last year. Our content is resonating, our assets are powerful, and we've never been more committed to serving Latinos nationwide.
The power and influence of a Latino consumer continues to rapidly expand and our connection with and understanding of this important demographic group has never been stronger and more actionable. We're excited about the second half of the year and the many opportunities we see to accelerate our business and build on our established Hispanic multimedia leadership. Thanks for your time and attention.
Now, let me turn the call over to Jose Molina for the financial overview.
Jose I. Molina
Thank you, Albert. Before we turn to our results, I would like to mention that our operating results were positively impacted by the receipt of $1.3 million related to a 2020 business interruption insurance claim recognized as other revenue, partially offset by the rescheduling of certain special events to the latter half of 2023, which led to lower ticket sales and local sponsorship revenue.
In addition, our operating expenses were impacted by investments in our Orlando and Tampa start-up stations, our unique Spanish language programming talent and content for our terrestrial and digital properties, and digital infrastructure and capabilities personnel and its offerings like DigIdea, our pure-play digital marketing department.
Now, let's turn to our second quarter results. Our revenues from continuing operations totaled $35.4 million compared to $35 million for the same prior year period, resulting in an increase of 1%. This increase was primarily due to other revenue, national network and barter sales, partially offset by lower local and digital sales and special event revenue.
Our operating expenses increased 8% primarily due to increases in compensation and benefits, allowance for doubtful accounts, cost of digital sales, music license fees, sales incentives, and transmitter rent, partially offset by a decrease in advertising and promotions.
Our station operating income, a non-GAAP measure, totaled $9.9 million compared to $11.4 million for the same prior year period, representing a decrease of 13%. Corporate expenses decreased 17% due to decreases in compensation and benefits and travel and entertainment, partially offset by increases in outside services and professional fees.
Adjusted OIBDA, a non-GAAP, totaled $6.2 million compared to $6.9 million for the same prior year period, representing a decrease of 10%. Capital expenditures totaled approximately $823,000 for the second quarter. As of yesterday, we had approximately cash on hand of $7 million. Note that, we paid our semi-annual interest payment of $15.1 million on September 1st.
In addition, if needed, we have approximately $2.6 million available on our revolver, which is currently limited to $7.5 million based on our leverage ratios. For the fiscal year 2023, we now expect capital expenditures to be in the range of $3 million to $3.5 million, and cash taxes to be in the range of $2 million to $4.5 million, excluding any additional taxes paid on the pending Voz TV transaction. This will conclude our formal remarks.
And with that, I would like to turn the call over to Brad for any questions.
Question and Answer Session
Brad Edwards
Thanks, Jose and Albert. So turning to some of the questions we received from investors, one topic was looking closer at the second quarter results and maybe digging a little bit deeper into them, and -- in terms of second quarter performance from a local, national, and network and digital perspective?
Albert Rodriguez
Sure. Look, the main drivers that increased Q2 with respect to revenue was national. We're completely outperforming all of our industry peers, all of the top broadcasters. We are #1 in the driver's seat in terms of generating more national revenue compared to last year than any broadcaster. That's per Miller Kaplan network as well. Per Miller Kaplan, we're growing at a pace much greater than what the market is. The network was up at 8%, barter's up at 16%. And look, some of the decreases, local was off mid to low digits, anywhere from 4% to 5%.
Digital was down low double-digits, and that had a lot to do with events that were pushed back. There were major sponsorship packages and events that had to be pushed back into fourth quarter, so that is just a reallocation of revenue.
Our national markets were down by 18%, and we beat the markets by close to, the swing was about 31%, as I mentioned in my remarks before. And our local markets were down 8%, and as I mentioned, we're off by 4% or 5%, so we beat the local markets for about 4 percentage points.
The categories that were strong, I mentioned in some of my remarks, but I'll mention again entertainment, auto, food and beverage, and travel. And some of the challenges with respect to some of the categories, a little bit of healthcare and political was down compared to the prior year.
Brad Edwards
Thanks for that, Albert. Another area of focus of questions from investors was the Orlando and Tampa stations. And both of you, you noted that Orlando was breakeven in Q1, and Tampa had a small operating loss. I think investors want to get an update on how those stations performed in Q2, what the revenue impact was in the quarter, and how do you see profitability for those stations tracking throughout the rest of this year?
Albert Rodriguez
Jose, why don't you give a little bit of a financial, I gave color with respect to the ratings and the overall operations, and we are going to be cash positive in both of those markets for 2023, but why don't you give us some color on the financial aspect?
Jose I. Molina
Sure. For the second quarter, the Orlando and Tampa combined net revenues to $1.9 million, and the combined adjusted OIBDA totaled approximately $100,000. The LTM adjusted OIBDA totaled a loss of approximately $2.1 million for the second quarter, which was an improvement of $1.1 million compared to our first quarter LTM adjusted OIBDA loss of approximately $3.3 million.
Our LTM results included significant promotional expenditures, mostly one-time in nature, which occurred in the latter half of 2022. So given that the significant promotional expenditures occurred in 2022, and that the combined stations were cash flow positive for the second quarter, we continue to expect Orlando and Tampa to operate and have a positive adjusted OIBDA for 2023.
Brad Edwards
Great. Thanks, Jose and Albert. Another part of the business that we received some questions on was the live events business. And investors are trying to get a sense of what the current cadence of events looks like for the rest of the year, and what are your expectations for SBS Entertainment in 2023 compared to last year?
Albert Rodriguez
Look, our second quarter of 2023 had no major events compared to 4 in the prior year period. Some of these events were scheduled in the second quarter, and then were postponed and then rescheduled. This contributed to decreases in event revenue and locals and national sponsorship revenue. Although, we'll have less scheduled events in 2023 versus 2022, we have a very active Q4 event calendar plan with 5 events scheduled and hope to make up any revenues and cash flow compared to the prior year.
Brad Edwards
Great. Thanks, Albert. And then, also, a forward-looking question we got was casings. Obviously, looking at Q3, how July and August performed in terms of casings and, any color that we can maybe give in terms of local, national, network, digital, that one's for you, Albert? And then maybe for Jose, you could provide a little bit more detail on how people should be thinking about operating expenses for full year 2023?
Albert Rodriguez
Sure. So for July and national, we're plus 40%-something. And local, we're off about double-digits, low double-digits in local and network about -- network, we're down a little bit more, but we expect to make that up. And August was down low single-digit, and September, right now, is currently pacing low single-digit plus so.
Jose I. Molina
As for our full-year operating expenses, we believe that our full-year operating expenses will increase in the low to mid single-digit range, excluding any Houston startup investment costs. And then from a corporate expense standpoint, we believe that's going to be decreasing mid single-digit range for the full year.
Brad Edwards
Great. Thanks. And then we did get a couple questions on the digital business. Can you provide some more detail in what exactly the investments in the digital business entails? And when can investors expect to see returns on those investments?
Albert Rodriguez
We expect investors to see returns on those investments, if not in the latter part of 2023, in 2024. We're developing a lot of short-form content, we're investing in podcasts, we're increasing content distribution by partnerships that we just announced, like Odyssey, that is going to give us incredible reach. We're investing a lot in the personnel and the digital training, and the digital systems and platforms that we really needed to invest post our successful refinance. But all of those investments are going to pay off.
And I just want to remind everyone, we got very similar questions 10 or 12 years ago with our network business and our network business is really going through the roof. So sometimes with these investments, it takes a little time.
Brad Edwards
Thanks, Albert. And the last major area of questions was on the Mega TV sale. When is the transaction expected to close? And also if -- the team give any further thoughts on how the proceeds will be allocated or used?
Albert Rodriguez
Thanks, Brad. That's a great question. Look, the Mega TV transaction received final regulatory approval by the FCC at the end of June. And with all other conditions to closing haven't been satisfied, closing was to occur by July 5th. Voz Media did not close by July 5th, but requested additional time. Following further discussions between Spanish Broadcasting and Voz Media on August 18th, we received a formal notice to Voz regarding the closing date that gave Voz 10 days to cure. Voz Media did not cure within the specified time period, but also continued to request additional time to close.
Operationally, we've been working with the principal, who is new to the business and trying to get them ready for the transition into television and its programming. Although, there have been some delays on part of the buyer, we continue to work diligently to close the sale as soon as possible. We are currently in discussions with Voz regarding a date certain for the closing. We have not yet come to any agreement on an alternative closing date. And we did receive an automatic 90-day extension through mid-November from the FCC to close. Jose, did you want to add anything else?
Jose I. Molina
Sure. As to the use of proceeds, we continue to analyze and consider the best use of the net asset proceeds, after we close this transaction and remain committed to reducing our leverage and growing our business.
Brad Edwards
All right, thanks Albert and Jose. That was the last question that we have received. So I'll turn it back to you for any closing remarks.
Albert Rodriguez
Look, I wanted to thank everyone who participated in today's call and who listened in for our second quarter conference call. And I look forward to getting together again on third quarter and announcing the results and what our plans are for the rest of the year. Thank you and have a great day.
Operator
This concludes our conference today. Thank you for attending today's presentation. You may all now disconnect.
