Q3 2023 Spanish Broadcasting System Inc Earnings Call
Participants
Brad Edwards; IR; Brainerd Communicators, Inc.
Albert Rodriguez; President, COO; Spanish Broadcasting System, Inc.
Jose Molina; CFO; Spanish Broadcasting System, Inc.
Presentation
Operator
Good day and welcome to the Spanish Broadcasting System Third Quarter 2023 conference call. All participants will be in a listen-only mode. Should you need assistance during today's conference, please press the star key followed by zero. Please also note this event is being recorded.
I'll now turn the conference over to Brad Edwards, Investor Relations. Please go ahead.
Brad Edwards
Thanks, Tom, 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. 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 that station operating income, SOI and adjusted operating income before depreciation and amortization, gain or loss on disposal of assets, impairment charges, and other operating expenses, excluding noncash stock-based compensation or adjusted OIBDA, it's 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. A reconciliation of the Company's US GAAP information to Esterline and adjusted OIBDA is provided in the tables attached to the company's third quarter 2023 earnings release, which is available on the Investor Relations section of the Company's website at w. w. w. dot Spanish Broadcasting.com. I will now turn the conference over to Mr. Albert.
Probably.
Albert Rodriguez
Yes, good morning, ladies and gentlemen, and welcome to the SBS 2023 third quarter earnings conference call on today's call 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. During the third quarter, we continued to expand our multi-platform reach, invested in strategic areas of our business and drove further aggregate audience growth. The underlying strength of our audio network and digital assets remains unmatched in Spanish-language audio, and we are focused on driving improved performance and finishing 2023. On a very high note, our Orlando and Tampa audio stations continued to perform ahead of our expectations and combined will be profitable for 2023. In addition, our IT remains the largest minority-owned Hispanic audio network and our digital presence has never been stronger.
Now let's review our operations and let's start with either radio networks. For the third quarter of 2023, other radio networks was down 23% per Miller Kaplan and the network revenue was down 12. Network category was significantly impacted by insurance categories by the radio network, the largest minority-owned Hispanic audio network, delivering 95% of all Spanish-language listeners across the country, adults 18 to 49 and its commitment to super serving his parents. Other radio networks reaching 15 million weekly Hispanic listeners across more than 300 affiliates and MSDC. certified with presence in the top 50 U.S. Hispanic markets.
Some of the key highlights for ideas. New initiatives include the three wheeler morning show plum A. plus with Alex sensation, the influencer network delivering campaign messaging through a national platform while penetrating local markets. And I discussed three 60 were brands that are aligned with Latinos on the division at SPS stands as a shining Beacon, of example, of dedication to serving the Hispanic community. We have not only achieved our goals, but have exceeded them significantly. Our impressive ratings are a clear indicator of our success. Yet the increasing loyalty and engagement from our audience is even more rewarding. Our strategy has been straightforward, but impactful. We focus on crafting distinct and distinctive captivating content that truly connects with the diverse Hispanic audience. This achievement is the result of our imaginative efforts and the synergistic work of our team SBS probably host three of the top 10 most streamed stations in America, WSKQ Mega New York, the mainstream station in America, KXOL Mega Los Angeles, KLAX, La Raza, Los Angeles. Additionally, SBS. has WPAT more New York among the top 20 most streamed stations in America, key milestones, New York, WSKQ FM Mega 97.9 leads to pack reigning as both top station in New York and the leading online streaming station in the country. Miami WXDJ FM El Paso, 1 of 6.7 times sales ranked number one in crucial demographic groups. Orlando, WPYOSML. level zone 95.3 maintains its lead with the best payroll day with Rocky. The kid dominating key demographics and number one in the market among all stations in adults 18 to 34 demo, Puerto Rico dominating the airwaves with WMEG. FM mega 1 of 6.9 and WODA. FM last month, the Quattro and the successful rebrand of WRXT. FM stereo 96.5 San Francisco KRZZ. around TOP 93.3 all Hispanic demographic groups. And when you look at all of our stations in our lineup, when you looked at the performance of Miller Caplin. All of these big markets, SPS typically ranks in the top tier with respect to billing across the board, in particular, New York in every month. It's either number one or the number two builder in the entire New York market.
Now in New York's competitive market, our content and teams have captivating the discerning Hispanic audience. Our forward-looking approach has made us a vital part of their lives. Cadillac's FM morning show either way Terry is reaching number one. As we celebrate these accomplishments, we remain committed to the our ethos of creativity and innovation. Looking ahead, our goal is unwavering to continue being the performer, preferred source of entertainment and information for the entire Hispanic community. In addition, our existing achievements, we've reached a remarkable milestone in Tampa with our station WSUNFML. zone 97.1. The station has now become the number one Spanish-language station among all adults 18 to 34 demographics. This accomplishment is a testament to our deep understanding of the diverse preferences and interest in younger Hispanic listeners. Our ability to connect and engage with this demographic group in Tampa underscores our deep commitments to delivering content that resonates across all age groups within the Hispanic. Nearly this success in Tampa further solidifies our position as a leader in the Spanish language broadcast.
And 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 multi media spend at media companies. Today, we connect with brands with more Hispanics than ever before. An aggregate audience continues to expand for our brand partners. There has never been more of an important time to have a team of focused marketing strategy and outreach program. The Latino population is growing rapidly in size, cultural influence and purchasing power. Sps has the multimedia assets reach and over four decades of experience and commitment through the Latino community across the US. As such, we can deliver compelling integrated advertising opportunities across our major media platforms and offers access to coveted demographic groups. As I stated earlier, our aggregate audience continues to grow. As of September 30, our total audience was up 10% compared to Q3 in the prior year September 2023, we had 3.3 million unique listeners to live audio compared to 3 million in 2022. Our LaMusica platform reaches over 3.7 million people across all devices combine for over 26 million streaming hours per month. Usage in our station 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 we have placed strategic emphasis on identifying digital revenue streams as well as increasing our CPMs on existing digital office offerings. We have launched the idea in the IT house marketing agency to allow us to sell additional products. Our clients need as SEO SEM OTTS. and more during the second quarter, our total streaming audience surpassed 3.3 million unique listeners per month. This audience has delivered 37 million listening hours and over 18 million total sessions in the quarter, given Hispanics heavily over-index on mobile phone ownership and usage. Mobile remains 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 our growth in streaming hours and sessions has been the expansion of our LaMusica user base as well as increasing consumption of our podcast and playlist products with an average time spent listening of over 45 minutes in the most popular category.
In summary, our audio network and digital assets remain at the forefront of the Spanish-language media and our aggregate audience. It remains up significantly compared to last year. We're excited about the future for SPS and our audience is I want to thank you for your time and attention. Now let's turn the call over to Jose Molina for the financial overview. Jose?
Jose Molina
Thank you, Albert. Before turning to our results, I would like to mention that during the comparative prior year period ending September 30, 2022, our operating results were impacted by the receipt of $2.3 million related to the 2020 business interruption insurance claim recognized as other revenue and political sales of approximately $700,000. In addition, our operating expenses in the third quarter of this year were impacted by investments in our unique Spanish-language talent and content for our terrestrial and digital properties and our digital infrastructure and capabilities, personnel offerings such as DGI. They're our pure play digital marketing department.
Now let's turn to our third quarter results. Our revenues from continuing operations totaled $35 million compared to $38 million for the same prior year period, resulting in a decrease of 8%. The decrease was primarily due to other revenues, network, local and digital sales, partially offset by increases in barter and national sales. Excluding the prior year insurance proceeds and political sales, our net revenues from continuing operations were flat totaling $35 million for both the current and prior year periods.
Our operating expenses increased 4%, primarily due to increases in barter expense, compensation and benefits costs of digital sales and music licensees, partially offset by a decrease in advertising and promotions and the allowance for doubtful account. Excluding barter expenses, our operating expenses were flat totaling approximately $23.1 million for both the current and prior year periods.
Our station operating income, a non-GAAP measure totaled $10 million compared to $14 million for the same prior year period, representing a decrease of 28%. Excluding the prior year insurance proceeds and the effects of political sales. Our station operating income was down $1 million or 9% totaling $10 million compared to $11 million for the prior year period. Corporate expenses decreased 5% due to decreases in compensation and benefits and travel and entertainment, partially offset by increases in professional fees and outside services. Adjusted OIBDA a non-GAAP measure totaled $6.7 million compared to $10.4 million for the same prior year period, representing a decrease of $3.7 million or 36%. Excluding the prior year insurance proceeds and the effects of political sales, our adjusted OIBDA was down 9%, totaling $6.7 million compared to $7.4 million for the same prior year period. Capital expenditures totaled approximately $500,000 for the third quarter. As of yesterday, we had cash on hand of approximately $7 million in addition, if needed, we have approximately $6 million available of our revolver, which is currently limited to $7.5 million based on our leverage and fixed charge ratios for the full fiscal year of 2023, we now expect capital expenditures to be in the range of $2.4 million to $2.7 million and cash taxes to be between $1.8 million, to $2.2 million. As previously reported, we terminated our agreement with Bose after they failed to cure their breach by, among other things failing to timely close on the sale of Mega TV operations and our related assets. We then filed a lawsuit related to the termination of these agreements where we are seeking to recover monetary damages in general, we do not comment on the detail of current litigation or their potential outcomes as to the status of the case. Currently, the lawsuit is in its initial stage all of the defendants have been serve with the legal complaint and some with initial discovery request, we are awaiting their responses also reported on November 15, we entered into an amendment to the $7.5 million KROI. radio station purchase agreement, which provided us the right to delay the closing until mid 2024. As of today, we've made approximately $1.9 million in payment towards the purchase price. Under this amendment, we are scheduled to make additional $1 million payments in January, March, April and May and the remaining balance of $1.6 million on the closing date. We intend to use cash on hand and asset proceeds to close on this transaction.
Lastly, I'm pleased to provide you with an update on our strategic initiatives aimed to enhance the Company's financial health and liquidity in response to current market dynamics and a commitment to optimize our resources. We have and will continue to implement cost-cutting measures that are already yielding positive results. These series of cost-cutting measures will result in significant cost savings. In addition, we continued to pursue the sale of our television operations and real estate assets, which are listed as discontinued operations. We have engaged with reputable brokers to facilitate the strategic sale of these assets and to ensure a seamless and efficient process. Their network and markets knowledge have generated considerable interest from potential buyers, which should maximize the value that we can extract from these assets. Together. These strategic initiatives will allow us to unlock value and redirect resources, which should position us for growth in the face of economic uncertainty.
And 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
Thank you, Jose and Kurt.
So we did get some questions.
First one being digging a little bit deeper into the third quarter results, particularly on the revenue side. Could you give a little bit more color on the Q3 performance in terms of local versus national network and digital?
Albert Rodriguez
So the main sales drivers that decrease the third quarter were network was down 18%, digital was down 14 and local was down four. And some of these things that offset the performance. These were some of the increases National was in was up about double digits, 10% and barter was up 57%. And I want to give a little color to that, we were doing everything possible to reduce the cash expenditures. So that's why barter was we've been strategically use in order to get maybe marketing services that we will know that we typically need and not some other highlights per Miller Kaplan, which excludes our Puerto Rico market. Our national markets were down 8% and or by Miller capital move happened stated that National has an industry where the markets that we serve were down 8% and SPS was up 50 excuse me, 7%, so down eight. And we were plus seven in national, we'll beat the market basically by 15 points when the national markets overall are significantly down. So it shows a very positive story with Spanish Broadcasting still continues to grow national metrics. Our local markets were down 7% and we were down less than that. So we beat the local markets as well. Some of the categories that were strong were entertainment, automotive, food and beverage and general services. Some of the challenges that we had, the categories that were weak, obviously, in 2022, we had political. So the entire industry. The broadcast industry is going up against the political comps from the prior period. So political was down. The health care division was down. Professional Services and Retail was down a lot of it has to do with a lot of retailers that are leaving both the state of California, and they're consolidated in other states. So some of that has impacted the performance.
Brad Edwards
Great.
Thank you, Albert. Now turning to the next area of the Orlando and Tampa stations, how did they do in Q three and what was the stations?
The stations what was the revenue impact in the quarter? And how do you see profitability tracking profitability tracking for the rest of this year?
Albert Rodriguez
So I want to go over the stations called although in both markets.
So Orlando, it started off immediately with a very, very strong ratings performance. And right now that we basically lead the Orlando market in ratings and in financial performance when we took over the station, the station was ranked about 22 or 23 and the station. And with respect to revenue rank right now is in I believe in October, it was the third ranked station in the market with respect to billing. So we are very pleased about that. I often say I'm really pleased about Tampa and I'm going to give you some color on Tampa, Tampa, although the ratings didn't grow as fast as Orlando did the performance of Tampa compared to where it was before has significantly increased when even when you look at Miller Caplan, our station when we took it over, it was ranked 23. And I think year to date, Tampa will be maybe 17 or 18. And I think every single month it's getting the shares are growing. The revenue shares are growing, audience shares growing and the rent is growing. So I feel very comfortable that the station is going to do really well. And in particular, what I said in my comments before that for the last two months, adults 18 to 34 hours, all in Tampa is the number one station. So when you start delivering strong numbers, 18 to 34, the 18 to 49 and 25 to 54 key demographic groups as you know, continue to grow. So we're really pleased with that.
Jose, did you want to give some other color.
Jose Molina
After I ask to the financials for the third QUARTER, Orlando and Tampa had combined net revenues of about $1.9 million and combined adjusted OIBDA totaled a loss of about $100,000 for the third quarter. Our LTM adjusted OIBDA was a loss of $1.7 million, which is an improvement of about $400,000 compared to the second quarter, LTM loss of approximately $2.1 million. So we're slowly but surely reducing that loss on our LTM results includes significant promotional expenditures, which occurred at the latter half of 2022, given the significant promotional expenditures during 2022. We continue to expect our Orlando and Tampa operations combined to have positive adjusted OIBDA for 2023.
Brad Edwards
Great.
Thanks, Jose And Albert, not surprising, but another area of questions was Q4 pacings. So how did October November do in terms of pacings? And to the degree that you can, can you break that down in terms of local national network digital? And then maybe Jose, could you provide a little bit more detail on how we should think about operating expenses for the full year?
Albert Rodriguez
Sure.
Let me give you a little color on Q4. Let's look at October, October overall was down low single digit for obvious reasons. We're Excluding political sales. But if you exclude political, October was up mid-single digits. And I'm going to say that we did perform really well compared to where the market is at. And but it's important to note that our core business is still solid. November was down low double digits, excluding political. And it was still up when you even when you excluded the we were down like high single digits. So and on. But we're doing everything possible now with as it relates to operating expenses, and I believe, Jose, you wanted to give a little color on that.
Jose Molina
Sure. Sure.
For the full year of 2023, we believe that our operating expenses will increase in the low single digit range and corporate expenses will decrease in the low double digit range for the full year.
Brad Edwards
Yes, great.
Thank you. And then last question we have here regarding the additional business. Can you provide some detail and what exactly the investments in digital entail? And when do you expect to see returns on those investments.
Albert Rodriguez
Look, we've increased the traffic and engagement on our websites on our stream shows on social media on a music app and look after a very successful refinance about two years ago. We wanted to make sure that we were investing in developing short-form content, podcasts, content, distribution, partnerships, like the Odyssey in my heart that we're putting our premier content on them on their platforms. We've invested in training and personnel and different system platforms that we believe that the marketplace was asking for and we wanted to make sure we are super serving our clients. In addition for our clients, we started a marketing solutions company called digital sales, Idea marketing solutions for full-service digital marketing agency, allowing SPS to expand beyond our current owned and operating digital platforms and extend our reach and 250 million verified users.
As I said, I do want to give some financial color on your?
Jose Molina
Yes, some digital currently right now is approximately 7% of our gross revenues.
As of September, our gross digital sales totaled $8.4 million versus $9 million in the prior year, and that's year to date as of September.
And then currently in our digital business is a low margin business. But as we build and scale, our digital those margins will significantly improve.
Brad Edwards
So Albert and Jose, that's all the questions that we have. So now I'll turn it back to back to Albert for closing remarks.
Albert Rodriguez
I wanted to take a moment to all of our investors and our clients in all of our fellow colleagues in the industry and the SPX family. After much reflection in consideration, I've decided to resign from my position as President and CFO, Finnish broadcasting system and planning in Germany. And I'm immensely proud of what we've achieved together in particular to the beacon of the Spanish voice in America, which is my fear, brother Rolla on junior that it's like the brother to me. While stepping down from the role of President and CEO, I am pleased to announce that I'll be staying on as a senior adviser in this capacity, I will continue to support 1 million percent, the company's vision, providing guidance and strategic insights to ensure a seamless transition focus and a nominal continue to look forward to continuing to collaborate with all of you and with SBS team in my new role.
So hospitals.
And is there anything else that you want to add to what you I mean, I've worked next to each other for 25 years.
Jose Molina
We're done and we wish you the best in your new role and we'll be working together still on. So you did an amazing job and we'll continue to do amazing things as to the investors and employees. We look forward to the next call fourth quarter call. Thank you so much for your time.
Albert Rodriguez
Thank you, guys.
We appreciate it.
Operator
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
