GTN Limited (GTN) Earnings Call Transcript & Summary

Good day, and welcome to the GTN Limited Fiscal Year 2022 Half Year Earnings Conference Call. Today's conference is being recorded. Representing the company today are Mr. Bill Yde, Managing Director and Chief Executive Officer; and Scott Cody, Chief Financial Officer and Chief Operating Officer. Before I turn over the call to Bill, I would like to remind the listeners that this call is subject to the disclaimer and important information included in the company's half year earnings presentation. With that, I'll turn the call over to Mr. Bill Yde, Managing Director and Chief Executive Officer. Thank you. Please go ahead.

Thank you. While revenue continues to be impacted by the COVID-19 pandemic, operating performance has improved significantly in the first half of fiscal year '22 as group revenue increased 14.5% over the period -- prior comparable period. This revenue increase led to an increase in adjusted EBITDA of 43% with all 4 of our operating segments being EBITDA positive for the half year period. Australia, our largest and most profitable market, posted a 24% increase in revenue, far outperforming the broader Australian radio market. We are hopeful that recently lifted in restrictions will lead to continued momentum and increased revenue from certain categories, but especially from tourism and travel. The return of a more normal business environment in Australia should bode well for our prospects in this market. Our Canadian business performance was softer than other markets as revenue decreased 4% in local currency, less than 1% in AUD. While this country was hit very hard with long-lasting restrictions and limitations, we believe that Canada will soon start to come back towards normality as most of these restrictions have now been lifted. We continue to have a strong network of radio stations and expect that market conditions continue to improve, there will be increased opportunities to grow revenue here. Our United Kingdom segment posted a solid revenue performance with revenue increasing 4% in local currency, 7% in AUD. Given the mature nature of our U.K. business, we are very pleased with these results. Our Brazil business was our fastest-growing business with revenue increasing 39% and in local currency, 7% in AUD. Prior to the COVID-19 pandemic, Brazil was our fastest-growing market and appears to be poised to resume that position again. Our strategy to deal with the current difficult environment, and put the company in a position to take advantage of stronger markets in the future, is to protect and maintain our 2 most valuable assets, our unparalleled affiliate networks and talented sales and management teams. This strategy has allowed us to be prepared to take advantage of the improving business conditions, which led to the 14.5% increase in revenue for the period. In order to protect these valuable assets and allow us to weather the pandemic-related downturn, we have focused on conserving cash and reducing debt. At December 31, 2021, our cash balance was $32.5 million, and our net debt was only $7.3 million. We have repaid $23 million of bank debt since January 1, 2021, reducing the group's outstanding bank debt from $60 million to $37 million. I'll now turn the call over to Scott for a complete review of the financials.

Thanks, Bill, and good morning, everyone. Revenue for the half year ended December 31, 2021, increased 14.5% to $81 million, an increase of $10.2 million. Revenue in all of our operating regions except Canada increased when compared to the previous fiscal year. When compared to fiscal 2021, Australia revenue increased 24%, Brazil revenue increased 37%, U.K. revenue increased 7%, while Canada revenue decreased less than 1%. Revenue from Canada and United Kingdom was positively impacted by foreign currency movements, while Brazil was negatively impacted. When measured in local currencies, Brazil revenue increased 39%, United Kingdom revenue increased 4% and Canada revenue decreased 4% compared to the previous fiscal half year. Adjusted EBITDA, which we define as earnings before interest, taxes, depreciation and amortization, adjusted to include the noncash interest income generated by the financing component of our long-term station affiliation agreement with Southern Cross Austereo and excluding transaction costs, foreign exchange gains and losses, refinancing losses and gains on lease forgiveness was $10.2 million, an increase of 43% compared to fiscal 2021. We consider it appropriate to add the financing component of our long-term station affiliation agreement with Southern Cross Austereo to EBITDA because EBITDA includes a large portion of noncash station compensation expense related to the agreement. And by including both amounts in adjusted EBITDA, we believe it provides a clearer view of the financial impact of the agreement. The increase in adjusted EBITDA was due to the increase in revenue during the period, and operating expenses increased $7.1 million or 11% compared to the half year period ended December 31, 2020. Some of the main components of the increase was a $2.3 million increase in station compensation, $2.1 million increase in sales expenses and a $1.2 million decrease in JobKeeper Canada Emergency Wage Subsidy, which is treated as a decrease in general and administrative expenses. Adjusted NPAT, which is defined as net profit after tax, adjusted to add back the tax-effected noncash amortization expense related to acquired intangible assets, increased 89% to $5 million. The primary driver of the increase was the revenue-related increase in EBITDA that was previously discussed. Lower financing costs, primarily related to the lower outstanding debt during the period and lower depreciation expense also contributed to the increase in adjusted NPAT. Upon delivery of the December 31, 2021, compliance certificate in February 2022, the additional restrictions to the group's bank debt facility expired. Prior to the expiration, the company was prohibited from making distributions to shareholders, including dividends and share buybacks. Our ability to make distributions has now reverted to the previous limitation of 100% of adjusted NPAT. However, consistent with our desire to conserve cash and reduce debt due to the uncertainty of the pandemic, the board has not declared a final dividend for FY 2021 nor interim dividend for FY 2022. I will now turn the call back to Bill for an update on the second half fiscal 2022.

This is the operator. It seems we've lost Mr. Yde's line. I'll just see if we can reconnect, one moment, thanks. [Technical difficulty]

Sorry about that. We have technical difficulties, but I'll take it over for what Bill is going to say. Hopefully, he'll able to get back in for the Q&A. Third fiscal quarter FY 2022 revenue to date has been higher than the results of 3Q FY '21, has not grown as much as first half fiscal '22. Revenue for January 2022 increased 5%, and we expect February 2022 revenue to exceed that of February 2021. Due to the short-term nature of the majority of our ad sales and that a large portion of our revenue is booked either just prior to or during the month the advertisements are aired, we're unable to provide guidance as to future performance beyond February 2022. Future results are likely to remain highly dependent on COVID-19 impact on the markets in which we operate. All 4 of our markets continue to be positioned to perform well with solid affiliate lineups, strong sales staffs and virtually no direct competitors. While the COVID-19 pandemic has had a material negative impact on our operations and results, we have rebounded well from the low point of pandemic as revenue has increased $27.8 million, 30%, for the 9-month period from April 1, 2021 to December 31, 2021. Over 60% of the incremental revenue increase has been converted to adjusted EBITDA, which has increased $17.1 million over the 9-month period. We have a strong balance sheet with ample liquidity and believe that we will perform well as the markets improve. This ends our prepared remarks. We will now open the lines to questions.

I'm back now, Scott. Sorry, the phone cut out, I mean, for a while, so I appreciate you finishing my prepared remarks for me.

Well, hopefully, I did justice.

Yes. It was a stellar job. We're open for questions.

[Operator Instructions] Your first question is from Daniel Ireland from Petra Capital.

Congratulations on the result, looks like really strong performance. I just had a question on the outlook statement. Can you just provide a little more color as to where that revenue is coming from? Is that the Australian business? Are you seeing continued momentum from Brazil? How is Canada tracking? Just a little more color around that.

Yes. Look, I would say it's -- we're just barely into the first part of the year. January is always a weak month, so difficult to make anything to read about if you look at where we're tracking through though. For the whole 6-month period going forward, we believe the trends are positive. January and February are slightly up, but that's virtually all we can tell you right now. And it's pretty much in pretty much in all markets.

We think Canada had a very extraordinarily strong January, which was nice given they were laggard in the first 6 months, although their comp was so low that I had to double check that the number was right?

Okay. And just with the Brazil business, it looks to be rebounding quite strongly. Were there any particular reasons that you're seeing why that's occurring? Or is that just the general market coming back?

It's primarily the general market coming back. If you go back to pre-pandemic, they had set record revenue levels 9 consecutive months in a row, and we're really doing quite well. We were able to maintain most of the sale staff through the pandemic. We didn't cut anybody, or we didn't cut commissions or anything like that. We felt like they -- we could maintain the sale staff, they'd bounce back quickly when the revenue came back, and it's proven to be true.

Your next question is from Mike Younger from Prime Value.

First question just around, I guess, the performance of the company versus the broader radio market in Australia. Your guidance would seem to be sort of broadly in line, maybe slightly stronger than what industry is showing. Is there any particular reason to expect why revenue should perform much differently to the broader radio market in the year ahead?

Well, I would say that's largely based on -- right now, it looks like we're easing restrictions, and we're not restricting things. And we would expect to be at or above the broader radio market correction in the environment and that given the types of accounts, the auto, the travel and tourism and all that kind of stuff that they've completely gone away. Those are very, very strong categories for us. So we would expect to have a pretty strong rebound as they rebound. And the recent lifting of restrictions will be certainly helpful.

Okay. And then just on the operating leverage, how should we expect incremental revenue to flow through to EBITDA on the improvement, just noting that your Australian EBITDA margins in the past have been as high as in the sort of 40% range. What does the new normal look like based upon a more normal operating environment?

I think it probably reverts more to what it was. I mean, obviously, we had some extraordinarily good contributions during the pandemic because of the fact that we were able to cut some expenses out like Nine Radio and things like that. But I think the overall contribution margin should probably somewhat mirror a more normalized environment. I don't think they'll be significantly different than what they were prior to the pandemic as you pull out of the pandemic. It really depends on the revenue growth on the higher level of revenue growth. We'll get a lot higher contribution because obviously, we do have some increase in the the fixed base, so on lower levels that really eats into the contribution.

Right, okay. And are there any particular radio station renewals of note that we should be aware of coming up in the next couple of years?

We have renewed everything that's up and the ones that are coming up. We've had positive conversations also. As we've always been throughout our history, we rarely lose an affiliate. Every once in while we may choose to drop one, based on ratings and things like that, but we're very comfortable that we'll maintain our entire lineup.

Yes. I mean, I think, over that time period, the answer is obviously yes. There's always stuff coming up, but there's nothing coming up that we're identifying as a risk at this point. But there's always -- over the poor markets, there's always something coming up.

[Operator Instructions] Our next question is from Conor O'Prey from Canaccord Genuity.

Just following on sort of my question for Mike. On the question of renewals, is there any sense that because video revenues are suppressed, I think there's some time to recover that renewals may be at lower valuations than you've done in the past. Is that a possibility for you?

Look that's a -- there are certain contracts that have come up that we will be negotiating downward. If you look at our total compensation level over the past, say, 6 years, it's virtually the same. You go up and down when you renegotiate one that may be down, it may come down, but that means somebody else went up, and you may renegotiate that up. So you shouldn't expect to see our compensation levels as a whole go down. I think we made the compensation go down by eliminating the 9 stations from our network, and that was a good -- obviously, a good move during COVID, but most of what you'll always kind of see stays very similar with a small increase in growth and small increase in spots. You shouldn't expect to see a decrease, I guess.

[Operator Instructions] There are no further questions at this time. So I will now hand back to Mr. Yde for any closing remarks.

So again, despite the impact of COVID-19, we are seeing improved performance and confident that this momentum will continue, and we'll perform well in the future. We've got a great management team. We've got a strong balance sheet, significant liquidity. Our revenues have grown well over the past 9 months, and these factors position us to favorably capitalize on the expected advertising recovery. We are very confident that even if the recovery is slower to arrive, we are well prepared to see our results through it. We look forward to speaking to you again after the fiscal '22 results. And thank you all for attending today. Goodbye now.

Thank you. That does conclude our conference for today. Thank you all for participating. You may now disconnect your lines.