Spanish Broadcasting System, Inc. (SBSAA) Earnings Call Transcript & Summary

Good morning, and welcome to the Spanish Broadcasting 2019 Fourth Quarter and Year-end Conference Call and Webcast. [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.

Thank you, Gary, 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 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 tables attached to the company's 2019 fourth 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.

Good morning, ladies and gentlemen. Welcome to the SBS 2019 Fourth Quarter and Full Year Conference Call. On today's call, we will provide an overview of recent operating development and review our financial results. Joining me today are Jose Molina, our Chief Financial Officer; and Richard Lara, our General Counsel. Our fourth quarter results were a strong finish to another highly successful year for SBS. We delivered strong revenue and adjusted OIBDA growth compared to the fourth quarter and last year, and our audio operating margins once again led the industry. Our consolidated net revenue grew 24% for the fourth quarter, excluding political, beating every competitor in the industry. Our audio adjusted OIBDA margins were over 51% in the fourth quarter, which significantly outpaced both our Spanish and English language peers. In addition to strong financial performance, the fourth quarter saw the continuation of several key operating trends. First, our audio stations remain the highest ranked across the nation's largest Hispanic DMAs. Second, our total aggregate multi-platform audience continues to grow and finished 2019 up double digits compared to last year. Third, every one of our important digital mobile and social media engagement metrics increased in the fourth quarter and were up significantly compared on a full year basis. Taken together, this demonstrates the continued success in having transformed SBS into the leading Spanish language multimedia company and certified Minority Business Enterprise. The progress we made in 2019 can be attributed to the hard work and talent of our entire SBS team, our commitment to compelling content and our dedication to innovative station formats. We had a strong 2019 and entered 2020 with a significant momentum in our business and a clear commitment to the further execution of our multimedia strategy. Turning now to an update on our operations, and we'll begin with AIRE Radio Network, the nation's largest minority certified, Spanish language audio network. AIRE delivered continued strong performance during the fourth quarter as network revenues increased 30%. This closed out a highly successful year for AIRE as full year revenues finished up 21%. This past year, AIRE generated consistent revenue growth through strong sales execution, a strengthened team, share gains and the benefit of leading national reach. Among AIRE's competitive market offerings, AIRE expanded innovative content opportunities and increased affiliate growth across our syndicated programs. Today, AIRE reaches over 15 million weekly listeners, of which 73% are unique in nearly 100 markets nationwide, including 47 of the top 50 U.S. Hispanic markets. Throughout 2019, AIRE maintained consistent audience share in ratings across key attractive demos. This strong performance, along with our unmatched reach and commitment to innovative content, in delivering increasing brand advertising and sponsorship opportunities, we believe AIRE can continue to deliver solid growth given brands desire to increasingly connect with the U.S. Hispanic population, which is rapidly expanding in size, purchasing power and influence. AIRE provides these brands with a growing national audience and highly engaged consumers across Hispanic demo groups. Clients benefit greatly from our scale and affiliate network of over 300 stations nationwide and reaches over 95% of the U.S. Hispanic DMAs. Looking ahead, we believe that there are further opportunities for solid growth at AIRE. We have a number of competitive advantages, including solid national DMA coverage and reach, best-in-class content and talent, steady audience and market expansion and a track record of consistent industry outperformance. The team at AIRE finished 2019 strong and entered 2020 with momentum in their business and a clear commitment to building on our successes to date and driving another year of strong performance. Gross core audio revenue, local, national, digital and network less political, increased by 15%. Gross core video revenue, local, national, digital, less political, increased by 87%. Gross consolidated core revenue, less political, increased by 19%. This marked our eighth consecutive quarter of industry outperformance. In our audio business, our operating margins once again ranked at the top of the industry, which speaks to the power of our assets as well as our continued commitment to cost management. In New York, we kicked off the new decade with WSKQ Mega 97.9 FM, achieving the #1 ranking, beating every other station regardless of language or format. January and February Nielsen Audio books average quarter hour estimates, Monday through Sunday persons 18 to 34, 18 to 39, followed by PAT Amor 93.1 as the #2 ranked most listened to Spanish format station in New York. Mega 97.9 consistently is the most listened to Spanish language station in the country regardless of language or format in the New York market for close to a decade. This leadership is global with our digital audio streams via LaMusica app. Mega 97.9 has a growing online listener base of over 2 million average weekly listeners, and we are working hard to leverage that audience and increase our online digital mobile and social media engagement metrics. In Los Angeles, the second largest Hispanic DMA in the country, we drove notable audience growth in 2019 and finished the year with a combined 2.8 million weekly listeners. KLAX La Raza is the #1 Hispanic station in the market among Hispanic adults 18 to 49 in the most recent February Nielsen Audio ratings book and KXOL Mega 96.3 is #1 rated Hispanic station, Hispanic adults 18 to 34. Miami remains in the central market for SBS, given its #3 Hispanic DMA ranking and the steady process we have made capturing audience growth. We finished 2019 with over 1.4 million weekly listeners compared to 1.2 million at the start of the year. Our 3 stations in Miami consistently deliver a combined 14 share of the market. We recently increased and improved our signals for 2 of the 3 stations. WXDJ El Zol 106.7 FM is the #1 rated Hispanic station in Miami with the sixth average quarter hour share among adults 18 to 49, February Nielsen Audio estimates. WCMQ Z92.3 FM is the #1 ranked morning show in the entire market, adults 18 to 34, 18 to 49, 25 to 54 and 35 to 64 demos with award-winning journalist Oscar Haza. In Puerto Rico, we have the top 3 most listened to stations in the market. We have adjusted our program to reflect needs of the market to stay informed in these critical unprecedented times. Advertising categories that were strong during the fourth quarter included automotive, retail and entertainment. Categories that we experienced some softness included political and pharmaceutical. Finally, this quarter marked the 12th consecutive quarter we outperformed the market we serve according to Miller Kaplan. In fact, we outperformed our markets by 1,800 basis points during the fourth quarter. Turning now to our video group. MegaTV was just placed on DIRECTV's and at AT&T U-verse's basic nationwide package, which reaches over 20 million homes across the country. Core video revenues that increased were in retail and automotive category, while political decreased. In January, SBS Entertainment, our events platform, in partnership with Mega 96.3 FM and our LaMusica app held its annual Calibash event. This year's Calibash included 2 events at the STAPLES Center in Los Angeles as well as one night in Las Vegas at the T-Mobile Arena. All 3 events were sell out and delivered record revenues for SBS. Following the Calibash event, SBS Entertainment was ranked #3 counter promoter based on revenue and ticket sales in the February issue of Billboard. This recognition from Billboard speaks to the strategic value of our experiential platform, the breadth of our industry and talent relationships and our ability to deliver highly anticipated premier Latin music events. Now turning to an update on mobile and digital initiatives. This past year we made significant progress, furthering our transformation into a leading Spanish language multimedia company. Today, we have leveraged our top-ranked audio stations to build rapidly growing digital and mobile presence. All of our digital, mobile and social media engagement metrics demonstrated significant growth in 2019 and helped drive strong growth in our aggregate multi-platform audience. As of December 31, our total multi-platform audience was up 26% compared to the end of 2018. A critical driver of this strong growth was our decision to focus on building a leadership position on mobile. Having an expansive mobile presence has been a strategic imperative for many years given the steady rise of mobile media consumption and device ownership, particularly among attractive Latino demographic groups. Our LaMusica app is the premier highest-rated Spanish language mobile app and a robust digital entertainment platform in the industry. LaMusica delivers a truly compelling experience via exclusive daily video content, short-form shows and access to tens of thousands of songs complete with deep customization capabilities. We believe there are no other mobile app that offer the unique customizable experience, original content and access to leading industry talent. Today, LaMusica reaches over 1.9 million people with over 5.5 million streaming hours per month. We focused on expanding our audio programmatic revenue and are securing strong gains. In the fourth quarter, revenue was up 90% compared to the same time last year. For the full year, audio programmatic revenue increased 120% compared to 2018. It's worth noting we continue to make progress building LaMusica multi-platform brand. LaMusica's website currently averages approximately 730,000 monthly unique visitors and has generated consistently strong traffic growth since its launch. During the fourth quarter, our total streaming audience, including both digital and mobile passed 1.4 million unique listeners per month. This audience delivered over 17.2 million listening hours and over 39 million total sessions in the quarter. It has been the case for some time, mobile remains our primary source of our total digital traffic. Mobile accounted for approximately 74% of our total digital traffic at the end of 2019. This was up 22% compared to the end of 2018. Our mobile traffic growth was largely driven by the further strong expansion unique users of our LaMusica app. We finished 2019 with unique users up 26% compared to the end of 2018. In summary, our fourth quarter and full year results clearly indicate the success we are having executing our multimedia strategy and the underlying power of our audio, digital, mobile and experiential assets. We are expanding our aggregate multi-platform audience driven by continued strong performance at our audio stations as well as steady growth in our digital and mobile engagements. Our audio leadership has never been stronger and AIRE Radio Network is poised for another strong year in 2020. In addition, we have a differentiated mobile entertainment platform with LaMusica, and our Minority Business Enterprise provides us with further competitive differentiation. 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 2020 with momentum in our business, a strategy that is clearly working and a sharp focus on building on our successes to date and providing increasing returns to our stakeholders. As our Chairman, Mr. Alarcón stated earlier, fiscal 2020 started off exceptionally well. And as a result, we're confident of a strong rebound later in the year as our industry, our nation and the world eventually recover from the effects of the COVID-19 pandemic. Now let me turn the call over to Jose Molina for the financial overview.

Thanks, Albert. Turning to our fourth quarter results. Our consolidated revenues totaled $46.1 million, up 16% compared to $39.6 million for the same prior year period. This increase was due to higher revenues in both our radio and television segments. Excluding political sales for the respective periods, our consolidated revenues totaled $45.8 million, up 24% compared to $36.9 million for the same prior year period. Our radio revenue increased by 15% due to increases in local, special events, network and digital sales. Excluding political sales for the respective period, our radio revenues totaled $40.7 million, up 21% compared to $33.7 million for the same prior year period. Our television revenues increased 31% due to an increase in local sales. Excluding political sales for the respective periods, our television revenue totaled $5.1 million, up 56% compared to $3.2 million for the same prior year period. Our consolidated adjusted OIBDA, a non-GAAP measure, totaled $20.1 million compared to $17.4 million for the same prior year period, representing an increase of 16%. Excluding political for the respective periods, our consolidated adjusted OIBDA totaled $19.8 million, up 33% compared to $14.9 million for the same prior year period. Our radio adjusted OIBDA increased 17% primarily due to the increase in revenues of approximately $5.2 million partially offset by an increase in operating expenses of $2.2 million. Our radio station operating expenses increased mainly due to increases in special event expenses, professional fees, compensation and music license fees. These increases were partially offset by a decrease in advertising expenses. Excluding political for the respective periods, our radio adjusted OIBDA totaled $21.1 million, up 29% compared to $16.4 million for the same prior year period. Our television adjusted OIBDA increased by approximately $600,000 due to an increase in net revenues of approximately $1.3 million partially offset by an increase in operating expenses of approximately $700,000. Television operating expenses increased primarily due to increases in production costs, barter expense and taxes and licenses fees. Excluding political for the respective periods, our television adjusted OIBDA totaled $1.9 million, up 125% compared to $849,000 for the same prior year period. Our corporate expenses for the quarter increased approximately $800,000, mostly due to increases in compensation and D&O insurance. For the full year, our consolidated adjusted OIBDA totaled $51.3 million, up 2% compared to $50.1 million in 2019. Excluding political for the respective years, our consolidated adjusted OIBDA totaled $50.7 million, up 11% compared to $45.6 million for the same prior year period. Capital expenditures for the fourth quarter were approximately $547,000 and for the full year were approximately $3.8 million. As of today, we have approximately $34 million of cash on hand. Included in our cash balances are the net cash proceeds of approximately $14.4 million that we received on March 23 for the sale of our Houston television station. As we previously stated, we continue to work with our advisers evaluating all available options to refinance the notes, which include the issuance of new debt or equity, asset sale proceeds and the use of cash on hand. In December, we issued a press release announcing that we had plans to pursue a recapitalization of the company and that we received a letter from a bank that is highly confident of its ability to arrange secured debt financing for us in the amount of $300 million. Although the recapitalization discussions are ongoing, we do not have an expected time frame to complete. 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?

[Operator Instructions] Showing no questions, this concludes our question-and-answer session. I would like to turn the conference back over to management for any closing remarks.

I want to take this opportunity and thank everyone for participating on today's call. And we look forward to talking to everyone in the next quarter and go over our results for the first quarter. Thank you again.

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