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

Good day. And welcome to Spanish Broadcasting's First Quarter 2020 Conference Call. [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, operator. And good morning, everyone. Before we begin, please recognize that certain statements on this conference call are not historical fact that 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 2020 first 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 2020 First Quarter Conference Call. On today's call, we will provide an overview of recent operating developments and review our financial results. Joining me today are José Molina, our Chief Financial Officer; and Richard Lara, our General Counsel. Our first quarter results were impacted by the COVID-19 pandemic, which resulted in reduced advertising spend by some of our brand partners as well as lower special events revenues. While no one is certain what the new normal will look like, at SBS, we believe the long-term future of broadcast media remains bright. While the COVID-19 pandemic has presented unprecedented challenges, audio and video have once again clearly demonstrated their resiliency and importance as a communications medium. Our leading audio stations, MegaTV and digital assets have continued to provide much-needed entertainment to our audience, almost all of whom found themselves social distancing and self-isolating at home. More importantly, we have delivered critical health and wellness information in support to Latino households who have been disproportionately impacted by COVID-19 across the nation. As the leading Spanish language multimedia company and certified minority business enterprise, we have placed significant emphasis on helping Latino communities navigate what has proven to be one of the most difficult periods of their lives. We cherish our audience and understand they know and trust our brands and have strong connections with our on-air content and talent. Broadcast media held a significant place in people's lives prior to COVID-19 and in many ways, that connection has grown stronger. We believe the world on the other side of the pandemic will continue to consume, trust and rely on broadcast media as well. Further, we are confident that we will continue to outperform our Spanish and English language peers. This confidence is driven by the underlying strength of our assets and teams. Based on this performance of our company, we are the best audio and broadcast operators in the nation. First, our stations generated record ratings performance across key national markets and largely remain the #1 and #2 station in the nation's largest Hispanic DMAs. Second, concerted execution of our multimedia strategy has resulted in our aggregate audience being up 8% as of March 31 compared to the same period last time. And third, our digital, mobile and social media engagement metrics continue to deliver healthy growth, which is unlocking new compelling advertising opportunities for our brand partners. Moving forward, we will continue to execute our strategic priorities and best position SBS for sustainable long-term growth and value creation for all of our stakeholders. Now let's move to an update on our operations. We'll begin with our AIRE Radio Network, the nation's largest minority certified Spanish language audio network. During the first quarter, network revenues increased by 9% compared to last year. This was due to an ongoing strong performance by our sales teams as well as the benefit of our national reach in audience share. Miller Kaplan reported total network market down and AIRE audio (sic) [ Radio ] networks outperformed by 24%. Categories with strong performance included automotive, plus 196%; telecom, plus 36%; tune in, plus 35%, among others. As a reminder, AIRE's revenues for the full year 2019 finished up 21% compared to 2018. Moving forward, we continue to see a number of attractive growth opportunities, for our AIRE network business and expected financial and operating performance to accelerate when market conditions normalize. The core underlying strengths of our network business remain intact, which are competitive market offerings, a growing number of innovative content opportunities and expansive affiliates across our syndicated programs. AIRE also remains well-positioned to capitalize on the rapidly expanding U.S. Hispanic population and the growing number of major brands seeking to connect with Latinos. We deliver an expanding national audience, including across key demographic groups, and our advertising clients can leverage our affiliate network with over 300 stations nationwide and our reach over 95% of the U.S. Hispanic DMAs. Advertisers are increasingly turning to AIRE as our reach remains unmatched. AIRE currently reaches over 15 million weekly listeners across nearly 100 markets nationwide. This includes 50 of the top 50 U.S. Hispanic markets, making AIRE the largest Spanish language audio network in the nation. SBS has the #1 rated station in each of our markets. We have #1 in New York, #1 in Los Angeles, #1 in Miami, #1 in Chicago, #1 in San Francisco, #1 in Puerto Rico, in addition to the #1 rated Hispanic audio network in the nation. In New York, during these unprecedented times, our flagship station WSKQ Mega 97.9 FM has achieved record-setting and historic ratings, achieving double-digit shares, making our station the solid #1 rated station with more than double the ratings of any other station in the Tri-state area among all demos, adults 18 to 34, 18 to 49, 25 to 54, as reported by Nielsen Ratings. Mega has achieved the highest ratings in the history of PPM Nielsen Ratings. This historic achievement highlights the importance of a hyper local programming strategy that connects deeply with the Hispanic community in New York during the COVID-19 pandemic. These recent ratings ranked Mega 97.9 FM as the most listened to station in the Metropolitan New York area, sets Mega as the #1 Hispanic station in the nation for more than 7 years. Importantly, we have successfully leveraged this national audio leadership across digital platforms, through digital audio streams via our LaMusica app. Mega 97.9 has a growing online listener base of over 2 million average weekly listeners. We continue to place strategic emphasis on further leveraging that audience and driving increased online digital, mobile and social media engagement metrics. WPAT 93.1 Amor also achieved significant ratings gains and strengthened its market position in Nielsen's Audio May 2020 PPM survey. La Bodega de la Mañana WPAT-FM Morning Show hosted by Arlette and Alfredo reported significant growth and leadership over competitive stations in the Tri-State area from 6:00 a.m. to 10:00 a.m. Monday through Friday in adults 18 to 49 and 25 to 54. WPAT-FM also continues to hold its national leadership position among the most listened to audio stations in pop format across the country. Los Angeles, we have the #1 and #2 rated Hispanic stations KLAX La Raza and KXOL Mega 96.3. This success is due to our top line programming and strength of the company's regional Mexican format and rhythmic Latin format. Chicago WLEY-FM La Ley 107.9 FM ranked #1 among adults 18 to 49, a historic milestone for SBS in the Chicago markets. In other key markets, our audio stations scored significant victories during the most recent Nielsen Audio PPM surveys across Los Angeles, San Francisco and Chicago. Our Miami cluster continues to deliver combined 14 share of the market consistently, WCMQ FM 92.3 is the #1 ranked station in the market, beating all others with the 7 share among adults 18 to 49, Monday through Sunday, 6 to midnight. And our award-winning morning show with journalist Oscar Haza is the #1 rated show in the entire market in every top demo. We have a 9.5 average core hour share with adults 18 to 49. SBS Puerto Rico operates the top 3 most listened to stations in the market, WODA FM La Nueva 94 and WMEG FM Mega 106.9 are the #1 and #2 most-listened-to stations with double-digit ratings. And we refreshed the program for our legendary salsa format station WZNT FM Zeta 93, and the ratings growth has proven to be that the format is loved among listeners across all ages. Advertising categories that were strong during the first quarter included political and packaged goods, Categories that experienced some softness included retail, beverages, restaurants and entertainment. Lastly, according to Miller Kaplan, the first quarter marked the 13th consecutive quarter we outperformed the markets we serve. In the first quarter, we outperformed our markets by 600 basis points. MegaTV significantly increased its national footprint more than 23 million homes via our cable and satellite partners. Now turning to an update on mobile and digital initiatives. Today, SBS is the leading minority-certified Hispanic multimedia entertainment company in the U.S. We have worked hard to leverage our decades of audio leadership across new platforms including digital, mobile and social media. All of our digital, mobile and social media engagement metrics demonstrated significant growth last year and accelerated these gains in 2020, is one of our strategic mandates. Our total multi-platform audience was up 13% as of March 31 compared to the same period last year. A critical driver of this audience growth has been our gains in mobile. Latinos over-index our mobile phone usage and ownership as well as mobile media consumption. Our LaMusica apps remains the premier highest-rated Spanish language mobile app and one of the most robust digital entertainment platforms available across the industry. LaMusica's content offerings are unmatched, exclusive daily video content, short-form videos and access of tens of thousands of songs, complete with deep customization capabilities. Today, LaMusica reaches more than 1.9 million, with 6.7 million streaming hours per month. We continue to advance our audio programmatic revenue initiatives. During the first quarter, our programmatic revenue was up 60% compared to the same period last year. It's worth noting we continue to make progress, building LaMusica into a leading multi-platform brand. LaMusica's website currently averages approximately 730 monthly unique visitors and continues to generate healthy growth. Our total streaming audience, including both digital and mobile, was over 1.3 million unique listeners per month. During the first quarter. This audience delivered over 19.8 million listening hours and over 40 million total sessions in the quarter. Mobile remains our greatest driver of digital traffic and accounted for approximately 70% of our total digital traffic in the first quarter. Our primary audio streaming business grew by 29% from 14 million listening hours to 19.8 million. Sessions grew 18%, while unique users grew by 12% from the same period in 2019. This growth was primarily driven by ongoing solid expansion of LaMusica app unique users. We finished Q1 with unique users up 17% to Q1 of last year. In summary, while the first quarter financial results were impacted by COVID-19, we continue to take steps to execute our multimedia strategy and best position SBS for meaningful growth once our industry stabilizes. The ratings performance of our audio station demonstrates our ability to build on our proven leadership and further expand our audience share. We have compelling station formats, leading talent and a commitment to delivering engagement -- engaging content to our audiences. Today, we operate the nation's largest Hispanic audio network, AIRE, and see clear opportunities to drive incremental growth in the years ahead. We also continue to have success leveraging this audio leadership across additional platforms as our digital, mobile and social media metrics are consistently growing. We believe the world on the other side of COVID-19 will continue to meaningfully engage with and depend on broadcast, digital and mobile media for entertainment, engagement and information. As such, we remain committed to our strategy and our audiences, and are focused on best positioning SBS for growth in the post pandemic world. Now let me turn the call over to José Molina for the financial overview.

Thank you, Albert. Turning to our first quarter results. Our consolidated revenues totaled $36.3 million, down 3% compared to $37.4 million for the same prior year period. This decrease was mainly due to the negative impact of the COVID-19 pandemic as the company was pacing positively in double-digit range going into the second week of March. Our radio revenues decreased by 5% due to decreases in local special event revenues and barter sales, which were partially offset by increases in national, digital and network sales. Our television revenues increased 14% due to the increases in local, national and barter sales, which were offset by decreases in subchannel revenue and subscriber fees. Our consolidated adjusted OIBDA, a non-GAAP measure, totaled $7.5 million compared to $8.3 million for the same prior year period, representing a decrease of $800,000 or 9%. Our radio adjusted OIBDA decreased 6%, primarily due to decreases in net revenue of approximately $1.5 million, partially offset by lower operating expenses of approximately $900,000. Our radio station expenses decreased mainly due to lower advertising, barter and special event expenses. These decreases were partially offset by increases in national rep commissions and taxes and licenses cost. Our television adjusted OIBDA decreased by $35,000 due to higher operating costs of approximately $0.5 million, offset by increases in net revenue of approximately $0.5 million as well. Our television operating expenses increased primarily due to higher production costs. Our corporate expenses increased by 3% due to increasing D&O insurance premiums. Our capital expenditures for the first quarter were approximately $869,000. And as of today, we have cash on hand of approximately $38 million. Please note that we have and continue to take significant steps to maintain our cash on hand and align our operating cost with the current volatile market conditions. We, and with the help of our trusted advisers, continue to evaluate all available options to refinance. We remain ready to pursue a recapitalization of our balance sheet when the debt markets present some viable solutions. The recapitalization continues to be 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] Our first question will come from Patrick Fitzgerald from Baird.

Yes. So thanks for providing the cash number. I just wanted to ask, because you sold the Houston station for $15 million in the first quarter, and then you got the loan, the PPP loan of $6.5 million after the first quarter, is there a plan to use proceeds to pay down the bonds like you have done in the past with all your asset sale proceeds?

Yes, Patrick. At this moment, clearly, during the pandemic and the ups and downs, we show that having liquidity is key. But as things change and things get better, clearly, that will be the option.

Okay. Great. And then you have a couple more TV stations in Florida and then some in Puerto Rico as well. Do you -- are you thinking about marketing any of those at this point?

At the current time, no. There is a stick, if you will, in Miami, that can be available for sale given the right sales price. But the overall infrastructure of Miami, the Miami station actually does quite well, and it's strategic to us at the moment.

Okay. Great. And then I wanted to ask about the quarter -- the second quarter because it's over at this point in terms of -- from a timing perspective. Like I would imagine this is the worst quarter that you expect for the year. If you could provide any color on kind of how things went, or any color on that would be helpful.

So look, for April, right, we are -- we did pace lower, right, than the prior year. But we're in line with Miller Kaplan and the markets. I want to say lower in national and in local. Network did a little bit better, but we're hoping to see a rebound very soon with political on the local and the national end. And network is pacing really well. We feel very comfortable with network right now.

Patrick, so April -- I mean, clearly, April was really, really bad. May was better. June is better and July is getting better. So we are seeing an uptick. But I will tell you this, from an operational standpoint, I mean, that's pandemic, right? Advertisers pulled, business were closed. But from an operational standpoint, we have #1 ratings. From an operational standpoint, the company couldn't do -- be doing any better than it is today.