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

Good day and welcome to the Spanish Broadcasting Second 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.

Thank you 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 the 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 second 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 Second Quarter Conference Call. On today's call, we'll 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. Like the rest of our industry, our second quarter performance has been impacted by the COVID-19 pandemic. Shutdowns across the country and challenging macroeconomic conditions drove most advertisers to significantly reduce or even eliminate their planned ad spending. We moved quickly in response to these headwinds by executing targeted cost reductions and other actions aimed at increasing our liquidity and cash position. Today, we are optimistic that the worst of the COVID-19 pandemic and impact on our business is behind us. While we are a leaner company today than before COVID-19, we are also more flexible and continue to run our operations at a high level. In addition, we have a sharp eye on emerging opportunities across our markets. While forward visibility remains limited, not even a pandemic can stop the momentum in SBS. We are pleased to share that revenue and operating trends did improve as we moved through the second quarter. In addition, we have seen further recovery in both July and August. While we are clearly focused on running our business, we are also committed to informing and assisting Latino communities across the country, many of which have been disproportionately impacted by the pandemic. Our audience is our most important asset. We understand the trust Latinos across the nation place on our station brands and programming. I and the rest of the SBS team hold that trust in the highest regard, and we will remain steadfast in our commitment to delivering critical and timely medical information, support and entertainment to all of our communities. While the overall timing and pace of recovery remains difficult to predict in the interim, we will further execute our strategy and best position SBS for accelerated growth when our industry recovers. I think it's important not to lose sight of the significant momentum we had in our business and the industry-leading performance we were delivering prior to COVID-19. In fact, we were consistently delivering industry-leading financial performance, sales performance, adjusted operating margins, aggregated audience growth and ratings gains. At the same time, all of our digital and social media metrics were rapidly increasing through ongoing strong execution of our multimedia strategy. Our core assets remained unchanged. Established top rank audio stations across the nation's largest Hispanic DMAs, broadcast media played an important role in people's lives prior to COVID-19, has never been more critical during the pandemic, and we believe we remain indispensable on the other side of this unprecedented situation. Overall, we remain confident we will emerge in the post pandemic world with the brand's talent, commitment and strategy to return to industry-leading growth and drive increased value for our stakeholders. Turning now to an update on operating, starting with our AIRE Radio Network. Today, AIRE remains the nation's largest minority certified Spanish language audio network. Second quarter network revenue has outperformed competing networks as per Miller Kaplan by 38% in June and plus 4% year-to-date. Q2 pacing was plus 44% on March 12, right before the pandemic shutdown, on track to be our highest growth quarter ever. Advertising categories that held better than most include telecommunications and auto aftermarket. While forward visibility remains challenging right now, we believe AIRE remains well positioned to return to solid top line growth once the market recovers. We generated strong growth in 2019, have an industry-leading sales group, innovative and expansive content opportunities, expansive affiliate relationships and unmatched reach. Advertisers are increasingly looking for engaging ways to connect their rapidly growing Hispanic population whose influence and purchasing power continues to meaningfully expand. AIRE has significantly grown its national audience over the past several years. Today, we delivered engaged consumers spanning all key demographics to our advertising partners. Brands can access our affiliate network in over 300 stations nationwide and reach over 95% of the U.S. Hispanic DMAs. AIRE currently reaches over 15 million weekly listeners across nearly 100 markets nationwide. This includes every one of the top 50 U.S. Hispanic markets, making AIRE the largest Spanish language audio network in the nation. Looking now at our audio stations, which continue to hold the #1 ranking across the nation's largest Hispanic DMAs. In fact, for 8 consecutive Nielsen ratings book surveys, including the August book that was released in August 31, our flagship New York City station, Mega 97.9, is the #1 ranked station in New York City, claiming the #1 ranking among adults 18 to 34, with a 10.4 average core hour share and in adults 18 to 49 with an 8.3 average core hour share. For 8 ratings books in a row, beating all audio stations serving the Tristate area regardless of language, this is a record-breaking streak of ratings for our New York stations. Both stations reach over 4.2 million weekly listeners, up from 3.5 million. WPAT Amor 93.1 is the #2 Spanish station in New York, and both of our morning shows, our time for #1 in the market, adults 18 to 34 La Bodega de la Mañana, WPAT FM Morning Show and Mega Del Vacilón de la Mañana are among the show leaders in New York City. Mega is the most listened to station in the metropolitan New York. Our ratings increases and market leadership is driven by our deep-rooted connection and attachment with our listeners. All of our on-air talent have been transmitting from home and delivering hyper local programming, which has been critical during the COVID-19 pandemic. However, the success of Mega is not limited to just the Tristate area as the station that has been #1 ranked Hispanic station in the nation. A critical element of our multiplatform strategy has been leveraging the strong audience delivery of our audio stations and extending that leadership online via mobile device. Our presence in New York City is not limited to just Mega 97.9 and WPAT Amor is the #2 station in the market and also holds a national leadership position. Over the past few years, 93.1 Amor has consistently delivered strong ratings gains and audience growth. Mega in New York is the #1 station Hispanic in the globe. Moving now to Los Angeles. The #2 ranked Hispanic DMA in the country where KLAX, La Raza and KXOL Mega 96.3 are the #1 and #2 ranked Hispanic stations in the market. Both of these stations continue to grow their ratings and drive aggregate audience growth due to our superior content and our dedication to compelling station formats, including our regional Mexican format and rhythmic Latin format. In Miami, our stations consistently deliver a combined 14 share of the market. WCMQ FM remains the #1 station in the market, with a 7 share among adults 18 to 49. In addition, our award-winning morning show with journalist Oscar Haza is, again, the #1 rated show in the entire market in every top demo. 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 programming for a legendary salsa format station WZNT FM Zeta 93, and the ratings growth have proven that the format is loved among listeners of all ages. Advertising categories have held up better than others during the second quarter included insurance. Finally, despite COVID-19, headwinds facing us as well as the entire industry, we managed to outperform the markets we serve for the 14th straight quarter. During the second quarter, we outperformed our markets by 300 basis points according to Miller Kaplan. And MegaTV, our national footprint, now exceeds 23 million homes via cable and satellite partners. We also added award-winning journalist, Ismael Cala, with over 18 million social media followers to the MegaTV prime time, Cala has grown ratings by 50% in key demographic groups. Nielsen ratings grew by 10% in households, 39% adults 25 to 54, and 45% adults 18 to 49. The SBS entertainment division launched the Mi Casa Es Tu Casa audio concert series during the onset of the COVID-19 pandemic, enlisting A-list artists to provide an at-home music experience to our audio listeners on a weekly basis. The series, which counts on performance from Bad Bunny, Christian Nodal, J Balvin and many others is also streamed on LaMusica app. The series has experienced rapid growth both in streaming and sponsorship interest. The series, which provides both a pop and urban and a regional Mexican format have contributed to an increase of 81% and 66% increase in total sessions on LaMusica app platform. SBSE also secured the exclusive rights to debut the Carlos David album documentary Colombiana, which debuted on MegaTV in May and had record ratings. The entertainment division continues to develop initiatives that are engaging to our audience and clients while addressing the limitations of having large-scale in-person events through 2020. Now turning to an update on our mobile and digital initiatives. Over the past several years, we have executed a concerted strategy to build off our legacy of audio station leadership and transform SBS into the leading minority certified Hispanic multimedia and entertainment company in the U.S. Today, we connect brands with advertisers in more ways than ever and deliver a highly engaged multiplatform audience. We have accomplished this through a focus on mobile-first initiatives such as LaMusica, expanding our station websites, targeted rebranding, growing our social media following and executing with a commitment to compelling content and talent. This strategic approach has resulted in consistent growth in all of our key digital mobile and social media engagement metrics. We delivered robust year-over-year growth in this area in 2019, and we believe there are multiple attractive opportunities ahead of us to further grow our aggregate multiplatform audience. Our total multiplatform audience was up 22% at June 30 compared to the same time last year. One platform where we have seen notable success is mobile where we placed strategic emphasis given heavy mobile phone usage and media consumption by Latinos, particularly the coveted Hispanic millennial demographic. As such, several years ago, we developed and introduced LaMusica, a robust mobile entertainment platform, complete with daily video content, short-form programming, access to millions of songs, deep customization capabilities and connections to our industry-leading talent. Today, LaMusica reaches more than 2.1 million people, with 7.2 million streaming hours per month. We remain committed to our audio programmatic revenue initiatives. For all of 2019, our programmatic revenues finished up 360% compared to 2018. So we were making clear progress here and expect our programmatic revenues to continue showing strong growth when industry conditions normalize. We have also demonstrated success building LaMusica into a leading multiplatform brand. LaMusica's website currently averages approximately 800,000 monthly uniques, and traffic patterns continue to grow. Our total streaming audience is over 1.4 million unique listeners per month during the second quarter. This audience delivered over 21 million listening hours and over 45 million total sessions in the quarter. As has been the case for some time now, mobile remains our greatest driver of digital traffic. In fact, mobile accounted to approximately 78% of our total digital traffic in the second quarter. Our primary audio streaming business grew by 13% from $18 million to $21 million. In addition, sessions increased 26%, while unique users grew 16% in the same period 2019. This solid growth in streaming hours and sessions was primarily driven by continued healthy expansion of LaMusica app. We finished the second quarter with unique users up 16% compared to the second quarter of the last year. In summary, like other in our industry, our performance in the second quarter was impacted by COVID-19. While forward market visibility remains limited, we are encouraged by the improvement in the monthly trends we've seen in the quarter, which accelerated as we moved into July and then August. We are not standing still. We continue to run our operations at a high level and are further advancing our multiplatform strategy. Our stations remain at the top of the rankings across the nation's largest DMAs. We operate the largest Hispanic audio network in the country. And our digital, mobile and social media metrics are grown. There are clear opportunities to drive incremental growth and further grow our aggregate audience in the years ahead. We were successfully executing our strategy in delivering industry-leading financial and operating performance prior to COVID-19 pandemic. We firmly believe we will continue to achieve industry-leading performance. Again, as I mentioned earlier, not even a pandemic can stop the momentum at SBS. Thanks for your time and your attention. Now let me turn the call over to Jose Molina for the financial overview.

Thank you, Albert. As Albert noted, our radio and television segments were significantly impacted by COVID-19 pandemic as city shutdowns have caused advertising demand to weaken and live events to be postponed. As a result, we have and continue to implement cost saving strategies to align our operating expenses with the current market conditions. Additionally, we applied and received from the Paycheck Protection Program $6.5 million that were directly used to offset and reduce eligible employee-related costs this quarter. Now turning to our second quarter results. Our consolidated revenues totaled $15.5 million, down 58% compared to $36.9 million for the same prior year period. Both our radio and television segments were significantly impacted by the pandemic. Our radio revenues decreased $20.3 million or 61%due to decreases in all advertising categories and the lack of special events. Our television revenues decreased $1.1 million or 28% due to the decreases in nearly all advertising categories in addition to subchannel rental income and subscriber fees. Consolidated adjusted OIBDA, a non-GAAP measure, totaled $1.6 million compared to $12.2 million for the same prior year period, representing a decrease of $10.5 million or 87%. Our radio adjusted OIBDA decreased $12.2 million or 84%, primarily due to the decrease in revenues of approximately $20.3 million, partially offset by a decrease in operating expenses of $8.1 million. Radio station operating expenses decreased mainly due to lower levels of compensation, commissions, barter, music license fees, professional fees and facility expenses, partially offset by an increase in the allowance for doubtful accounts. Our television adjusted OIBDA increased approximately $600,000 due to a decrease in operating expenses of approximately $1.7 million, partially offset by a decrease in revenues of approximately $1.1 million. Television station operating expenses decreased primarily due to lower levels of compensation, professional fees, facility costs, commissions, transmitter expenses and production cost. Our corporate expenses decreased $1.1 million or 41%, primarily due to lower levels of compensation and travel-related expenses, partially offset by an increase in directors’ and officers’ insurance. Capital expenditures for the second quarter were approximately $641,000. As of today, we have cash on hand of approximately $35.5 million, and we continue to take steps to maintain our cash liquidity. The effects of the global pandemic required us to reduce expenses and operate with the most utmost efficiency. Therefore, we decided to voluntarily deregister from the reporting requirements of the Securities Exchange Act of 1934. Our decision was driven by the elimination of the significant administrative burden and cost as well as the low number of holders of our common stock. We believe that the expected savings of more than $1.5 million per year outweigh the advantages of continuing to be an SEC reporting company. At this time, our top priority is to navigate through the current market conditions and operate our business successfully. The recapitalization of our balance sheet continues to be a priority as we remain ready to pursue a refinancing when the debt markets present some viable solutions. This concludes our formal remarks. And with that, I would like to turn the call over to the operator for any questions. Operator?

[Operator Instructions] And the first question will come from Patrick Fitzgerald with Baird.

So thank you for providing the updated cash balance. And I was wondering, do you expect that -- do you expect kind of like a working capital hit at some point in the third or fourth quarter?

Yes. So from a cash collection standpoint, Patrick, we are now going into the months that are -- we are collecting the April and May downtrend of revenues, so yes. I mean from an inflow standpoint, the outflows are pretty consistent, relatively speaking, with some decreases. But yes, there'll be a -- and then it’ll bounce back in the first -- late fourth quarter, first quarter.

Okay. Any sense of the magnitude of [ those ]?

It'll be a couple of million, I would say. But clearly, we're managing that. I mean it's a day-to-day thing. But yes, I think it'll go down probably to maybe low 30s.

Okay. Okay. Is there any resolution on the proceeds of the station sale at this point? Are you just planning to keep those proceeds?

Well, we have it on our balance sheet, clearly. The cash is there. Clearly, our intent is to recap the company. So ultimately, yes. I mean once we navigate through these tough times, if there's excess cash, clearly, we'll use it to pay down the debt.

Okay. Great. And then is there any way you can provide kind of like a monthly -- you said April was the worst, and then it kind of got better month-over-month. Is there any way you can provide like a year-over-year by month or some type of color on that?

In terms of what, pacings for revenue?

Yes. Not even pacings since you have the July behind you. Just -- yes, just like -- the whole quarter was down 61%, right? So I assume April was down close to 90%, and then June was down somewhere above -- better than 60%. If you could provide like those type of numbers, that would be helpful.