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

Good day, and welcome to the Spanish Broadcasting Third 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 of Investor Relations. Please go ahead, sir.

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, for capitalization 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 third 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 call over to Mr. Albert Rodriguez.

Good morning, ladies and gentlemen. Welcome to the SBS 2020 Third 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 Jose Molina, our Chief Financial Officer; and Richard Lara, our General Counsel. During the third quarter, we began to see some initial lines of recovery across our business and we saw meaningful sequential improvement in our financial and operating performance. While our performance and activity levels continue to trail prior year levels, activity across our audio stations further stabilize month by month, and we continue to take targeted actions to manage our cost structure. The entire SBS team has continued to execute at high level despite all of us doing our jobs differently. Our station talent has largely transitioned to broadcasting from home, while our entertainment divisions continue to find innovative ways to bring the experience and access of live events virtually into people's homes. Our audio stations once again delivered strong ratings gains, while our mobile and digital engagement metrics have continued to grow. In addition, we remain committed to our audience in continuing to deliver critical news, health and safety information to them. During these challenging times, we have a weekly show, which is La vos del negocio, in partnership with the United States Hispanic Chamber of Commerce to update Hispanics across the nation on any COVID-19 guidelines and how to deal with operating their small businesses in this environment. Forward visibility into our markets remains challenging. But as I stated, we are controlling what we can see in taking the appropriate steps to best position SBS in accelerated growth when business conditions normalize. The underlying strengths of our company leading audio stations, expanding multi-platform presence, leading national audio network and talent and team remain strong. In short, our strategy to grow our aggregate multi-platform audience and deliver industry-leading performance was working prior to COVID. And we have 100% confidence we will continue to lead the industry and continue to outperform our industry peers. Turning now to an update on our operations. Starting with our very owned AIRE Radio Network. AIRE currently reaches 95% and of the U.S. Hispanic market and over 15 million weekly listeners across 100 markets nationwide. This includes each of the top 50 U.S. Hispanic markets, making AIRE the largest minority-owned and certified Spanish language audio network in the nation. Year-to-date, our AIRE Network division outpaced the market by 8%, which reported down at minus 21%. During this year's third quarter, the market was down minus 20%, while AIRE was pacing minus 5%, outperforming the marketplace by 15%. Strong advertising categories for the third quarter included telecommunications, government, CPG, recruitment, automotive and after -- automotive aftermarket. Looking ahead, the performance gap will continue to widen in Q4. And as AIRE outperformed the market by 39% in October. Despite the challenges of the pandemic, AIRE has not only outperformed the marketplace, but it has also set new record-breaking revenue numbers. This is a result of tenacious efforts of our stellar sales team, new culturally relevant integrated platforms and content, engaging tailored vehicles that delivered unduplicated audiences as well as custom client ideation. Looking now at our audio stations, we continue our year-long #1 and #2 ranked stations performance across the nation's largest Hispanic DMAs. WSKQ Mega 97.9 has had a year-long record-breaking 11rh straight consecutive Nielsen rating books in a row. Coming in at #1, beating every other audio station serving the Tri-state area in any format or language. Mega WSKQ FM is #1 adults 18 to 34 with an 8.9 average core hour share, #1, 18 to 49, with adults 8.2 average core hour and #1 adults 25 to 54 with a 6.6 average core hour. Mega 97 is not only the #1 station in every demo in New York, but it is the #1 Hispanic station in the entire nation. And globally, WSKQ Mega 97.9 leads by 2 average core hour shares over all of the top 3 stations in the New York metro area. During challenging times, our listeners turned to SBS to know what is happening in the local community and lift their mood and spirits. WPAT 93.1 Amor is now a consistent top-performing morning show in the entire New York market. Our morning shows achieved a combined 11 average core hour shares in the Central adults 18 to 49 demographic group. La Bodega de la Manana, WPAT FM Morning Show and Mega, El Vacilon de la Manana are the morning show leaders in New York City. In Los Angeles, each of our stations is #1 Hispanic rated in the respective adults 18 to 34 and 18 to 49 demographic groups. Our Latin KXOL Mega 96.3 is the undisputed #1 rated Hispanic station in adults 18 to 34, Monday through Sunday, 06:00 am to midnight , and we are playing the hits from top Latin rhythmic artists such as J Balvin, Jennifer Lopez, Maluma, Bad Bunny and many more. KLAX La Raza Continues to dominate the adults 18 to 49 demo as the #1 Hispanic station in all of Los Angeles. #1 in 18 to 34 and #1 in 18 to 49 combination of the Los Angeles, beating all other Hispanic stations and one of the country's most competitive Hispanic markets, our KLAX, La Raza morning show with that is the #1 rated Hispanic show in all of Los Angeles, San Francisco and Chicago. In Miami, another one of the largest Hispanic DMAs WXDJ El Zol 106.7 is #1 Hispanic rated station in adults 18 to 34. Our 3-station combo reaches 11 average core hour weekly shares in the key demographic group. This includes WCMQ, a 92.3 FM with our award-winning morning show journalist, Oscar Haza is the #1 rated show in the entire market. Our programming ratings leadership in New York, Los Angeles, San Francisco, Chicago and Miami also extend out to the 3 most listened to stations in Puerto Rico. WODA FM La Nueva and WMEG FM Mega 106.9 are the #1 and #2 most listened 2 stations in all of Puerto Rico. Our focus on content and homegrown talent is the key. And we know how to create it because we live it. All in all, our audio stations remain at top of the markets they serve, and our audience share and ratings continue to grow. While COVID-19 has impacted us our overall industry, we have pressed forward with our strategy and our stations continue to outperform both the Spanish and English language peers. In fact, according to Miller Kaplan, the third quarter marked our 15th consecutive quarter leadership of outperformance as we beat our markets by 12%. At Mega TV, our national footprint currently reaches more than 23 million homes via cable and satellite broadcast partners. We have made progress strengthening Mega TV's prime time offerings, including through the recent addition of leading journalists Ismail Cala, who brings a strong social media presence and established television career on Mega TV. In fact, Cala's addition has driven strong ratings gains across multiple key demographic groups. Nielsen ratings grew by 10% in households, 39%, adults 25 to 54 and 45%, about 18 to 49. SBS entertainment continues to produce and air Mi Casa Es Tu Casa Concert series, which has transitioned to 2 major shows per month, providing listeners with their favorite Mexican regional artists and pop urban artists. The audio-only series launched in March in response to COVID-19 pandemic and has proven to be a success from streaming and sponsorship perspective, aligning with brands such as automotive and categories, providing 81% and 61%, respectively, in each genre in total sessions on LaMusica App platform. The division also launched the LaMusica Live Series, a 3-part contract service with top Luna, Nicky Jam an upcoming holiday special. The virtual Concert series was created to meet a growing demand of keeping our audience engaged with a live experience and also providing brands and sponsors a method to connect with our audience and Hispanic consumers. The entertainment division is closely monitoring COVID-19 developments in its key markets potential vaccination rollouts and is working closely with its venues to ensure that it can successfully plan and execute live events in 2021 with the safety of our audience as a top priority. A critical element of our multi-platform strategy has been leveraging the strong audience delivery of our audio stations and extending that leadership online and via mobile device. With that said, now let's turn to an update on our mobile and digital initiatives. We are making a steady and consistent progress in building on our legacy audio leadership in transforming SBS into one of the leading minority certified Hispanic multimedia entertainment company in the U.S. We have leveraged our strong station brands and industry talent relationship and today, our compelling multi-platform advertising opportunities to our brand partners. We also continue to deliver a highly engaged aggregate multi-platform audience, with gains being made across all key demographic routes. It's important to note that the number of strategic paths we took to get to where we are today. We prioritize mobile-first initiatives like LaMusica, while also leveraging our audio brands, talent and content to strengthen our station websites. We connect with our listeners in more ways than ever before and have driven consistent growth in all of our key digital and social media metrics. This is driving strong year-over-year growth in our aggregate audience. And at the end of the third quarter, our total audience was up 12% compared to the same time last year. This includes gains across all of our audio stations, increased mobile usage trends and engagement as well as steady growth across our online properties and social media. Our LaMusica app remains a unique and highly differentiated mobile entertainment platform, LaMusica offers original and compelling daily video content and short-form programming as well as access to millions of songs. The experience is complete with deep customization capabilities, connections to key industry talent frequent news and content updates. Today LaMusica reaches more than 2.4 million people with 7.8 million streaming hours per month. We are focused on diversifying our revenue streams. And as such, are further executed our audio programmatic revenue initiatives. At the end of the third quarter, our programmatic revenues were up 28% compared to the last year. We've made strong headway here and expect to continue to drive accelerated growth. Our teams are focused on finding new digital revenue streams in driving up CPMs on existing digital offerings, new digital sales products, such as a virtual concert digital sponsorship and our new virtual remotes offerings continue to drive up streaming audio CPMs with our local, national and network teams. In addition, we're making further progress in advancing LaMusica as a multi-platform brand. For example, Lamusica's website currently averages 800,000 monthly unique business and traffic patterns point to additional growth in the future. In the third quarter, our total streaming audience was over 1.8 million unique listeners per month. This audience delivered over 23 million listening hours and over 46 million total sessions this quarter. While all of the key digital and social media metrics continue to grow, mobile remains our greatest driver of digital traffic and accounted for approximately 93% of our total digital traffic in the third quarter. Also during the third quarter, our primary audio streaming business grew by 9% from 21 million listening hours to 23 million. In addition, sessions increased by 4%, while unique users grew by 8% for the same time period in 2019. Our strong year-over-year streaming hours and sessions growth was due mostly to ongoing healthy growth in LaMusica users. We finished the third quarter with unique users up 12% compared to the same period in 2019. In summary, while the COVID-19 pandemic remains a current challenge and impacts forward visibility we are driving forward with our strategy while also carefully managing our costs. Our audio stations hold top rankings across the nation's largest Hispanic DMAs, and our audio and radio network remains positioned for future growth in our digital, mobile and social media metrics have continued to grow, despite challenging times and upended working conditions. The entire SBS team has executed with a commitment to our company's strategy and most importantly, our communities. Overall trends are improved across our markets and the impact on our results in the third quarter improved drastically from the second quarter. SBS will continue to deliver industry-leading growth and adjusted operating margin expansion. Thanks for your time and attention. Now let me turn the call over to Jose Molina for the financial overview.

Thanks, Albert. Turning to our third quarter results. As Albert noted, our radio segment third quarter results continued to be impacted by the COVID pandemic, although trends did improve on a sequential basis. In addition, our television business began to show signs of a full recovery. Our consolidated revenues totaled $30 million, down 17% compared to $36.3 million for the same prior period. Our radio revenues declined $7.4 million or 23% due to decreases in local sales and special event revenue. While our radio revenues were down in the third quarter, we did see an improvement as radio revenues were down over 60% in the second quarter on a year-over-year basis. Our television revenues improved $1.1 million or 29% due to increases in national and local sales. Our consolidated adjusted OIBDA, a non-GAAP measure totaled $8.4 million compared to $10.7 million for the same prior year period, representing a decrease of $2.3 million or 21%. Our radio adjusted OIBDA declined $3.5 million or 27%, primarily due to lower revenues, partially offset by a decrease in operating expenses of $3.9 million or 20%. Our radio station operating expenses decreased mainly due to lower compensation, commissions, professional fees, advertising and promotional costs and special event expenses, partially offset by an increase in the allowance for doubtful accounts. Our television adjusted OIBDA improved by $373,000 due to higher revenues partially offset by an increase in operating expenses of $728,000. Our television operating expenses increased primarily due to higher net programming costs, barter expenses and the allowance for doubtful accounts, partially offset by lower professional fees and compensation. Our corporate expenses decreased $834,000 or 28% due to lower compensation. Capital expenditures for the third quarter were approximately $466,000. As of today, we have cash on hand of approximately $31 million, and we continue to take steps to maintain our cash liquidity. 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 also remains a top priority as we continue to evaluate available and viable solutions with our advisers. This will conclude my formal remarks. And with that, I would like to turn the call over to the operator for any questions. Operator?

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

Patrick? Patrick, we can't hear you.

You guys hear me? Can you hear me now?

We can hear you now.

Okay. Yes. Sorry, it's very scratchy. So you saw sequential improvement continue throughout the quarter, third quarter. Do you -- has that sequential improvement continued into October and November? How is the fourth quarter looking?

Look, it did. And when you look at peer results, in terms of OIBDA, we clearly beat pretty much every radio operator from the general market, even the Hispanic in terms of the OIBDA performance compared to the same period last year, and I'm talking about all of the top broadcasters in the industry. So we were the #1 in terms of the OIBDA performance compared to the prior year. We had a phenomenal October as well in terms of the national and the network efforts. We continue to have record-breaking results for -- with respect to our network business in the fourth quarter, it's the highest in the company's history. And in terms of negotiating upfronts for 2021, it's going to be -- I project it's going to be a record year for us with respect to our network business.

Yes. Okay. So the -- sequentially, October is better than September and November is better than October?

We haven't finalized November yet. But definitely October is better than September.

Absolutely.

Okay. And you said -- I think you said in your financials that you were up year-over-year in September?

Yes.

Yes, we are. And patrick, when you look at OIBDA for third quarter, okay, we were clearly the leaders in terms of performance compared to the prior year. There was no question. We're basically #1 in the prior third quarter 2019. And by the way, 2019 was an incredible year compared to 2018. So I just want to put that out there.

No, yes, yes, I get that. I'm just -- I'm trying to -- I'm just trying to make sure I understand what you're saying. So October and November are also up year-over-year, I guess, is my question?

No, October is. We haven't finalized November. There are certain segments of our business that are up year-over-year, and there are some that are still trailing. But overall, we're pleased with a lot of our strategic business units with respect to their performance. And going back to third quarter, I want to make it clear, when you look at OIBDA, I know I've said it a few times, we were clearly the leaders. So in terms of prior year performance. So when you look at us, right, or when you look at the radio industry, we were definitely driving the market in terms of performance and getting out of the COVID impact that all operators faced.

Got you. Yes. No, nice job on that. I guess, related to that, you've obviously taken costs down significantly year-over-year. Now is that -- are you at levels here are it sustainable? Or if you could talk about what you've done on the cost side?

Look, we have -- we've approached all our vendors with respect to renegotiating terms and we've been able to renegotiate a lot of things and do what's prudent with respect to expenses.

Patrick, we bought -- let me -- I mean, a lot of the cost savings this year are somewhat variable in a sense as revenues go up, there will be expense increases. But like, for instance, the permanent one would be just from a deregistering standpoint, I think that's $2 million plus going forward of savings in addition to some vendor savings of probably plus $1 million, so $3 million to $4 million, I would say, is permanent. But then that will be offset by the increase in expenses when revenues go up, which we intend they will.

Which is just commissions basically, right?

Commissions, music license fees, trade, special events when we start doing special events again, all of revenue tied expenses.

Okay. License would be on volume though right, license fee?

The music license fees is based on our revenue. Where we...

Okay. Got you. Okay. Did political -- you said last quarter you expected political to beat 2018. Did that come in as expected?

Political was the highest in history for the company. And we expect political based on the number of impressions, audio impressions that we deliver on a national level, we definitely made impact with political revenue across all markets in the country and in particular, in all of the swing states, Florida, Georgia, Pennsylvania, Michigan, Wisconsin, Nevada, Arizona, because of our listener base and our audio impressions that are so huge. We have Hispanic listeners across the country, and in particular, in those swing states, that tune into our brands and our content. And our DJs that are really trusted mentors for them as they deal with the COVID impact, how it impacts them on Hispanics, on the health basis and on their small businesses.

No. That's great. And then you had a press release and then released an investor deck talking about $300 million of new secured notes. And I just wanted to ask what's going on with that process? And is that still something that's on the table?

Yes, Patrick. So we've met with several investors, and we're going through all the feedback and formulating what the solutions are with our advisers. It's an ongoing process and we still remain optimistic that we can get something done soon.

Okay. Any timeline because the market, obviously, as you might have heard, is pretty hot right now?

Yes, yes, it's a crazy market, right? No timeline just yet. We are ready and enabled, ready and willing. And then Patrick, I wanted to go back to the expense reduction. I also wanted to just note that -- and I know that other broadcasters have done a good amount of cost reduction. I just wanted to note that we do have the highest margins. So from a cost standpoint, it's tough to trim operations when you are a plus 40 margin company. We've been doing this for over several years now. And we're proud of having the highest margins in radio.

By the way, I believe we're the only radio block buster in the country to have 40%, over 40% margins. And historically. And I also want to add that not only have we -- we've been able to accomplish this historically, and we're #1 in ratings in every of the large markets, okay? Even in the COVID pandemic, we're still over 40%. So I just want to put it out there, that we're not the #1 radio broadcasters by accident, it's because of our strategic plans that we very methodically, we do it. And we -- with great pride, I say we have the best team, and we know what we're doing. Don't take it from me, take it from the results that we deliver every quarter.

Our next question will come from Derek Wenger with Kansas Capital.

I just want to drill down for a bit on the refinancing. You had -- had you engaged RBC, you put out that deck, there was a call. You're saying no timeline. Is there pushback from the preferred holders? Can you just give some color as to why this is taking so long?

We can't dive into the details. All I can say is we've met with several investors getting the feedback and formulating a plan with our advisers.

You keep on saying advisors, is it more than a RBC?

Well, we have as well. So we consider them advisers, too.

And this will conclude our question-and-answer session. I'd like to turn the conference back over to management for any closing remarks.

I want to -- it's Albert Rodriguez. I want to take this moment and opportunity to thank all -- everybody that was on today's third quarter earnings call, and I look forward to discussing our fourth quarter results and year-end results in 2021. And I want to wish everybody happy holidays and happy new year. Thank you.

Stay Safe.

The conference has now concluded. Thank you for attending today's presentation, and you may now disconnect your lines at this time.