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

Good day, and welcome to the Spanish Broadcasting First Quarter 2021 Conference Call. [Operator Instructions] Please note that this event is being recorded. I would now like to turn the conference over to Brad Edwards, Investor Relations. Please go ahead, sir.

Thanks, Cole, and good morning, everyone. Before we begin, please recognize that certain statements on this conference call are not historical facts. 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. Spanish Broadcasting System undertakes no obligation to publicly update or revise its forward-looking statements. Please also note, we will be discussing non-GAAP financial measures. The company believes that operating income or loss before depreciation and amortization; gain or loss on the disposal of assets; recapitalization costs; 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 2021 1st 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 2021 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 Jose Molina, our Chief Financial Officer; and Richard Lara, our General Counsel. Our first quarter results were impacted by traditional seasonality, significant lower special events revenue due to COVID-19 as well as unusual comparison given the limited impact of COVID-19 in the prior year quarter. Last year, we began to feel the impact of the pandemic in March after having a normal January and February. This year, we felt the impact of the pandemic for all 3 months in the quarter. We were able to partially offset these headwinds through a continued focus on carefully managing our cost. We expect to deliver accelerated performance as we move through 2021 and continue to drive ratings gains across our core business, grow our digital and social media following and expand our aggregate audience. We remain in a leading competitive position in the market. Today, we have a matched scale and engage with over 25 million Latinos weekly across our audio, video, digital and live event platforms. The underlying power of our reach and assets was never clearer than our recent Virtual 2021 Upfront. With the Latino population rapidly expanding in size, relevance and purchasing power, it's more important than ever for our brands to have a multimedia Hispanic marketing strategy. Our Upfront, it happens here, with a resounding success built upon the more than 4 decades we have served the nation's Latino communities. Moving forward, we will continue to execute our multimedia strategy and build upon our leading audio stations across the nation's largest Latino markets, our expansive mobile and digital offerings, our MegaTV platform of our audio radio network. Now let's review our operations, and we'll start with our AIRE Radio Network. For the first quarter of the year, AIRE Radio Network was in line with our network marketplace, which overperformed the marketplace by 14%. AIRE Network was able to minimize the gap and had strong categories in this period. Such categories included retail, with over 200%; tuning, with 129%; CPG, with plus 116%; and finally, QSR, with plus 57%. AIRE continues to gain momentum and assert its position as the largest minority-owned and certified Spanish language audio network in the nation. Its core competitive advantages include 95% reach of the U.S. Hispanic market, 15 million weekly listeners across 100 markets nationwide, presence in the top 50 U.S. Hispanic markets. One of the key highlights for AIRE's syndication initiatives includes El Terrible show, which currently airs across more than 20 stations. Markets include San Diego, Portland, Chicago, Los Angeles, San Francisco, Spokane and Vegas to name a few. As we look ahead for the remainder of 2021, AIRE is already pacing ahead 40%. We are confident that the network landscape will have an ongoing recovery as the country continues to open and brands regain their confidence. Turning to our audio division, where we continue to operate the #1 station in the nation, Mega 97.9 FM New York in addition to many of the top-ranked stations across the nation's largest DMAs. We have assembled this lead by remaining authentic to the Hispanic community and established a credible audio station for entertainment and up-and-coming stars and local health and wellness information. Mega WSKQ FM in New York is the #1 FM station in the entire nation and continues to deliver outstanding rating performance in New York. In the most recent Nielsen April ratings booked WSKQ Mega 97.9 FM, it's not the -- not only the #1 station with adults 18 to 34 in the market, but our online Internet digital stream of La Mega almost has 2 average core hour shares on its own. The digital streaming even beats other terrestrial stations in New York City, combining both terrestrial and our online digital stream ratings indicate WSKQ Mega FM is the undisputable number one most listened to station in New York, irrespective of language or format in every demographic grouping, adults 18 to 34, 18 to 49 and 25 to 54. We also have the #2 ranked Hispanic station in the market, 93.1 WPAT FM Mega 97.9 and WPAT 93.1 have a combined 13.8% average core hour share with adults 18 to 34 with over 2 million weekly listeners. Over the last decade, our dominant performance in the Tristate area has been undeniable as we consistently beat every other audio station regardless of language. We have accomplished this time and time again due to the power of our brands, our industry-leading talent relationships, our never-ending commitment to deliver innovation and compelling content to our listeners. Over the last number of years, we have leveraged those core operational strengths across new platforms, which has provided us with a rapidly expanding aggregate audience, new revenue streams for our business and compelling advertising campaign opportunities for our brand partners. Online streaming and engagement metrics for both La Mega WSKQ and 93.1 WPAT FM continue to grow our listeners, our streaming, our station at record growth rate. Turning now to Los Angeles, an aggressive and competitive Hispanic market. The first foreign Nielsen rating book average confirms that we are #1 and #2 with KXOL Mega 96.3 at a 4.2 average core hour share and KLAX La Raza 97.9 with a 3.6 core hour average share of the market listening with adults 18 to 34 demographic. In Miami, our 3 station combination serves a hyper local business and communities from Latin America and Caribbean backgrounds in Miami, the nation's most diverse Hispanic DMA, WCMQ FM Zeta 92.3 consistently is the #1 rated morning show in the entire market, with award-winning journalist Oscar Haza and is #1 overall weekly with adults 18 to 34 in demo in the April book. WXDJ FM also is the #1 Hispanic rats with adults 18 to 49 demo and features the only lead Hispanic female host in the mornings with El Vacilon de La Gatita. WRMA Ritmo 95 is the first of its kind Cubatón format with an exclusive and passionate core of listeners and a strong supporting local ad banding community. Taking together, the strong leadership across the nation to larger Latino DMAs and our commitment to talent is driving consistently industry performance. In fact, the first quarter marked our 18th consecutive quarter of outperformance as we beat the markets by 14% basis points according to Miller Kaplan. Now to MegaTV, where our national footprint remains more than 21 million homes via cable and satellite broadcast partners, we have placed strategic focus on strengthening MegaTV's prime time offerings and some of its recent content addition of Pedro Sevcec and comedian Luis Chataing have resulted in audience growth among critical demographic groups. Turning now to our relevant division. As I mentioned, our first quarter results were negatively impacted by COVID-19 and the lack of special events revenues. During last year's first quarter, we had held multiple Calibash events, among others, that resulted in strong events in Los Angeles and Las Vegas, including 4 sold-out nights. Looking ahead, we are closely focused on COVID-19 protocols and vaccination rates in our key markets. We are hard at work collaborating with venues, artists and as appropriate, safety professionals, to make sure we can bring events back and have them safe for everybody. We just announced a 3-night show, Calibash in Los Angeles, which is selling out quickly. Now let's turn to mobile and digital platforms and strategic initiatives. Our efforts in this area are entirely consistent with our mandate to be a leading multimedia Hispanic media company that connects brands with a rapidly expanding and important nationwide Latino audience. We believe that all our brands should have a-Latino focused marketing strategy given the Latino population is growing rapidly in size, cultural influence and purchasing power. Today, we can account for 40 years of experience and connection in the Latino market as well as integrated campaign opportunities that span our audio stations MegaTV, our experiential drive events platform, by combining our audio network business, digital platforms, audio stations, Mega TV and experiential platform, we can offer a truly compelling multi-platform advertising opportunities and brand campaigns to our partners. I mentioned earlier, our efforts to expand our total aggregate audience through increased mobile, digital and social media penetration. As of March 31, our total audience was up 16% compared to the prior year, which is a remarkable achievement given the many challenges and headwinds related to the COVID-19 pandemic. In terms of mobile, our LaMusica platform reaches over 1.5 million people who combined over 15.5 million streaming hours for months. LaMusica continues to drive consistently strong adoption in the market due to its unique content offerings, including original and compelling daily video content, short-form programming, access to millions of songs and deep customization and personalization capabilities. Overall, we have placed strategic emphasis on identifying new digital revenue streams as well as increasing our CPMs on the existing digital offerings. During the first quarter, our total streaming audience surpassed 1.5 million unique listeners per month. The audience delivered over 15.5 million listening hours and over $20 million total listening -- total sessions in the quarter. Given Latinos heavily over-index on mobile phone ownership and usage, mobile remains the primary driver of our digital traffic and accounted for approximately 93% of our total digital traffic in the first quarter. Our primary audio streaming business grew by 10% from 14 million listening hours to 15.5 million during the first quarter. Streaming sessions increased 11%, while unique users grew by 12% from the same period in 2020. LaMusica has a record of 140 million audio monthly ad impressions in addition to 40 million display impressions and 25 million video pre-roll impressions. That is a record. A key driver of our growth in streaming hours and sessions has been the expansion of our LaMusica user base. We finished the first quarter with unique users up 11% compared to the first quarter last year. In summary, while the first quarter was impacted by several headwinds, we see clear pathway to improve performance and accelerating growth as we look to the rest of 2021. Our recent Upfront was an incredible success and showed without a doubt that the power of the multimedia assets and market position has never been stronger. The response from our brand partners, both the existing ones as well as the potential of new ones, was dynamic and very supportive. The Latino population in the U.S. is one of the most sought-after groups given its rapid growth in the size and purchasing power. Today, we connect with over 25 million Latinos weekly across our platforms, and that aggregate audience continues to grow. Despite the challenges the pandemic has presented for SBS in the entire industry, our core competitive strengths has not changed: first, top brand audio stations with leading brands across the nation's largest Latino DMAs; second, a unique mobile entertainment platform in LaMusica and a growing digital and social media presence; third, AIRE, which is the largest minority-owned and certified Spanish language audio network in the nation; and fourth, when the pandemic fully subsides, a leading live event and experiential platform; and lastly, with our recapitalization completed, we can now focus 100% of our resources and attention to further growing our company and positioning SBS for long-term sustainable growth. Thanks for your time and attention. Now let me turn the call over to Jose Molina for the financial overview. Jose?

Thank you, Albert. Before turning to our first quarter results, I would like to discuss the recent completion of our recapitalization. As many of you know, in February, we completed our $310 million private offering of our new 9 3/4 senior secured notes due 2026. We used the net proceeds of this offering along with cash on hand to repay the 12 1/2 senior secured notes of approximately $250 million to repurchase and/or redeem all of the Series B preferred stock for approximately $65 million in cash plus the issuance of approximately 1.9 million shares of our Class A common stock and to repay related fees and expenses of approximately $11 million. We also entered into a 4-year $15 million revolving credit facility which will provide additional liquidity if needed. As Albert noted, we are excited to have the recapitalization completed and to now have the ability to commit 100% of our focus on executing our multimedia strategy and best position SBS for accelerated growth as operating conditions continue to normalize. Moving now to our first quarter results. During the quarter, we observed sequential month-over-month increases in advertising demand in both our radio and television segments despite the continued effects of the COVID-19 pandemic on our local markets and special events. Our consolidated revenues totaled $24.6 million compared to $36.3 million for the same prior year period, resulting in a decrease of approximately $11.6 million or 32%. Consolidated revenues, excluding political sales and special event revenue, totaled $24.6 million compared to $28.8 million for the same prior year period, resulting in a decrease of $4.2 million or 15%. Our radio revenues declined $10.8 million or 33%, primarily due to the lack of special events, including Calibash in Los Angeles and Vegas and other signature events as well as lower local revenues. Our radio revenues, excluding political sales and special event revenue, totaled $21.7 million compared to $25.2 million for the same prior year period, resulting in a decrease of $3.5 million or 14%. Our television revenues declined by approximately $800,000 or 23% due to decreases in local and national sales as well as lower subscriber revenues. Television revenues, excluding political sales and special event revenues, totaled $2.9 million compared to $3.6 million for the same prior year period, resulting in a decrease of $700,000 or 20%. Consolidated adjusted OIBDA, a non-GAAP measure, totaled $1.4 million compared to $7.5 million for the same prior year period, representing a decrease of $6.1 million. Our radio adjusted OIBDA declined $5.6 million or 55%, primarily due to lower revenues of approximately $10.8 million, partially offset by a decrease in operating expenses of $5.2 million. Our radio station operating expenses decreased mainly due to the minimal expenses related to special events and lower barter professional fees and compensation. These lower costs were partially offset by increases in our allowance for doubtful account and music license fees. Our television adjusted OIBDA decreased by $800,000, primarily due to the decrease in revenues. Our corporate expenses decreased $300,000 or 12%, primarily due to decreases in insurance, travel-related expenses and compensation and benefits. Capital expenditures during the first quarter were approximately $800,000. In April, the SBA forgave our first draw PPP loans of approximately $6.5 million. In May, we were granted a second draw PPP loan in the amount of $2 million, which will be utilized to pay for and maintain employment and compensation levels as required by the CARES Act for the loan to be forgiven. As of today, we have cash on hand of approximately $16 million. In addition, we have the undrawn $15 million revolver in place and available if needed. This will conclude our formal remarks. And with that, I'd like to turn the call over to the operator for any questions. Operator?

[Operator Instructions] And our first question today will come from Tim Daggett with RBC.

Can you talk a little bit about the auto category? We've heard some other broadcasters talk about weakness in the first quarter and seeing some weakness in the second quarter given some supply issues. Have you seen any weakness in your auto category? And how much of your revenues come from that auto category?

Look, in last year, the National Association of the dollars -- of the Dealer Association, they reported that it was going to be a healthy 2021. And then this year, the Dealer Association and the auto dealers and the manufacturers started reporting that there's been an issue with the microchip and it has to do with an issue that -- in Taiwan and with an issue related to the microchip and there has been some issue with the supply. So we've been working close with the local dealers, and what we've done with them is we've turned a lot of programs with their used car inventory. And we've done quite well, and we've seen a good amount of inventory in the second quarter, and we've done some record sales for them with programs that we've done with their creatives. And we've had some nice turnaround for Q2, so we're pleased with that. But we've had a little bit of a concern with them, with their inventory. But we're hoping that, that gets resolved. So let's see, we're hoping that gets resolved for this year so.

Okay. Great. And there was some bullish commentary on the second quarter in the press release. Can you give any more specifics about what you're seeing, I guess, we're 2/3 of the way through the quarter, what you're seeing in the second quarter in terms of revenue trends, I guess, maybe compared to 2019?

Sure. I'll give you some color with respect to national. I'll give you some color with respect to network, local and digital. Our numbers with respect to national growth have been in the double digit. We've had a very successful partnership with our new representation with Cats. The revenue increase has been double digit. For April and for May, we're very pleased with our new partnership with Cats. It's been a great partnership with them. And it's been -- from day 1, we've gone -- we've been on a lot of avails with them. And with the network, it's been, I want to say, probably one of the highest network quarters, probably in the history of our network, so it's been at record levels. I want to say for the second quarter without giving formal guidance, it's obvious that we beat second quarter 2020, but I want to say that we are way ahead of second quarter 2019. And in particular, 2019 was an incredible revenue year for us. We had 2 signature events with record sellout, 2 concerts with record sponsorship levels in the 7-figure sponsorship level, and we're way ahead of that with no concerts in this second quarter and no sponsorships in this quarter. So the demand is there. And in particular, there's such a demand for the Hispanic marketplace. And as I mentioned in my comments early, it's -- we continue with Miller Kaplan to outpace the marketplace, all of our industry peers, in terms of record-setting growth in terms of beating all of our peers in the general market, in terms of of outpacing them, in terms of industry growth. So we're very proud of that in all of the markets that we serve. So we're doing quite well.

Great. That sounds great for 2Q. One last housekeeping question, what's the current diluted share count? Is it 9.7 million shares? Is that the right number to use?

Jose?

Yes, sure. So Tim, we have not issued the additional shares that need to be issued yet. We are in the process of, I would say, in the next week or so, we should be issuing about 450,000 of the 1.9 million shares. And then the stub, I guess, the 1.5 million will be issued after we are granted a PDR, which will allow basically the foreign ownership to increase, and we're able to issue them. So that's the game plan. The PDR is probably going to take, I don't know, about 6 months. So it could take up to 9 months, but usually, 6 to 9 months is what we hear.

And then that will take you up to about 9.7 million, is that the right number when that's all done?

Yes. So I'll give you the exact number. It will take us to 9.3 million.

Our next question will come from Patrick Wang with Wang Investment.

The -- sequentially, there's quite a bit of drop off in revenue and EBITDA. I know there's no political, but what's really lagging that -- causing the dropoff sequentially? I mean what's the apple-to-apple comp?

The drop off is the following. The drop-off is when you have 4 concerts that we did in January of 2020, and they generated millions of dollars. And we did a few million dollars of sponsorships in addition to that. So those concerts, there's no way. And look, we have an incredible partnership with MGM in Las Vegas and with the Staple Center. There's no way we're not allowed to do concerts. So when you do several million dollars in ticket sales and you do a few million dollars in sponsorships in the month of January, there's no way that -- the local city just does not allow you to do concerts. So we're waiting to do those concerts. And as a matter of fact, we just announced that we're doing those concerts again. And in any minute, we can probably sell out those concerts in this coming January. So the comps are very tough. So there's no way to make up that revenue. Those are ticket sales so the...

So the pipeline for concert events for 2021, is it pretty close to 2019? Or are you saying you can do better?

No, we're going to -- right now, the demand for concerts is incredible. We just started selling the tickets on Tuesday, so -- but the concrpt, let's say, Calibash, Calibash, we're going to do in January. But we're going to be doing other concerts in late -- in December. So there's an incredible demand balance to start doing concerts, so we're going to see a lot of that in fourth quarter. And we're starting to sell sponsorships. So you're going to see a lot of that revenue that we were not able to do this first quarter, you're going to see a lot of that revenue. We're going to make up a lot of that revenue in fourth quarter, and the sponsorships are going to start hitting in the fourth quarter. So look, I'm very excited. I'm very optimistic that all of that pent-up demand that you're going to start seeing now, you're going to see it in the press. We just put a press release out, and we're selling like thousands of tickets by the hour. And the sponsorships, everybody is putting up a lot of dollars for the sponsors. So we're very excited about that.

Albert, if you don't mind me, I would like to add something. Hey, Patrick, on the sequential, if you're comparing fourth quarter to first quarter, that's a tough comp because traditionally, radio, their first quarter, and Albert mentioned it in his comments, traditionally, first quarter for radio, which is 90% of our business, is a soft quarter. So if you're going from October, November, December to January and February, traditionally, there always is a drop off in January and February. In addition to that, October and November had political dollars in there. So again, just -- if you're looking at it that way and if that was your original question, that's why. In addition to what Albert mentioned, the events, we didn't have the events and the sponsorships in December and January.

Yes. I was just looking at year-to-year comp that you were -- exit year down 12%, and then you started the year dropping 30%, so year-over-year. So I understand the seasonality of the business, but directing to concert, missing action is a big contributor to that.

Yes. But I also think -- I also think 2.5 months -- again, last year, January and February, as Albert mentioned in his remarks, we're on a pace -- a record pace to beat 2019 in January and in February. And then COVID, we started seeing the impact in COVID mid-March. So literally, you had 2.5 months last year, very, very strong. And then the last 2 weeks really -- or the last 3 weeks really rather than this quarter with everything that happened with the capital, people, January was a stop and go for us. So look, it is what it is. Second quarter looks great.

Yes. But look, even when you look at my comments, when you look at Miller Kaplan, we completely outpaced the marketplace, which is the most important thing. When you look at all of our general market peers, we completely outpace them by far by double digits, by 14%. That was the marketplace. So we way outpaced them. It wasn't even close. It wasn't even low single digits. Like all of the other broadcasters, we outpaced them by 14% in the markets we serve, and it's the large markets. They weren't even close. And I'll give you an example, markets like New York. New York, we're the #1 biller in New York. Miami, we're the #1 biller in Miami, by far. They're not even close to us. So that's like the big difference, so.