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

Good morning, everyone, and welcome to the Spanish Broadcasting Second Quarter 2021 Earnings Conference Call. [Operator Instructions] Please also note today's event is being recorded. At this time, I'd like to turn the conference call over to Brad Edwards, Investor Relations. Sir, please go ahead.

Thank you, Jamie, 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 that 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 or expenses, 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 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 2021 Second 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. We delivered strong second quarter financial and operating performance as the market recovery continues to take shape, and we remain the fastest revenue-growing radio company in the nation. Our financial performance continues to deliver industry-leading results with our radio revenues up 180% ahead versus 2020, 160% ahead of 2019 levels despite of the lack of special events, greater than every general market and Hispanic peer in the nation. No radio group even came close to SBS in revenue growth in this quarter. Despite the lingering COVID-19 headwinds, today, we are ahead of 2019, which clearly speaks to the underlying power of our assets, the success we are having executing our strategy and our competitive position from both a market and platform perspective. We're also delivering this performance with the benefit of our leading experiential platform. Today, the purchasing power and influence of the Latino consumer has never been stronger and the results of the 2020 census show the growing diversity of the U.S. and the continued rise of the Latino population. Today, we engage with over 25 million Latinos weekly across our media platforms, we have the team's assets and market position to emerge on the other side of the pandemic a stronger company, and our second quarter results show we are well on our way. As I mentioned on our last call, we expect to deliver accelerated performance as we move through 2021. Our results for the second quarter show we are solidly on that path. Our continued aggregate multi-platform audience growth puts us in solid position to achieve this goal. Now let's review our operations, and we'll start with that AIRE Radio Network. For the second quarter of the year, AIRE Radio Network was in line with network marketplace, which overperformed the marketplace by 33%. AIRE was able to widen the gap and had solid performance across multiple categories, including automotive, plus 326%; government, plus 271%; CPG with 129% growth; and finally, insurance with 188% growth. AIRE continues to gain momentum and assert its position as the largest minority only served by Spanish language audio network. In the nation, its core competitive advantage include 90% -- 95% reach of the U.S. Hispanic marketplace, 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 remains our El Terrible morning show, which currently airs across more than 20 stations in attractive markets such as Houston, San Diego, Portland, Chicago, L.A., San Francisco, Spokane and Vegas, just to name a few. Looking at the third quarter, as of today, AIRE is pacing plus 66%. This confirms that AIRE is one of the fastest growing networks in the nation. We are confident that the network landscape will further recover as the country continues to open and brands regain their confidence. Our AIRE national network remains in strong position to capitalize on this growth given our reach, growing audience and leading content offerings. Turning to our audio division, where we operate many of the top-ranked stations across the nation's largest DMAs and delivering continued solid ratings performance and audience growth. Today, our connections with the Hispanic community has never been stronger given our leading content offerings, compelling station formats and 100% commitment to delivering local health, wellness and support information to every community we reach in New York as a result of our extraordinary programming team effort. Our New York stations have erupted straight to the top of the Empire State Building in terms of ratings. WSKQ Mega 97.9 FM is the #1 audio station in the nation and now sister station, WPAT 93.1 Amor in the recent Nielsen Audio weekly ratings has catapulted to the #1 spot in the market in the 18 to 34 demo. This is the first time that each of our stations is #1 in the market in multiple demographics. Beating all stations in New York City, we have earned the goodwill of the New York Hispanic community with our hyper local focus efforts and our sincere efforts with our community have created a strong family bond with our listeners. WSKQ Mega 97.9 and WPAT 93.1 Amor are at the top stations in the market regardless of language, combining both terrestrial and our online digital streaming ratings indicate that WSKQ La Mega FM is the indisputable #1 most listened to station in New York and anyone in the format and in the coveted demographics of both 18 to 34, 18 to 49 and 25 to 54. The marketing leading performance of our stations is not a new phenomenon. Our stations have dominated the Tri-State area for well over a decade, and we consistently beat every other audio station regardless of language every quarter, every year. The long run of success is built upon the power of our brands, our station teams, our unmatched talent and our unwavering commitment to delivering what the Hispanic community wants to hear. I want to note that we are having much success in leveraging our leading station brands and building a growing presence across other media platforms, which is driving audience expansion as well as diversifying both our revenue streams as well as advertising programs we deliver to our brand partners. Online streaming and engagement metrics for both Mega WSKQ and 93.1 are rapidly growing, and listeners continue to stream the station at record rates. Turning now to Los Angeles. KLAX La Raza 97.9 is the #1 Hispanic regional Mexican station in the market with the 18 to 34 demographic. And last week, we announced and welcomed back home the hottest and most in-demand DJ in Los Angeles, DJ Eddie One. He is back on KXOL Mega 96.3 FM from 3:00 p.m. to 7:00 p.m., and the reception has been nonstop listener party. We are making the moves to continue our dominance in the market. In Miami, WXDJ El Zol 106.7 is performing stronger than ever. It is the #1 Hispanic station adults 18 to 49 and 25 to 54. WXDJ El Zol 106.7 is the home to the only Hispanic female leading morning show host El Vacilon de la Gatita. WCMQ Z92.3 reigns #1 in the morning, radio, TV journalist Oscar Haza and has also remains #1 some overall weekly with adults 18 to 34 demo. Recent unforeseen events and disturbances in Cuba had put WRMA Ritmo at the unforeseen forefront of the Cuban Miami supporting community efforts. This is the only station with Cubatón format globally and is exclusive passionate core of the listeners and solid supporting local ad buying community. Our overall station footprint continues so consistently to outperform the broader market. The second quarter marked our 19th consecutive quarter of outperformance as we beat our markets by 48% according to Miller Kaplan, now on MegaTV, where our national footprint remains more than 21 million homes via our cable satellite broadcast partners. Our prime time content remains an area of focus, and we are making progress driving audience growth among critical demographic groups. Turning now to our live events division. During the second quarter, the company was able to coproduce heritage shows, Día Nacional de la Zalsa, as well as [ YOY ] in Orlando and events counting more than 12,000 attendees per day at the Orlando Fairgrounds. SBS Entertainment also launched Calibash on June 1, pacing to sell up in the coming months, strong record numbers on the 3-day on sale. On sale, Calibash saw a 16% increase in ticket sales and over 40% in gross revenue year-over-year. The entertainment division also relaunched the MiamiBash and Mega Bash concerts. These are key events for the Miami and New York market that counts on telecommunications as a title sponsor and lift industry-leading top talents. Mi Casa Tu Casa (sic) [ Mi Casa Es Tu Casa ] audio concert series launched the pandemic in 2020 and continues to be a valued programming asset and counts with financial title sponsors initiatives that have grossed roughly $1.5 million since its inception and now streams on our radio stations. Looking ahead, we have closely focused on COVID-19 protocols with vaccination rates in our key markets. We are hard at collaborating with venues, artists and appropriate safety professionals to make sure that we can execute events safely for everyone. Now turning to mobile and digital platforms and strategic initiatives. Over the last several years, we have had great success transforming SBS into a leading multimedia Hispanic media company. Today, we connect brands with more Hispanics than ever before, and our aggregate audience continues to expand for our brand partners. They have never been a more important time to have Latino-focused marketing strategy and outreach program. The Latino population is growing rapidly in size, cultural influence and purchasing power. These trends are showing no signs of slowing down. SBS has the multimedia assets to reach and over 4 decades of experience and commitment to the Latino community across the U.S. As such, we can deliver compelling and integrated advertising opportunities that cross all major media platforms and offer access to coveted demographic groups. As I stated, our aggregate audience continues to grow. As of June 30, our total audience was up 22% compared to the prior year. Our LaMusica platform reaches over 1.5 million people combined over 16 million streaming hours per month. Usage and adoption of LaMusica continues to accelerate as it offers a truly unique mobile and digital experience, including original daily video content, short-form programming, millions of songs and personalized experience. Overall, we have placed strategic emphasis on identifying new digital revenue streams as well as increasing our CPMs on existing digital offerings. During the second quarter, our total streaming audience has surpassed 1.5 million unique listeners per month. This audience delivered over 16 million listening hours and over 21 million total sessions in the quarter. Given the Latinos' heavily index on mobile phone ownership and usage, mobile remains the primary driver of our digital traffic and accounted for approximately 93.5% of our total digital traffic in the first quarter, streaming sessions increased 17%, while unique users grew by 14% in the same period in 2020. LaMusica has a record of 140 million audio monthly ad impressions. In addition to 42 million display impressions and 24 million video pre-roll impressions, a key driver of our growth in streaming hours and sessions has been the expansion of LaMusica user base. In summary, we are focused on building on the momentum of our business and further driving growth in the second half of this year. We delivered industry-leading audio margins in the second quarter and the performance that has surpassed the 2019 levels. Looking ahead, we see a clear pathways to build upon our over 4 decades of success serving Latinos nationwide and deliver increased return to our shareholders. Today, we connect with over 25 million Latinos weekly across our platforms and that aggregate audience is growing. Our connections with Latinos across the country has never been more stronger, and our content has never been in greater demand. Thanks for your time and attention. Now let me turn the call over to Jose Molina for the financial overview.

Thank you, Albert. Now turning to our second quarter results. During the quarter, advertising demand improved each month on a sequential basis as the ad market continues to recover. Our consolidated revenues totaled $36.2 million compared to $15.5 million for the same prior year period, resulting in an increase of approximately $20.7 million or 133%. Our radio revenues totaled $33.1 million, increasing $20.3 million or 160%. This increase was driven by the continuous improvement of all of our cash advertising revenue streams. And when comparing these results to the same period in 2019, radio revenue surpassed 2019 levels despite the lack of hosting any major special event in 2021. Our television revenues increased approximately $300,000 or 11% primarily due to an increase in local revenues. Consolidated adjusted OIBDA, a non-GAAP measure, totaled $12.2 million compared to $1.6 million for the same prior year period, representing an increase of $10.6 million. Our radio adjusted OIBDA increased $13.2 million, primarily due to the increase in revenues of $20.3 million, partially offset by higher operating expenses of $7.1 million. Radio station operating expenses increased mainly due to increases in commissions, compensation, music license fees, rating services and barter expenses, partially offset by a decrease in the allowance for doubtful account. Again, despite the lack of major special events during the second quarter, our radio adjusted OIBDA of $15.6 million resulted in an increase of $1 million or 7% when compared to $14.6 million for the same period in 2019. Our television adjusted OIBDA decreased $1.4 million due to higher operating expenses of $1.7 million, partially offset by an increase in revenues of approximately $300,000. Television station operating expenses increased due to higher net production costs, outside programming services and facilities expenses. Corporate expenses increased $1.2 million primarily due to increases in compensation, outside services and travel-related expenses. Capital expenditures for the second quarter were approximately $575,000. And in April, the SBA forgave our first draw PPP loan of approximately $6.5 million, which was used to offset compensation and benefit expenses in the second quarter of 2020. And in May, the SBA granted us a second draw PPP loan in the amount of $2 million. These proceeds were utilized to pay for and maintain employment and compensation levels during the second quarter of 2021 as required by the CARES Act for the loan to be forgiven. As of yesterday, we had cash on hand of approximately $25 million. And today, we made our first interest payment of $16.3 million. In addition, we have the undrawn $15 million revolver fully 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] Our first question today comes from Tim Daggett from RBC.

Nice job to see the strength in the second quarter. I was wondering if we could kind of dig a little bit deeper into the third quarter. Do you think we can get back to the levels of revenue and EBITDA? I think you did about $36 million of revenue in 3Q '19. Do you think we can get back to those levels in the third quarter of '21?

We're already there.

We're -- on the radio side, it's looking good, on the revenue side of things. On the EBITDA side of things, we're working through some investments that we're investing in to capitalize on 2022, but it looks very, very...

Very promising, where the revenue side is incredible on what your question is. The national, the revenue is through the roof. The network side, the revenue is through the roof. We're seeing a lot of momentum on the local side with respect to the revenues. So it's beyond what we had forecasted. So you're going to see very, very impressive results on the third quarter on the revenue side.

Right. And then from the margin perspective. I know the margins popped up to around, I think, 47% or so, On the radio side. Should we model a little bit less than that going forward? And as I'm plugging to the model, it seems like we could get back to above that $40 million of EBITDA for '21. Is that realistic to think we can get there this year?

Yes, look, on the radio side, I'll just speak radio. On the radio side, we always strive to be in the [ 40% range ]. Sometimes it's 42%, sometimes it's 47%, just depending on the quarter and depending on how things shake out. But our goal is always to be above 40% on the radio side of things.

Okay. Great. And then I saw that the TV expenses kind of bumped up a little bit because I think it was slightly negative EBITDA. Will that turn around?

We're working to turn it around where we're having some -- we're making some investments on television, and we're dealing with some of the Puerto Rico tax credits. Revenues are up in television, but we're working on some of the tax credits with the Puerto Rico government. But we're hopeful on that front.

Our next question comes from Patrick Wang from Voya Investment.

Well, at the lack of special events, what kind of revenue do you guys usually do in special events? And my calculation is around $50 million in the normal years, in the '18, '19 levels.

Well, the event -- look, it depends on special events, they vary. If you're doing an event at an arena which could carry 16,000 attendees. If you're doing an event at a smaller venue, that could be anywhere from 5,000 to 6,000. Or if you're doing an event in a smaller venue, that could be up to 2,000. So some of those events, you can do -- you can net $1 million a night. You can net anywhere from $500,000 a night, or you can net anywhere from $200,000. So we're looking at doing events in the fourth quarter, in the late fourth quarter. We're looking at doing an event in MiamiBash, and that's going to be in an arena. We're very optimistic about that. We're looking at doing one in New York and then Calibash in the first quarter, and that's going to be 3 nights in January. And we're on pace to have one of the records in California. We've already surpassed what we did in growth in 2020. So we're very optimistic about that. And in particular, I'm very hopeful because we're going to set the highest record with respect to sponsorships in the history of the company. So we're very, very optimistic. Our brand partners have embraced to an event, and we have all of the protocols in place as it relates to having an event with safety protocols for COVID, and we are at record levels in terms of selling tickets. So we're very optimistic about that.

And operationally, it does wonders for ratings and user -- listener engagement. So we're looking forward to turning the corner on the COVID protocols to have these live events. Very excited for 2022.

Right, right. So what's the historical range for events in a normal year? If you do $2 million a night for -- $1 million for arena, it looks like you have at least 3 of those so...

It really just matters on how many events you do, like Albert mentioned. I'll give you just some rough numbers. Roughly, from a ticket sales standpoint, we did approximately roughly $10 million in 2019. And then as Albert said, we sell sponsorships, which are in the local and the national, and that can be $5 million. But that's all just based on volume of events. Going into '19 and while we were going into '20, we were slated to grow that division. So these are just historical numbers. We would like to do much more events. We believe that we have the infrastructure and we have the connections with the artists and the synergies with our properties to do very well in this market and segment.

Right. Great, looking forward to that. Another question on taxes. You have NOL about $206 million, but the forgiveness of the PPE (sic [ PPP ] loans and then also prefer the $119 million gain on the repurchase of the Series B preferred. Do those make a dent on the NOLs? Do you have to pay taxes on debt forgiveness?

So let me -- well, when we did our refinancing, there was a Section 382 that limited our NOL. So pretty much we're probably -- we -- right now, I believe we have $20 million of NOLs left, which can be utilized $4 million to $5 million over the next 5 years or 4 years. So that's where we stand today. So we are an active tax payer going forward. And cash taxes for this year, we're estimating to be approximately $4 million, taking into consideration everything that you've said.

What's your tax rate? What's your marginal tax rate?

It's a blended rate. it's in the 20s. I don't know exactly the number right now because in Puerto Rico, it's a bit different than the U.S.

Right. Okay. But you're a full taxpayer? [indiscernible]

We are. Like I said, we have $20 million of NOLs that can be utilized over the next couple of years.

Okay, got you. So could you talk about the advertising trends in automotive with SAARs now a bit below 15 million because of shortage of vehicles to sell. Is that impacting your advertising sales on automotive category?

It's impacted slightly, but I'll tell you, our Tier 3 is still selling cars like crazy. They've come up with a strategy and to sell used cars with the limited new car inventory that they have. So our Tier 3 is still significantly strong. Our Tier 1, very strong, and in particular, with -- we've been able to capitalize in all of our key -- in a lot of the key business metrics with a lot of the key categories because of the minority business and because of the Hispanic market has grown so significantly with the census numbers coming out and Hispanics being so strong. And in particular, our strong ratings in all of these key markets that we're at the top of the tier in terms of ratings. So we're, in essence, in all of these markets a must-buy. When you go, in particular, in New York, we're a must-buy in that market, in Miami, in L.A. and even markets like San Francisco. Our network, national with our new partnership with Katz, we're a must-buy in all of these markets. It's not if you buy us, it's you have to buy us. And in all of these key markets and they look at us, and we reach and we connect with the Hispanic consumer. And with the Hispanic buying power being so significant, our clients get results. Our brand partners get incredible results. So that's why our revenue numbers, and as I stated in my comments, in what I mentioned early in my comments this morning, we are the fastest growing company in terms of radio company, in terms of revenue by far, and nobody even came close to us. When we look at Miller Kaplan, we have to continue to analyze because we, by far, beat every radio broadcast in terms of revenue across the country. Even our network is growing at a very fast speed. And with our new partnership with Katz in national, our network revenues just skyrocketed. We're in a very good position, and our third quarter results are going to be impressive, very, very impressive. And we've got an incredible content team, we've got an incredible management team, and it's all really just come together. And after a very successful refinance and everything has just come together for our team and our company is just going to continue to grow. And we have the right content, and we're pretty much #1 in all of the major markets that we serve. We have the right content. We have the right team, and we know how to monetize. And we have incredible margins.

Laser-focused, yes.

Laser-focused. And we deliver an incredible product, and we're #1. And we're proud to say it. The results are there.

Fantastic. Great. That's excellent. Just quickly, the -- just the total share count. The A and B shares add up to about 6 million shares. So what did preferred the final settlement? And what's the total share count as of today? [indiscernible]

Yes, so if you -- the -- if -- here, let me -- let me work backwards here. If you convert the Series C preferred stocks and you take the As and Bs, you're roughly at about 7.8 million shares outstanding today. There's about 1.4 million to 1.5 million shares that need to be issued after the PDR is approved, which will take the share count to about 9.2 million, 9.3 million. So if you want me to -- you want me to take it by class or is that fine?

No, no. The total share is fine. You said total will be 9.2 million, right?

Yes, when it all shakes out, roughly about that. 9.3 million. 9.3 million and that's converting the Series C, 2:1, to As.

Right, right. Okay, got you. Yes, that number is not showing up in Bloomberg yet.

It's not because the shares have not been issued. Remember, we cannot issue the shares to foreigners. We have to clear the PDR first. So the full outstanding shares, for all intents and purposes, I would say, is roughly -- again, converting the preferreds, is about 7.8 million.

Got you. Got you. So what's -- going forward, it looks like you're going to generate quite a bit of free cash flow. What's your primary focus or usage for the free cash flow?

Well, clearly, we did a pretty levered deal. Our goal is to delever the company as quickly as possible. In addition to that, anything that can grow the company's revenues and EBITDA, we'll definitely look at. But our main focus is to clearly delever the company. We have a 2.5-year call. So clearly, build cash. We had enough cash to pay the interest this time around and continue building and investing prudently in the future. Digital network, like Albert said. National, we just got a new deal with Katz. So really laser focus on operations, giving each department the necessary tools to excel. And again, looking forward, I think all broadcasters are really looking forward to 2022, especially Spanish Broadcasting giving what's going on in the society with minority broadcasters being Hispanics and the election going -- the elections going forward and the states that we serve in and the demographics being so critical and important now.

Right. In light of the fact that the bonds -- the first lien bonds trading below the special call, would you be willing to make open market purchase for the bond?

Yes. I think right now, we're laser-focused in the business right now. I think that we can make some moves that are very accretive to the business itself. So that's our goal today. But look, it's not out of the question either. That would be a decision for the Board and management to make.

And ladies and gentlemen, with that, we'll end today's question-and-answer session and turn the floor back over to management for any closing remarks.

Look, I want to take this time and moment to thank everybody who participated on today on the second quarter conference call. But in particular, I am looking forward to getting back on for the third quarter because I'm so excited to share what we're going to do for the third quarter. I'm very excited what we have in store for you guys for the third quarter, some outstanding, outstanding results for the third quarter. But everybody, have a great afternoon, have a great Labor Day, and I can't wait to get on the phone with you guys to share our outstanding results for that third quarter. Thank you, guys.

Ladies and gentlemen, with that, we'll conclude today's conference call. We do thank you for attending. You may now disconnect your lines.