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

Good morning, and welcome to the Spanish Broadcasting System First Quarter 2022 Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Brad Edwards. Please go ahead.

Thank you, Andrea, 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. 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 and other operating income or expense, excluding noncash stock-based compensation or adjusted OIBDA, is useful in evaluating its performance because it reflects a measure of performance for the company's stations before considering costs and expenses related to capital structure and dispositions. This information is not intended to be considered in isolation or as a substitute for operating income, net income or loss, cash flows from operating activities or any other measure used in determining the company's operating performance or liquidity that is calculated in accordance with U.S. GAAP. A reconciliation of the company's U.S. GAAP information to adjusted OIBDA is provided in the tables attached to the company's 2022 first quarter earnings release, which is available on the Investor Relations section of the company's website at www.spanishbroadcasting.com. I will now turn the conference over to Mr. Albert Rodriguez.

Good morning, ladies and gentlemen. Welcome to the SBS 2022 first earnings conference call. On today, 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 are a strong start to the year and build on the momentum we generated during 2021. Our team is executing at a high level and the power of our audio network and digital and mobile assets have never been clearer. Our performance in the first quarter was among the best in the industry, and our radio business, in particular, had incredible solid results. We delivered great deal of revenue growth of 75%, adjusted OIBDA growth of 151% and operating margins far superior to both our Spanish and English language peers. No one in the radio industry even came close to the performance of Spanish broadcasting. Our compelling station formats, unique digital and mobile content and deep connection with Latinos across all the markets we serve continues to drive strong financial performance and multi-platform audience growth. This past quarter, we closed on the acquisition of 2 audio stations in the Orlando and Tampa area, which made us the largest Hispanic radio operator in the state of Florida. We moved quickly to introduce our compelling El Zol Spanish profitable format at both stations and the reactions from the listeners have been fantastic. If our first quarter results are any indication, 2022 is going to be another amazing year for SBS, our brand partners and the communities we serve. Now let's review our operations, and we'll start with the AIRE Radio Network. For the first quarter, AIRE Radio Networks outpaced the marketplace by 27%. AIRE networks was able to widen the gap and had strong categories in this period. Such categories included retail at plus 155%; government, 148%, pharmaceuticals plus 72%, insurance plus 94% and general services, plus 24%. IDE continues its commitment to super serving Hispanics and asserts 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 audience with adults 18 to 49, 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 initiatives includes the El Terrible Morning Show, La Mezcla with Alex Sensation, the influencer network, delivering campaign messages through a national platform while penetrating local markets and [indiscernible] where brands are aligned with Latin artist. For the first quarter of the year, AIRE Radio Networks was up 34% on Miller Kaplan reported the market up by almost 6.7%, AIRE completely beat the total market in terms of revenue growth. Turning to our audio division, where we are #1 in our top markets across the nation with unrelenting solid rating performance and listener growth. Our deep-rooted and hyper local super serving of the Hispanic community has driven our success. We have content and personalities that listeners just absolutely love to listen to. New York, we report again and again and again that we are the most potent audio combo in all of the Five Boroughs, proof of the synergy and passion of the SBS team, WSKQ Mega 97.9 FM is the #1 audio station in the nation. And with WPAT FM 93.1 Amor, we have the #1 and #2 station in New York City. Our genuine involvement in listener appreciation of the New York Hispanic community has allowed us to build an unshakable unbeatable listener relationship. WSKQ 97.9 and WPAT 93.1 Amor are the top stations in the market regardless of language. Our online digital stream ratings indicated WSKQ La Mega FM is the fastest and #1 most listened to station in New York in any language format in all of the top demographics each quarter and year after year. No one in New York City has the digital stream ratings that WSKQ has. It does not exist. No one is even close. We continue to innovate and open our opportunities for growth in audience and revenues. For example, we have launched a new initiative, our programming team has created new original and audio on-demand content available on lamusica.com. Our content is far superior than any of our peers or competitors. Our content is at Hollywood quality. Original and best moments of our top shows across the nation are now available at lamusica.com. We are now turning to Los Angeles. We're excited to announce the launch Omar y Argelia morning show on KXOL La Mega 96.3 FM. This is no ordinary morning show. They are married coupled with over 18 years of success. On day 1 of launch on their new home, our streaming numbers more than tripled than audience. The show is fun and has unexpected breathtaking moments. The listeners have spread the word amongst friends and family that Omar y Argelia are now on Mega 96.3 FM KXOL Los Angeles. Just months after returning to his home, DJ Eddie One is now the #1 Spanish rated afternoon show adult 18 to 34 Monday through Friday on KXOL Mega 96.3 FM from 3:00 p.m. to 6:00 p.m. KLAX La Raza is the #1 Hispanic regional Mexican station and our morning show, Al Aire Con El Terrible is the #1 morning show among all stations regardless of language. His commitment to the community providing food, wellness information and original fund entertainment makes us the #1 morning show among all Hispanics in the entire Los Angeles area. Puerto Rico's ratings have absolutely exploded. We have a station with the #1 in just about every single demographic group. WODA La Nueva 94, #1 18 to 34; WMEG La Mega 106.9, #1 18 to 49 and WZNT is #1 with men 25 to 54. In Miami, WCMQ-FM Zeta 92.3 is at the top of the morning with audio and video journalists Oscar Haza, and it remains #1 overall weekly with adults 18 to 34. WXDJ El Zol is gearing up for our upcoming MiamiBash concert, a highly anticipated event by our listeners that creates excitement in the market. WRMA Ritmo 95 is at the heart of the Cuban community and it is the home of a unique blend of musical sounds and artists exclusive to the station, not heard anywhere else. Ritmo 95.7 is the only station that has established a powerful connection to listeners and clients in Miami with its continuous support of community efforts. Our overall station impressions continue to surpass the vast market. According to Miller Kaplan, the first quarter marked our 21st back-to-back quarter about performance as we beat our competitors by over 300 basis points. Now to Mega TV where our national footprint remains more than 21 million homes via our cable and 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. SBS Entertainment also produced and delivered the first ever 3 days sold out Calibash concert in L.A. on January 14 through January 16. SBS Entertainment also launched the first ever Latin festival commemorative [ NST ], celebrating the 15th anniversary of the Calibash brand, Calibash Las Vegas and El Dia Nacional de la Banda held in January also saw record-breaking attendance and revenue outperforming all prior years. Based on the momentum and performance of the Entertainment division, the company has focused on a robust calendar of events in 2022, including Mexican regional format concerts in markets like Chicago, San Francisco and Los Angeles. The Entertainment division is also developing strategic partnership with co-promoters in markets like Orlando, Puerto Rico to expand its existing heritage shows. The division currently has over 16 shows scheduled just this year alone, which is an increase of over 100%. Now turning to our mobile and digital platforms and strategic initiatives. Over the last several years, we have had great success transforming SBS into the leading multimedia Hispanic media company period. Today we connect brands with more Hispanics than ever before and our aggregate audience continues to expand. For our brand partners, there has never been a more important time to have a Latino-focused marketing strategy and outreach program. The Latino population is growing rapidly inside, cultural influence and tremendous purchasing power. SBS has the multimedia assets, the reach in 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 across all our major media platforms and offer access to coveted demographic groups. As I stated, our aggregate audience continues to grow. As of March 30, our total audience was up 22% compared to Q1 of the prior year. Our LaMusica platform reaches 1.8 million people who combine for over 19 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 in a 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 first quarter, our streaming audience surpassed 1.7 million per month. This audience delivered 52 million listening hours and over 46 million total sessions in the quarter. Given Hispanics heavily over-indexed mobile phone ownership and usage mobile remains the primary driver of our mobile digital traffic and accounted for approximately 95% of our total digital traffic in the quarter. In the first quarter, LaMusica had a record of 500 million audio ad impressions in addition to the 140 million display impressions and 90 million video pre-roll impressions. A key driver of growth in streaming hours and sessions has been the expansion of our LaMusica user base as well as increasing consumption of our podcast and playlist products, with an average time spent listening of over 45 minutes on the most popular categories. We have added over 20 new shows in Q1 to our podcast offerings, and we expect a tremendous growth on this category for the rest of 2022. In summary, the first quarter marked a strong start to 2022. We delivered a strong financial performance, and we have sustained momentum we generated during 2021. Our audio business will be further strengthened by the addition of its Zol Orlando and Tampa stations, and we continue to meaningfully grow our aggregate multi-platform audience. In addition, our digital and mobile engagement metrics continue to grow, and we are connecting leading national brands with highly engaged Latino consumers in more ways than ever. We had a strong 2021 and entered this year with significant momentum across our business. Our first quarter results demonstrate our ability to build on that momentum and deliver industry-leading growth. We could not be more excited about the year ahead. These are exciting times for SBS, and we see a number of opportunities to drive accelerated growth and deepen our connection with Latinos across the communities we serve. This marks the fourth consecutive quarter of SBS generating revenue at much higher levels than we were at the pandemic. Thanks for your time and your attention. Now let me turn the call over to Jose Molina for the financial overview. Jose?

Thank you, Albert. Now turning to our first quarter results. Our consolidated revenues totaled $40.4 million compared to $24.6 million for the same prior year period, resulting in an increase of $15.8 million or 64%. Our radio revenues totaled $38 million, increasing $16.3 million or 75%. This growth was primarily due to increases in special event revenue and local network and digital sales. Additionally, our radio revenues exceeded the same pre-pandemic period in 2019 by $4 million or 12%, which marks the fourth consecutive quarter that radio revenues are above 2019 levels. Our television revenues totaled $2.4 million, a decrease of approximately $500,000 or 18% due to lower national, border and local sales. Our consolidated adjusted OIBDA, a non-GAAP measure, totaled $6.7 million compared to $1.4 million for the same prior year period, representing an increase of $5.3 million. Our radio adjusted OIBDA increased $7.1 million, primarily due to the increase in revenues of $16.3 million, partially offset by an increase in operating expenses of $9.2 million. Our radio station operating expenses increased mainly due to special event expenses, compensation and benefits, local commissions, advertising and promotions, travel and entertainment expenses, music license fees and barter expense, partially offset by decreases in the allowance for doubtful accounts and professional fees. Also and again, for the fourth consecutive quarter, our radio adjusted OIBDA exceeded the same pre-pandemic period in 2019. Our television adjusted OIBDA decreased approximately $400,000 due to the decrease in revenues. Corporate expenses increased $1.3 million, primarily due to increases in compensation and benefits, travel and entertainment and outside services. Operating income totaled $5.8 million compared to a loss of $800,000 for the same prior year period, representing an increase of $6.6 million. Capital expenditures during the first quarter were approximately $710,000. As of yesterday, we had cash on hand of approximately $8 million. In addition, we have an undrawn $15 million revolver fully available, if needed. On April 29, we closed on the acquisition of our 2 new FM radio stations in Orlando and Tampa for a purchase price of $12.5 million. We used cash on hand to fund these acquisitions. 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 will come from Tim Daggett of RBC.

Could you talk about the trends that you're seeing in the second quarter on both the radio and the TV selling as we're halfway through the quarter and kind of what you're seeing now?

I can tell you that national is up mid to high single digits. Network is exploding, network is in the high 30s or 40s. We're seeing the highest gains in the company's history in network. Local is going to be up a few points -- we're doing a concert this month. We have solid projections on that here in New York and with a very high estimate for sponsorships. So we're feeling really good.

Great. And then looking at the outlook for '22, I know we've talked before about the path to getting over $50 million of EBITDA. Does that still seem reasonable given the first quarter and kind of the outlook in the second quarter, do you think we can hit or surpass that $50 million of EBITDA number in fiscal '22?

That's certainly the target. We're very optimistic about this year. There's going to be a lot of political money coming in and Spanish broadcasting because of the technology and the reach of the content that we have. We will be in pretty much every single swing state in the nation with respect to political advertising. So we're very, very excited about that. Our programmatic revenue has absolutely gone through the roof and continues to grow with certain deals that we've done. So we're very optimistic about 2022.

Great. And then when we think about the M&A environment, what are you seeing out there in the market in terms of multiple assets for sale? I know you made the 2 recent purchases. What are you seeing in terms of more potential opportunities to buy some stations in the market?

Look, after the company's successful refinance, we are very well positioned to grow our platform because of our content. And because of the 2020 census, we showed the Hispanic group in terms of being the biggest -- continuing to being the biggest minority, but grew faster than every single other group. So there's Hispanics across the nation. If there's stations that makes sense for us and the number is right, that's something that we're very open to. We are 100% in the growth mode because of the audience that we serve. And technology we are -- our technology as a broadcaster for radio is the best compared to -- we're like a Silicon Valley technologically advanced audio and video company. And the reason for that is because we have the #1 station in America, which is in New York Mega and at the same time, that's -- the #1 station, which is Mega New York, on the broadcasting side and on the streaming side. So we are uniquely qualified because of the technology, the team, the programmers that we have, we feel we are best-in-class in audio and streaming, period.

Awesome. And then maybe like longer term, the business is executing at a very high level. What's like the longer-term plan for Spanish? So maybe 3 to 5 years out, where do you see yourselves? You see as a potential sale to somebody else getting bigger through acquisitions, maybe selling your TV business, kind of where do you see yourself 3 to 5 years out? And that's it for me.

And look, that's more of a question for the Chairman, but in terms of executing the Chairman's vision. The Chairman's vision right now is growing the Hispanic footprint in the platform that we have. So we are in total growth mode. In my opinion, I don't see in terms of selling right now. He is -- his vision is 100% with respect to as the Hispanic market has boomed and grown, he is going to continue to focus on growing our footprint because our content is so relevant. So we're in 100% growth mode.

The next question comes from Matt Swope of Baird.

Can I just follow up on the TV part of that last question from Tim. This is a business that just has felt subscale for a long time is not probably producing the kinds of numbers you want. But what is the plan with TV? Would you be open to sell that or would you actually even be looking to acquire to sort of improve the scale there? How do you look at that?

Look, right now, we're investing in our content. We're up for a big political season. We're going to be announcing something very big on television, which is going to be good in terms of content, and we hope to monetize on it. We're also going to be releasing our app on television. Now the television broadcast market has been challenging, obviously, with linear television video and where the streaming division is going on. So -- but if something were to -- if there will be an opportunity for someone to look at the television asset. Obviously, it would have to make sense for us, but for right now, we're focused on growing our content and investing in our content and making sure we're ready for this very busy political season. And right after the midterms, we're going to go full force with the presidential election cycle. That's what we're hearing from both sides of the party. So we've been making sure that we invest in the right news to make sure that our content resonates with the upcoming political seasons, both of them, which are back to back very soon.

Right. Got you. That's helpful. And then maybe one for Jose on the capital structure. You guys did a nice job with cash, we're up to close to $20 million at the end of the quarter. We've got this really tumultuous market right now. Is there any opportunity to buy your bonds back at a discount or to delever via debt reduction in any other way?

Look, we look at the market, and we're open to suggestions and we look at these things. But at the moment right now, we're looking to invest into the business to delever by growing EBITDA. That's our current strategy right now. But look, I mean, if opportunity presents yourself, absolutely, we'll look at it.

Next question comes from Matthew Sandschafer of Mesirow.

I wanted to go back to the political topic. Did you guys generate any political revenue this quarter?

We generated some advocacy, but the big political is going to be starting very soon. So we'll be busy in stuff. And after Labor Day, that's where the big buys come, but we're very, very, very active right now on negotiating deals with both sides -- both parties.

Okay. And you still think you're on track for -- there was a $12 million to $15 million number that was thrown out on the previous call.

Look, that's what our target is. And being that we're going to be in so many of the swing states because of our audio platform. We're going to get buys in pretty much every single state, Georgia, Pennsylvania, Rhode Island, Michigan, Arizona, New Mexico, Nevada, a lot of local races in those states. And plus, in Florida, we have a very strong hold on Florida. Now we're uniquely positioned, obviously, as being the largest Hispanic audio broadcaster.

Okay. You guys have prepared performance for 2019 a few times. And I guess I am curious with that kind of political revenue, you did $51 million in EBITDA in 2019. I guess I understand that to be generally higher margin revenue. And I guess I'm curious why it is that you don't expect to clear the 2019 number buy more with the political revenue at your back?

Look, we should be in 2019, there was not as much -- there was not that much political revenue. We had some, but not a lot. And month after month -- and this is with the fourth consecutive quarter that we're beating 2019 revenue numbers. So we feel really good in terms of -- we've had a spectacular start in 2022. There has been no other radio broadcaster that even had close to the revenue growth that Spanish Broadcasting did, and I'm talking about total market, none of the larger radio broadcasters came even close in terms of revenue growth and also OIBDA growth, basically the same.

Right. But I guess revenue is going to be a big over 2019, but EBITDA is going to be roughly flat to 2019, is what it sounds like.

Possibly. But the target is obviously to get a little bit above that 2019 number. Let's see -- look, what probably held back the broadcast industry has been the little bit of the noise of the war. So some of the brand partners were a little reluctant to grow their investments, but hopefully, moving forward, that will all pass.

Okay. One more question from me, and then I'll stop. The SG&A line obviously moved up a lot this quarter and Jose listed a long -- there were a lot of reasons why it's up. I guess, is this the new level I should -- we should expect kind of $20 million in the quarter or were there some things this quarter that were unusually high that will come down going forward?

We've made certain -- obviously, we just launched 2 stations that we've made investments -- but Jose, did you want to give a little color on that?

Sure. Sure. Yes. So we had a very intense first quarter from an event standpoint. So in that number, there's about $6.3 million of event expenses that -- those are variables. So the quarters that we do have events, there's a lot of expense running through that line item. As for guidance from my end, this is Radio. So I'll give you some guidance on radio. Radio, the operating expense is probably quarter-over-quarter stripping out events is going to be low to mid -- in the low to mid-20s. Each quarter varies clearly based on revenues. And on the TV side, you're looking at about $3.5 million of operating expenses quarter-over-quarter. And that's all in operating expenses, by the way.

The next question comes from Craig Carlozzi of Longfellow.

Shifting gears a little bit. Thinking about your equity for a moment and trying to add some value to the equity holders. Given how just -- how illiquid it's trading, I mean, I think it's literally $16,000 worth a day on average over the last 3 or 4 months, assuming you don't think that the equity market cap is currently a reflection of the proper value of the business. Would you consider even spending a small amount of money supporting or cleaning up the equity like $100,000 a month type number could greatly improve the trading performance of the stock? Is that something you'd consider or are considering?

Jose, you want to take that one?

Sure. Sure. Look, we will take everything -- we take everything into consideration. But as we said, right now, we're looking to really grow the business from a footprint standpoint, from a content standpoint, from a digital standpoint. We believe that there's a huge opportunity in Hispanic space now that we must capitalize. So that's our real initiative for 2022 and going forward. But yes, absolutely, if something makes sense and we have the capital to use that, we'll consider it.

Okay. I mean the difference between the equity and the bond is obviously to move the needle on interest savings, you have to spend a lot more capital on the bonds. But I don't know if there's any benefit to your vision over the next 3 to 5 years of having a stock price more reflective of the economic value of the company from a perception standpoint, but I do think a small amount of capital dedicated to the equity or rebuying shares might make a lot of sense or something to think about.

Thanks, Craig, for the feedback.

The next question comes from [ Derrick Wegner ] of [ Fonsi ] Capital.

Yes, Concise Capital. I am a bondholder. And I wanted to know -- I understand you're in growth mode, but your leverage is still fairly high, and you're planning on delevering through growth in EBITDA, all good. I'm just throwing out some caution here if you're going to consider an acquisition, which was alluded to earlier as a possibility that you wouldn't want to lever the company to do such that maybe you would use your stock in a transaction. So I wanted your comments on that. And then secondly, I don't believe there's a transcript available for the earnings calls, but that would be helpful if there's not.

Certainly. Jose, did you want to take that one?

Sure. Yes, Derrick. So look, from an acquisition standpoint, clearly, we would have to make a prudent investment. We're not going to go out and lever up the company. We truly understand that our leverage is high and totally understand that. So again, we're cautiously optimistic with growing the company, clearly. But we -- first of all, the bonds are somewhat restricted, right? So there is a lot of things here. Now as to issuing equity to fund an acquisition, those are options that we have.

And then the transcript?

We'll get the transcript and put it online.

The next question comes from Ben Brogadir of Odeon.

Ben Brogadir from Odeon. Just a quick question on the Cox Radio 2 station acquisition. Do you guys give any color just trying to think pro forma on multiple, did you guys give any color in terms of what you expect those stations to do from a revenue and EBITDA standpoint?

Yes. Right now, we're not really much giving any guidance on these 2 stations, but we do believe that there will be cash flow positive rather shortly. We are utilizing a lot of the synergies within the company. But yes, in the beginning, we'll have investments but in the near term, we believe it will be cash flow positive.

I agree with that.

This concludes our question-and-answer session. I would like to turn the conference back over to management for any closing remarks.

I wanted to take this opportunity and thank everyone who participated in today's earnings call and -- for Q1, and I look forward to discussing our second quarter results with everyone. So have a great day, and thanks for participating. Thank you.

The conference has now concluded. Thank you for attending today's presentation, and you may now disconnect.