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Spanish Broadcasting System, Inc (NASDAQ:SBSA)

Q3 2013 Earnings Conference Call

November 15, 2013 11:00 AM ET

Executives

Brad Edwards – Investor Relations, Brainerd Communicators, Inc.

Albert Rodriguez – Chief Operating Officer

Joseph A. García – Director, Senior Executive Vice President, Chief Financial Officer, Chief Administrative Officer and Secretary

José Molina – Vice President of Finance

Analysts

Patrick FitzGerald – Robert W. Baird

Operator

Good morning everyone and welcome to the Spanish Broadcasting System Third Quarter 2013 Earnings Call and webcast. All participants will be in listen-only mode. (Operator Instructions) After today’s presentation, there will be an opportunity for you to ask questions. (Operator Instructions) Please note today’s event is being recorded.

At this time, I would like to turn the conference call over to Mr. Brad Edwards. Mr. Edwards, please go ahead.

Brad Edwards

Thank you, operator, 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’re 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, loss or gain on the disposal of assets net, and impairment charges and restructuring costs or 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 net income or loss calculated in accordance with U.S. GAAP. A reconciliation of the Company’s U.S. GAAP information to OIBDA is provided in the table attached to the company’s 2013 third quarter earnings release distributed yesterday afternoon and available on the investor relations section of the Company's website at www.spanishbroadcasting.com.

I would now like to turn the conference over to Mr. Albert Rodriguez. Please go ahead.

Albert Rodriguez

Thank you, Brad. Good morning, ladies and gentleman. Welcome to the SBS 2013 third quarter conference call. Joining me today are Joseph Garcia, our Chief Financial Officer; and José Molina, our Vice President of Finance. On today’s call, we will provide an overview of recent operating developments and then José will review our third quarter results, and then we’ll open it up for questions.

We reported robust top line results during the third quarter, supported by strong revenue gains across our operations. We are particularly pleased with our Radio segment revenue growth of 14%, which was well ahead of industry, highlighting our ability to effectively convert our leading audience shares into increase advertising dollars. There is no doubt that the investments we have made in our station brands, content and sales force are leading to a considerable improvement in our financial results.

Our consolidated net revenue was up now 13% year-to-date. As the ad environment continues to improve and more and more advertisers turn to Spanish language media, we are in fact delivering our multimedia platform and 360 strategies to gain a greater share of advertising budgets across our markets. At the same time even as we continue to carefully and strategically invest in our business we have maintain our commitment to operating in a discipline manner with our consolidated OIBDA up 14% year-to-date.

Looking ahead the positive trends we have seen in the first nine-months of the year have largely continued and we are encouraged with overall advertising environment across our markets as well as with our ability to convert our audience shares into financial gains.

Turning now to our radio business where the ongoing execution of our strategic plan is delivering strong results. Net radio revenues increase 14% during the quarter and we’re up 13% year-to-date, as we continue benefiting from diversified our platform and strength of our sales team. It is important to note that our growth during the quarter has broad base, and occurred across multiple stations in key advertising categories.

Local radio advertising revenues increased 4% during the quarter and at the national level, radio revenues increased 17% in the third quarter. On a category basis 75% of our top ten categories delivered growth during the quarter, key advertising categories during the quarter included automotive, telecom and retail. In the automotive category, the primary drivers were Ford, Toyota, Honda and Lexus. The healthcare categories also continued to perform well in the third quarter and we continued foresee that this category is remaining a key contributor in the months of head.

In SBS markets we operate Miller, Kaplan reported the following. SBS national sales were up in the markets – SBS national sales were up 18% and the markets were up 2%. SBS significantly outperform the market; SBS local sales were up 5% in the market was up 2%. SBS outperform the market as well as according to Miller, Kaplan. Conversely we witness some weakness in pharmaceutical sales.

Turning now to our ratings performance our intense focus an utilize in market research and direct feedback from our listener base has supported our efforts to secure and promote the best talent and programming format across our markets. This allow us to consistently deliver a high ratings at the majority of our radio stations, we have improvement in successful formula even in a very competitive marketplace.

For example in New York, our flagship station, WSKQ Mega 97.9 FM continues to rank as the number one Hispanic station in America with the highest average core hour listenership as stated in Arbitron. WSKQ also ranks number one in adults 18 to 49, 25 to 54 Hispanic, Monday through Sunday, 6 AM to midnight. And in the most recent Arbitron book, WSKQ also ranked number one adults, 18 to 49, among all English and Spanish language stations in all of New York City.

WPAT 93.1 FM in New York has remained a very strong performer in the nation's second largest radio market. The station experienced a strong 14% increase in ratings in adults 18 to 49, according to Arbitron.

Our success can also be seen in Los Angeles the nation’s top radio market where KLAX, La Raza continues to rank has a number one Hispanic station. This is a tremendous success story for our organization. Highlighting the strength of our presence in the markets since June 2013, El Vacilon del Mandril, KLAX’s morning show ranks number one in the adult 18 to 49 and 12 plus among all English and Spanish state language stations in all of Los Angles based on the most recent Arbitron book.

KLAZ in non-delivered to number one Spanish language show in the late nine consecutive months; El Vacilon del Mandril continues to rank number one in all Hispanic listeners in all key demos of adults 18 to 34, 18 to 49, 25 to 54 in Los Angeles and also in the San Francisco market.

In addition, many of our other stations continue to rank among the top Hispanic formats in their respective markets. Our Puerto Rico stations are also continuing to deliver number one and number two ranked morning shows, El Despelote on WODA FM La Nueva 94 and El Circo on WMEG FM 106.9. We also have the number one and number two ranked afternoon shows on the same stations.

Lastly, we recently announced the launch of AIRE Radio Networks. AIRE is consistent with our goal of creating and distributing leading Spanish-language radio programming and expanded eContent solutions to advertisers. AIRE is set to debut in January 2014, complete with a robust and high-profile celebrity line-up in targeted network vehicles. AIRE Radio Networks is designed to harness the power of SBS multi-genre programming through five targeted network vehicles in more than 30 markets, and national scale solutions on the content, experiential, digital, mobile and online platforms. While AIRE Radio Networks targeted choice in vehicles, we anticipate rapid growth for clients seeking to embrace nationwide Hispanic listeners.

Now turning to MegaTV, we have continued to utilize MegaTV as a key component in our cross-platform offerings for advertising clients. We have been primarily successful in leveraging MegaTV to client campaigns in order for them to expand their reach, which will complement their radio schedule. During the quarter MegaTV’s best performing advertising categories included automated and professional services, we experienced softness in the political category.

On the programming front, we’ve recently added Felipe Viel as a co-host to enhance Charytin show plus the addition of Oscar Haza, one of the most respected journalist has helped attract more eyeballs to our workstation. Looking ahead, we remain committed to maintaining a disciplined approach to managing our cost on MegaTV while strategically investing in our TV content with the goal of counter programming our competition increasing our audience and strengthening our value proposition to advertisers.

With regard to our Internet assets, in the third quarter the total Internet asset sales nearly doubled over the comparable period of 2012. During the quarter radio streaming averaged 1.4 million monthly unique business visitors and our monthly online streaming sessions average 6.1 million. Traffic to our digital properties for the third quarter included approximately 5.8 million monthly page views and 1.7 million uniques. Our social media network totaled 4 million communal likes and followers. In addition, our SMS database has further expanded and we are taking advantage of this growth through paid texting sponsorships.

We also continue to monetize and partner with big name recording artists for our live video chat series. SBS continues to have the highest average time spent per user when compared to all other U.S. Hispanic online networks based on comScore.

On the mobile front, LaMusica mobile app brought 500,000 download marks and uses continue to stream 13 of our radio stations. Our mobile revenue continues to increase. We have been successful at partnering with clients, driving our listeners to activate in-store through sponsored tabs within the app. Our partnership with TuneIn continues to deliver incremental mobile revenue opportunity and national promotion as we extend our localized content to a national audience.

Our entertainment division had a very successful Carlos Vives, multi-market tour that was promoted on the SBS platform during the quarter. Moving forward, we will continue to prudently build out our digital platform with the goal of strengthening our ability to cross promote our assets, and extend our audiences as well as offer advertisers a complete package for promoting their brands.

Overall, we remain very optimistic about the outlook as we continue to focus on executing our plan to strengthen our multimedia platform and further build out our audience while carefully managing our costs. We believe this formula will lead to further improvement in our profitability strengthening our financial profile to the benefit of our shareholders.

Now, let me turn the call over to José for the financial overview.

José Molina

Thanks, Albert. Our third quarter consolidated revenues totaled $41.1 million compared to $35.9 million for the same prior year period resulting in an increase of 14%. Excluding special event revenue and political sales for respective periods. Our consolidated revenues totaled $37 million compared to $34.8 million for the same prior year period resulting in an increase of 6%.

Our radio revenues increased by 14%, primarily due to special event revenue, national sales, local sales and interactive sales. The special event revenue increase to place in our Miami, Puerto Rico, New York and Los Angeles markets. The increase in national sales was mainly in our Los Angeles, San Francisco and New York markets. The increase in local sales was primarily in our New York, Miami and Los Angeles markets. And the increase in interactive sales occurred throughout most of our markets.

Excluding special event revenue and political sales for respective periods. Our radio revenues totaled $32.6 million compared to $30.3 million for the same prior year period represent – resulting in an increase of 8%. Our television revenues increased 21% largely due to the increase in special event revenue offset by decreases in national and local spot sales. Excluding special event revenue and political sales for respective period, our television revenues totaled $4.4 million compared to $4.5 million for the same prior year period, resulting in a decrease of 3%.

Consolidated OIBDA in non-GAAP measure totaled a $11.3 million compared to a $11.7 million for the same prior year period, representing a decrease of approximately 400,000 or 4%. Radio OIBDA increased 3% primarily due to the increase in revenue of $4.2 million, offset by the increase in station operating expenses of $3.8 million. Our radio station operating expenses increased mainly due to compensation and benefits, special event expenses, legal settlements and professional fees, which were offset by a decrease in local commissions. Our television OIBDA was essentially flat when compared to the same prior period.

During the quarter our television revenues and station operating expenses increased by $1 million compared to the same prior year period. The increase in television station operating expenses were primarily due to special event expenses. Finally, our corporate expenses increased by approximately $800,000 mostly due to increases in professional fees and travel related expenses. And our operating income totaled $10.2 million for the current and same prior year period respectively. Our third quarter CapEx totaled $477,000, and we expect our capital expenditures for 2013 to be approximately $2 million.

During the quarter, we paid no cash taxes and we currently have approximately $192 million of federal NOLs. As defined by our indenture governing our notes, our secured leverage ratio was approximately 5.6 times as of September 30, 2013. And our station operating income for our television segment for the last 12 months ended September 30, 2012 totaled approximately $684,000. As of today, we have approximately $19 million in cash.

That will conclude our formal remarks and with that let me turn the call over to the operator to begin the Q&A process. Operator.

Question-and-Answer Session

Operator

At this time, we will begin the question and answer session. (Operator Instructions). Our first question comes from Patrick FitzGerald from Baird. Please go ahead with your question.

Patrick FitzGerald – Robert W. Baird

Hey guys.

José Molina

Hey, Patrick how are you doing?

Albert Rodriguez

Good morning Patrick.

Patrick FitzGerald – Robert W. Baird

So core radio pacing of 8% excluding special events, is that also excluding political?

José Molina

Yes.

Patrick FitzGerald – Robert W. Baird

Okay. And then, I thought you said that the core radio pacings were still doing well in the fourth quarter. Did I hear you right there?

Albert Rodriguez

Yes, they there.

Patrick FitzGerald – Robert W. Baird

Okay. And then...

José Molina

Excluding political.

Albert Rodriguez

Excluding political, yes.

Patrick FitzGerald – Robert W. Baird

Okay and what was political last year just…

José Molina

For the fourth quarter, was about gross 2.1 net about 1.8.

Patrick FitzGerald – Robert W. Baird

Okay. And what was TV pace or…

José Molina

I’m sorry let me qualify that, because that’s all-in, that’s not radio, you want the radio number. It’s about 1.9 gross and 1.6 net for radio.

Patrick FitzGerald – Robert W. Baird

Okay. And then what was TV excluding special events year-over-year, excluding political?

Albert Rodriguez

TV was minus.

José Molina

It was down about 9%.

Albert Rodriguez

9%.

Patrick FitzGerald – Robert W. Baird

Okay. And then your Miami station MegaTV that’s a rated station isn’t it, in that market?

Albert Rodriguez

What do you mean by rated stations, sure though that ratings come up.

Patrick FitzGerald – Robert W. Baird

Yes, is the 9% is that a reflection of ratings or just weaker sales?

Albert Rodriguez

It depends on, it depends on the category, there were some categories that were up, there were some categories that were down. But overall, the station is – we’ve changed some of the program, and we’ve tweaked some of the programming. So we expect it to continue to do well now.

Patrick FitzGerald – Robert W. Baird

Okay. And then just on the special events. Are these events EBITDA positive?

José Molina

Yes.

Patrick FitzGerald – Robert W. Baird

Okay. And then how do you break out the revenue between TV and radio in the special events?

José Molina

Basically on a market-by-market basis as to how the advertising dollars are spent in those markets?

Patrick FitzGerald – Robert W. Baird

Okay. And then in terms of the voting rights triggering event that you put out that press release on. What’s the timing on the Board seats that would potentially come from that voting rights triggering event?

José Molina

That’s really out of our control Patrick so it’s really up to them.

Patrick FitzGerald – Robert W. Baird

Okay. And then is there any update on just from a procedural perspective whether or not there has been like a summary judgment hearing on the preferred litigation against the company?

José Molina

There’s a summary of cross motion due today, but I’ll refer you to Footnote six in the queue.

Patrick FitzGerald – Robert W. Baird

Okay.

José Molina

For an update on that case.

Patrick FitzGerald – Robert W. Baird

Okay.

Joseph A. García

For an update on that case.

Patrick FitzGerald – Robert W. Baird

Okay. All right, thank you very much.

Joseph A. García

Thank you, Patrick.

Albert Rodriguez

Thank you, Patrick.

Operator

And at this time, I would like to turn the conference call back to management for any closing remarks.

Albert Rodriguez

I want to take this moment and thank everyone to that was on the call, the participated. Like I said again, I think it was a great quarter we had, we delivered tremendous results, and I want to thank everybody and we look forward to talking to you guys, again in the next few months. Thank you.

Joseph A. García

Thank you.

Operator

Ladies and gentlemen, that does conclude today’s conference call. We do thank you for attending. You may now disconnect your telephone lines.

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