Spanish Broadcasting System (SBSA) Q4 2015 Results - Earnings Call Transcript

| About: Spanish Broadcasting (SBSA)

Spanish Broadcasting System, Inc. (NASDAQ:SBSA)

Q4 2015 Earnings Conference Call

April 18, 2016 11:00 AM ET

Executives

Brad Edwards - Investor Relations

Albert Rodriguez - Chief Operating Officer

Joseph Garcia - Chief Financial Officer

Juan Garcia - Executive Vice President

Robert Castro - Vice President, Finance

Analysts

Jason Bernstein - Odeon Capital Group LLC

Patrick Fitzgerald - Robert W. Baird & Co.

Yehuda Miller - Cedarview Capital Management

Operator

Good day, and welcome to the Spanish Broadcasting System Fourth Quarter and Full-Year 2015 Results Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation there will be an opportunity to ask questions. Please note this event is being recorded.

I would now like to turn the conference over to Mr. Brad Edwards. Please go ahead sir.

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 are directed to these filings for more detailed information. Spanish Broadcasting System undertakes no obligation to publicly update or revise its forward-looking statements. Please also note that we will be discussing non-GAAP financial measures within the meaning of the SEC rules.

The Company believes that operating income or loss before depreciation and amortization, 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 with the Company 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 2015 fourth quarter and full-year earnings release, which is 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 gentlemen. Welcome to the SBS 2015 fourth quarter and full-year earnings conference call. On today’s call, we’ll provide an overview of recent operating developments and review our financial results. Joining me today are Joseph Garcia, our Chief Financial Officer; Juan Garcia, our Executive Vice President; and Robert Castro, Vice President of Finance.

Now turning to the fourth quarter operating highlights. I am extremely pleased to announce we finished the year strong in the fourth quarter with revenues increasing by 11%. Our performance was driven by strong revenue growth at our audio and digital business. Overall, fourth quarter concluded another successful year as we have made further progress transitioning SBS into the leading multi-platform media company, engaging and connecting U.S. Latinos across demographic groups.

During the fourth quarter, we made solid progress executing our multi-platform strategy and growing our audience shares. We further expanded our AIRE radio network, which continues to gain traction with listeners and advertisers while also expanding our digital and mobile capabilities. This includes the recent launch of our new LaMusica app. Overall, we took a number of steps in 2015 to build a more robust multi-platform offering that deliveries highly engaged Latinos on-air, online, and via mobile.

Our radio station group remains well-positioned in key Hispanic markets including New York and Los Angeles and we are driving strong ratings and audience share growth through our focus on compelling content and strong artist relationships. In addition, we are leveraging these core strengths across our digital platforms to grow our key online, mobile, and social media engagement metrics.

The Latino population in the U.S. continues to rapidly expand. Today, we deliver a highly engaging multi-platform Latino audience spanning multiple attractive demos to our advertising partners. Our AIRE network delivers advertising partners with the highly engaged Latino audience, spanning a wide range of attractive demographic groups including millennials, young adults, and families.

AIRE currently reaches over 11 million weekly listeners across an affiliate group of over 100 stations and 53 markets. AIRE’s current footprint includes Hispanic DMA coverage of 90%, with a presence in all of the top 10 and 30 of the top 30 markets. We have made considerable progress in 2015 executing our AIRE rollout and we finished the year on track with our goals.

Looking ahead, we believe we have opportunities to continue expanding AIRE’s reach in 2016 as we benefit from our leading content offerings, attractive station footprint and strong industry and talent relationships.

Turning now to our audio group, we generate strong revenue growth during the fourth quarter due to increases in AIRE as well as higher local, digital barter and special events revenues. Excluding the impact of special events revenues in barter sales our core radio increased by 10% during the fourth quarter. This growth was driven primarily by continued strong growth in AIRE revenues, which increased 25% in the fourth quarter and finished up almost 48% year-to-date.

Our flagship station WSKQ Mega 97.9 FM in New York remains the most listened-to Spanish language station in the country and the most listened-to-station all of New York for three of the consecutive Nielsen books with over 2.5 million average weekly listeners.

In Los Angeles, KLAX La Raza once again remains the number one rated regional Mexican station in the entire city with over 1.5 million weekly listeners and one of the most listened to stations in the entire country. We implemented a number of strategic programming changes earlier in the year which continue to result in strong performance at the station.

Our domestic stations once again outperformed the broader industry and accomplishment we have achieved now for nine consecutive quarters when compared to Miller Kaplan estimates, our domestic station group out delivered the industry by 100 basis points. In Puerto Rico, our stations continue to deliver the top three rankings. This includes WMEG, La Mega, which is ranked number one with adults 25 to 54 and number three with adults 18 to 49.

In addition, WZMT Zeta 93 is in second place with men 25 to 54 behind our own WMEG and WODA La Nueva 94 is number one with adults 18 to 34 in all day parts. Across our group audio advertising categories that showed particular strength during the fourth quarter included telecommunications, automotive, and retail categories that were down were pharmaceuticals.

In video, the categories that were up included healthcare, automotive, and telecommunications. Integrated video national sales for the fourth quarter increased 25% over the third quarter and were up 150% versus Q4 of 2014. MegaTV added local and national news to its prime time lineup and showed impressive ratings growth up 20% from February to March in adults 18 to 49 and in adults 25 to 54 demographic group.

Turning now to digital, where we continue to expand our capabilities and our reach. The major highlight for our digital business since our last call was the re-launch of our brand new LaMusica app, we went live in December. The free app delivers a one-of-a-kind experience designed by Latinos for Latinos and in particular, the Latino millennial audience. They are hyper connected have a strong cultural bond with music and significantly over index on mobile usage and audio streaming.

The new LaMusica app now continues simulcast of all SBS radio stations over 150 curated play lists, the ability for a user to create their own algorithmic play list and access to over 23 million songs. Overall, the new LaMusica app is aimed at delivering a rich and personalized mobile audio and streaming experience. The launch was met with overwhelming support from some of the biggest names in Latin music, including Shakira and Enrique Iglesias.

The new app is consistent with our focus on leveraging our exclusive content and strong artist relationships to give audiences new and compelling ways to interact with brands and each other via social media. Like our radio network, we believe our LaMusica app will be supported by advertising gives us another major channel to leverage our content and brands to drive revenues.

In addition to the new LaMusica app, our mobile teams are executing custom branded stations and client branded campaigns via social media and digital media mostly targeting the U.S. Hispanic millennials.

Total digital revenues of $1.3 million increased 29% during the fourth quarter compared to Q4 of 2014 and were up 30% for the full-year. The growth in the quarter and the full-year was due to an expanded capabilities and higher usage base. We finished 2015 with approximately 2.8 million monthly unique visitors across digital platforms. This represents a 32% increase in unique visitors compared to the beginning of 2015.

Growth was primarily due to an increase in traffic on our web properties driven by social media strategy of content sharing as well as an increase in streaming of our radio stations. We delivered 17.3 million audio sessions during the fourth quarter. In aggregate, our digital footprint generated 60 million average impressions per month during 2015, which represent strong growth compared to the prior year.

During 2015, our social media following also expanded greatly. We finished the year with over 4.9 million cumulative followers across key social media networks. Our efforts to expand our digital platforms and reach are driving strong digital revenue growth and increasing our total multi-platform audience.

We continue to make great progress, strengthening our overall platform most recently through the launch of La Musica app. Digital will remain a core component of our overall strategy as we look further to broaden our connections with the rapidly expanding Latino population and connect brands with engaged audiences across all media platforms.

Finally, turning to our events business, during the fourth quarter event volume was up compared to last year. Key events during the quarter included Miami Grand Slam Party Latino.

Moving forward events will continue to be part of our overall strategy as they effectively leverage our talent and industry relationships while also providing an engaging content to help grow our multi-platform audience shares as we had previously discussed event revenue can vary quarter-to-quarter based on changes in the number of events being held. We expect that trend will continue in 2016.

In summary, we continue to execute our multi-platform strategy during the fourth quarter. This included increasing our aggregate audience continued to expand AIRE’s overall reach, strengthening our digital capabilities, and delivering engaging content on-air, on the Internet and via mobile.

Today, we are delivering an integrated advertising solutions to our partners that connect brands while the rapidly expanding Latino population in more ways than ever. We are excited about our progress to date as well as the opportunities ahead to continue our transition to a multi-platform Company and further expand our potential pool of advertising dollars.

Finally, we are looking into a very strong political year in 2016. We operate large clusters of media assets targeting Latino voters in these states. In this year's presidential election, in each political period winning the Latino vote is crucial for both parties to win the presidency. As we move into 2016, we think it will be another great year for Spanish Broadcasting Systems.

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

Joseph Garcia

Thanks, Albert. Turning to our results for the fourth quarter, consolidated net revenues totaled $40.3 million up 11% compared to $36.3 million for the same prior year period. Excluding special event revenue and barter sales for the respective periods, our consolidated net revenues totaled $35.3 million compared to $32.4 million for the same prior year period resulting in an increase of 9%.

Our radio net revenues increased 13% primarily due to increases in local, network, digital and barter sales and special event revenue. Excluding the special event revenues and barter sales for the respective periods, our radio net revenues totaled $31.6 million compared to $28.6 million for the same prior year period resulting in an increase of 10%.

Our television net revenues of $3.8 million were down $200,000 during the fourth quarter due to decreases in local and paid programming sales offset by an increasing national sales. Consolidated OIBDA, a non-GAAP measure totaled $9.9 million compared to $12.1 million for the same prior year period. Our Radio OIBDA of $12.4 million was down 6% mainly due to an increase in operating expenses partially offset by an increase in net revenues.

Radio station operating expenses were $24 million in the fourth quarter, up $19 million in the prior year period. The increase was mainly due to increases in special events, advertising and promotions, talent and network related expenses.

Television station operating expenses of $3.3 million were higher by $300,000, primarily due to increases in legal fees, trade, and special event related expenses. Corporate expenses of $3 million were up 39%, primarily due to an increase in legal expenses.

Finally, our operating income totaled $8.8 million compared to $10.8 million for the prior year period, primarily due to the increase in operating and corporate expenses, which is partially offset by increase in net revenues.

Our fourth quarter capital expenditures totaled $1.1 million and we finished 2015 in line with our CapEx target of approximately $2.5 million. As defined by the indenture governing our notes, our secured leverage ratio was 6.8 times as of December 31. The Company currently has $262 million in federal NOLs and approximately $11 million in cash after making our April 15 interest payment of $17.2 million related to our senior secured debt.

As previously disclosed, we have filed applications to participate in the FCC television spectrum incentive auction with stations in Miami, Houston and Puerto Rico. Please remember that we are in a quiet period with respect to the FCC incentive auction and subject to strict FCC prohibitions, both directly or indirectly communicating both internally and externally, information regarding bidding strategy or the status of our bids in the auction. As such we will not take any questions related to the auction.

And this will conclude our formal remarks. With that, let me turn over to the operator for the question-and-answer period. Operator, please.

Question-and-Answer Session

Operator

Thank you. We will now begin the question-and-answer session. [Operator Instructions] And our first question will come from Jason Bernstein from Odeon Capital. Please go ahead.

Albert Rodriguez

Good morning, Jason.

Jason Bernstein

Good morning. Congrats on the quarter and congrats on a nice year.

Albert Rodriguez

Thank you.

Jason Bernstein

Just a few questions on what core radio looks like in 1Q. Do you see any trends there that you can share with us?

Albert Rodriguez

Jason thanks for the question. We are not really giving a lot of guidance, but I will give you some color. January strong performance with respect to revenues. Local and national, national up double-digit, local up single-digit that was for our audio division. For video with respect to television, we were up significantly double-digit revenues across the Board pretty much in all the categories. So we are starting off the year extremely well. I’m very pleased how we’re starting off and obviously very pleased at such a great year or so.

Jason Bernstein

Great, thank you. One more question on political, when do you typically see in a political year? Is it a run-up in 2Q and 3Q or is it more all at 3Q?

Albert Rodriguez

We’ll start seeing – we saw some activity in the primaries this year and we’ll start seeing heavy spending possibly at the end of July and all the way through the end of the general election. So we’re prepared, we have teams across the country. We’ve done this for many years for many presidential election years and we have a solid team in place and we’re expecting to do extremely well with the general election.

Jason Bernstein

Great, thanks so much.

Albert Rodriguez

Thank you, Jason.

Operator

Our next question will come from Patrick Fitzgerald from Baird. Please go ahead.

Albert Rodriguez

Good morning, Patrick.

Patrick Fitzgerald

Hi, guys. Good morning. Could you talk a little bit more about your costs in the Audio segment? Is this mostly the timing of events? Are there any one-time items in there? Does a lot of it have to do with higher compensation for AIRE? Any color would help because that jumped 5 million bucks year-over-year and I think quarter-over-quarter in that segment?

Joseph Garcia

Yes, basically I will color it as a timing effect of two major events that we had during the fourth quarter, one in New York, Megaton and another one in Miami, Grand Slam that were used primarily as a marketing tool to promote our radio stations, which I think is indicative of the ratings increases that we are experiencing not only in Miami, but also in New York. I don’t know if perhaps know that our New York station, Albert is….

Albert Rodriguez

Yes, we mentioned.

Joseph Garcia

…is number one. So I’ll characterize that as investments that were made in marketing. That will be mostly of the increases.

Patrick Fitzgerald

Okay. So there is no one-time items in there outside just kind of higher marketing to benefit your stations longer term?

Joseph Garcia

Well, we do events from time-to-time. You may classify them as one time especially these two, the Grand Slam and Megaton you can classify in that way.

Patrick Fitzgerald

Okay. The increases in legal fees that you talked about with the TV and corporate is that auction related?

Joseph Garcia

Some of it is auction related, related to the spectrum auction and some of it is related to some personal legal costs that we experienced in Puerto Rico regarding a legal case – personal legal case.

Patrick Fitzgerald

I mean any chance you could say how much that was in corporate and in the TV segment?

Joseph Garcia

In the corporate front? Say it.

Robert Castro

In corporate that was probably about 500,000, 600,000 that won’t be recurring related to various issues.

Patrick Fitzgerald

Okay, great. And then the double-digit revenues increases that you are seeing in TV that I mean is that because of the primary mostly or?

Albert Rodriguez

We got some dollars from both parties from the Democrats and from the Republican parties, but no if you carve out we’re still up in the double-digits. It has to do with that we've changed our prime-time lineup. We've included news and that's helped a lot and people are very in tune with some of the political shows so and we also have a new sales management team that we brought on Board third quarter of 2015 and we’ve transitioned the team, so we’re excited about that.

Patrick Fitzgerald

Okay, great. And then just with the spectrum auction I know you guys can’t talk about that, but is there – I think it seems like a lot of the refi is based on getting some proceeds from the spectrum auction to the extent that those come in hopefully this isn’t the case, but to the extent that those come in little lighter would you consider selling some real estate to help kind of build your cash in front of that refi next year?

Joseph Garcia

We are open to all possible scenarios that including the proceeds from the spectrum auction to be able to address our outstanding debts.

Patrick Fitzgerald

Okay. But do you feel like you just want to wait and see what you get from the spectrum auction before you try selling anything else? Is that kind of a game plan or?

Joseph Garcia

Yes, I will characterize that to be our starting point to determine, what are the proceeds that are going to come from the spectrum auction.

Patrick Fitzgerald

Okay. Thanks a lot.

Joseph Garcia

Thank you.

Albert Rodriguez

Thanks Patrick.

Operator

Our next question will come from Yehuda Miller of Cedarview Capital. Please go ahead.

Albert Rodriguez

Good morning.

Yehuda Miller

Hey, good morning guys. I just have a quick follow-up on some of that Jason asked, I would hope that like the first quarter ended almost three weeks ago and just wanted to know if you could give us a little more color on what those numbers look like. I heard you talk about the great results in January, but could we think about February and March as well? Is there anything you could say there?

Albert Rodriguez

Sure, I mean basically overall in audio when you carve out some of our expense, excuse me our SBSE, our entertainment division. We will be up – I would say single digits so we still haven’t closed the book, so that’s why we are not giving guidance out, but we are proceeding with a solid quarter.

Yehuda Miller

Okay. I guess if you back into what you guys said cash today of $11 million after the $17 million coupon payment comes into like $9 million of cash flow on the first quarter. Was that – all of that attributed to kind of like cash EBITDA or was there some benefit on the working capital side as well?

Joseph Garcia

It was all driven by improvement in EBITDA.

Yehuda Miller

Okay. So that’s pretty significant if you think it’s like $7.1 million last year in the first quarter and $9 million this year in the first quarter like over 25% growth is that fair in the ballpark?

Joseph Garcia

That’s fair. And of course we keep an eye on our operating expenses at all times.

Yehuda Miller

Okay, great. I appreciate that guys.

Albert Rodriguez

Thank you.

Joseph Garcia

Thank you.

End of Q&A

Operator

Ladies and gentlemen this will conclude our question-and-answer session. I would like to turn the conference back over to management for any closing remarks.

Albert Rodriguez

Thank you and thank everyone for participating on our fourth quarter 2015 earnings conference call. We look forward to talking to all of you when we announce our first quarter 2016 earnings results. Thanks again. Have a good day.

Joseph Garcia

Thank you.

Albert Rodriguez

Thank you.

Operator

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.

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