Earnings Transcript for SBSAA - Q3 Fiscal Year 2024

Operator: Good day, and welcome to the Spanish Broadcasting's Third Quarter 2024 Conference Call. All participants will be in listen-only mode. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Brad Edwards of Investor Relations. Please go ahead.

Brad Edwards: Thank you, Wyatt, 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 statement. 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 before depreciation and amortization, loss on the disposal of assets, impairment charges and other operating expenses excluding non-cash 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 substitution 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. With the formalities aside, I will now turn the conference over to Mr. Raúl Alarcón.

Raúl Alarcón: Thank you, Brad. Good morning, ladies and gentlemen, and thank you for joining me for the SBS third quarter 2024 earnings call. It is a pleasure to have this opportunity to update you on our company's progress, both from a strategic and operational perspective. We are finishing 2024 excited and having delivered a record year of EBITDA growth for every consecutive quarter beginning with Q4 of last year and into 2025. Our SBS team has worked arduously at growing our brands, our fans, our ad partners, and maintaining our overall multimedia Spanish language leadership, while staying laser-focused on our efficiency initiatives, and, as I'll discuss, our efforts continue to drive impressive results. For example, adjusted OIBDA increased a record 73% during the third quarter and an aggressive 78% year-to-date, including television reflected in discontinued operations. Additionally, the company is anticipating comparable adjusted OIBDA growth in the fourth quarter and for the year. While we are undoubtedly happy about our progress, our work is far from complete. We are doubling down on yet another line-by-line cost elimination review at all business units, which, as I've stated previously, will continue well into 2025. Some of you have asked why continue with the cost cutting? Why is it taking so long? Why not contract an efficiency consultant and implement across the board percentage cuts at all business units and get it over with? The answer is that we are taking pains to identify where we can reduce expenses without hurting the overall integrity of the business. This includes finding the creative and self-motivated personnel that can assume additional duties without sacrificing effectiveness, while eliminating the sacred cows and methods that have no place in today's challenging competitive environment. And importantly, this must be accomplished without making the mistake of eliminating a particular initiative, strategy or individual that may represent a future potential that is as yet unseen. That type of expense elimination demands the requisite investment in time to get it right. While we prudently manage our costs, we will not forfeit our responsibility of serving the Hispanic community as required in order to retain our leadership status in the marketplace. For example, we've continued to debut industry-leading talent across many of our brands and introducing innovative formats like the one we'll be launching today in Houston, the nation's third largest Hispanic DMA. I'd like to take this opportunity to thank Mr. Al Liggins of Urban One for his personal courtesy in allowing SBS' deferred consummation of KROI FM in Houston. In addition to driving local sales and future local regional and national revenues in the important state of Texas, our Houston outlet will bolster our [indiscernible] network sales and aggregate audience growth that will increase our national revenues and digital impressions and convert Houston into another venue where our entertainment division will be able to deliver thrilling live experiences along with ticket and sponsorship revenues, mirroring the successful matrix we employ at all our O&O markets. The strength of radio is and will always be its local prominence, and we intend to take full advantage of our new Houston flagship as it joins our stable of winning audio brands from around the nation. In fact, from a local perspective, our content production has surpassed 40 hours per day of award-winning audio offerings. This is driving our strong station ratings performance across the largest Hispanic DMAs. There have been many studies published recently that point to not just the resiliency, but the continued growth potential and influence of audio, whether in the car, on a computer, or via a smartphone. Wherever and whenever listeners want to connect with SBS, we will be there for them. And by pairing a sharp focus on efficiency with leading national brands, our LaMusica digital platform and our deep understanding and connection of the rapidly expanding Latino population across the nation, the future for SBS is one of connected expansion and growth. We have been a trusted lifestyle and entertainment partner for Latinos nationwide for over 42 years. And we will continue to be that and more while delivering increasing returns to our stakeholders. In summary, we appreciate your participation in our journey as we continue to deliver significant strategic, financial and operational progress into 2025 and beyond. And with that, I'd like to turn the call over to Brad, who has rounded up some common questions from a number of our stakeholders. Brad?

A - Brad Edwards: Thank you, Raúl. So, we received a number of questions regarding a more detailed view of the third quarter performance, and that includes some color on the revenue results for local versus national network and digital, political, what was core revenues? I know I'm throwing a lot at you, sorry, but it's really just a breakdown of revenue and our performance versus Miller Kaplan reports for your markets.

Raúl Alarcón: Okay. So, let's start with the following Q3 revenue highlights. Third quarter network revenues were up 16% and we're expecting to end the year up single-digits in network. As we discussed previously, national sales have been down for most of the year. I believe that's true across the entire industry. However, we're currently pacing up single-digits for Q4 and expect to end the year down around 8%. Local sales were up local single -- excuse me, up low-single-digits for the quarter. Year-to-date, our local sales are up 5%. And total cash radio sales were flat for the quarter. Political sales were negligible for the quarter around $500,000 in total and they were split more or less evenly between radio and TV. Regarding Miller Kaplan, nearly all SBS stations outperformed their respective markets. Overall, Miller Kaplan showed these markets up slightly at 1.3%, while the SBS stations outperformed with an average growth of 4.9% through October.

Brad Edwards: Great. Thanks, Raúl. Next question, can you comment on the pre-election pacing versus post-election pacing in Q4?

Raúl Alarcón: Yes, certainly. We had a few questions regarding that. And yes, as expected, we saw a slight lift in the post-election Q4 pacings of about 3%.

Brad Edwards: Great. And then, moving on to -- could you comment on the continued cost cutting initiatives? Is it current level of expenses in Q3, is that the right run rate looking forward into 2025?

Raúl Alarcón: As I mentioned in my opening remarks, we are still in the midst of our line-by-line review of all company costs and expenses. We expect continued savings as well as continued sequential decreases in expenses as any new savings are layered into the expense reduction that have already taken place. So, in reality, we are not at a current run rate just yet. There are more savings to be rung out of the operation. Let me take a moment to clarify that we are not shooting for a specific targeted dollar amount of savings. We will continue to implement reductive cost initiatives as we see fit until we feel we've reached an operational paradigm that will establish a significantly lower cost threshold for the company's ongoing operations without sacrificing the quality of our content. We are not there yet, ladies and gentlemen.

Brad Edwards: Thank you for that color. We also got questions. So, turning to capital structure, can you comment on any update regarding the company's -- SBS' revolving credit facility? Are you planning to extend it?

Raúl Alarcón: Yeah. We do expect to extend the company's revolver facility and are right now in the process of documenting its extension well past its current maturity date of February 2025.

Brad Edwards: Great. So, moving now to Houston, can you comment on the investment plans for the Houston station and provide any kind of update on your expected path to profitability?

Raúl Alarcón: Yeah, sure, certainly. Let me just say at the outset that SBS has proven again and again over the course of four decades to be an expert operator of successful startup radio stations in multiple formats and markets throughout the nation as well as overseas. That's an experience that's been gleaned for many years of heated competition with some of the most entrenched radio operators and is one of our company's signature calling cards of which we are justifiably proud. As an example, allow me to point out that our recent market entries into Orlando and Tampa required us to debut two new start-up Spanish language formats in two distinct markets simultaneously and with great success. Houston is no different. We plan an aggressive entry into the market with a keen eye on keeping a tight lid on expenses, but with an overall goal of staking a strong claim on that city's Latino population. As just one example, I'm happy to announce that we have secured the on-air participation of Raúl Brindis, Houston's most beloved Hispanic morning drive personality during the last two decades. So, without getting into any specific forward-looking numbers, I will say that we expect the station to reach profitability during its second year of operation. Obviously, as you can see we're very excited about our Houston opportunity.

Brad Edwards: Thank you, Raúl. And we should be excited. On a similar note, because obviously Houston Station was an acquisition, is there any update on M&A opportunities whether it's an acquisition or a divestiture?

Raúl Alarcón: Yes, Brad. We remain committed to integrating our recent station acquisitions as well as examining options to build out audio and video footprint through our announced DAVID initiative, which will join up the audio and video components of our successful on-air and on-demand content. The Latino population across the country is growing rapidly. And as many know, its annual purchasing power has surpassed $3.6 trillion, and it's now the fifth largest economy in the world. We have been a trusted partner of the Latino community for over four decades and we'll always strive to deepen our connection with our listeners and deliver a highly-engaged and valuable demographic to our advertising partners. If opportunities arise that make sense, we'll certainly consider them, but in the near term, our primary focus is on continuing to operate many of the nation's most highly-rated Spanish language stations across the largest Hispanic DMAs in the country.

Brad Edwards: Great. Thank you for that color. And then, on a similar note, investors were looking for maybe some insights into your outlook for the -- and SBS' outlook for the much needed consolidation within the media industry?

Raúl Alarcón: Yes. We will look closely at consolidation opportunities that can provide real synergistic benefits, that is to say EBITDA, increase in EBITDA to the bottom-line. With that said, we are thrilled about our collection of assets, legacy audio stations, including ones new to the family, our digital platform, LaMusica, as well as the strength of our entertainment platform, but we will look at interesting consolidation opportunities as they arise.

Brad Edwards: Great. Thanks, Raúl. And then, shifting to the entertainment business, SBSE, can you provide a summary of the number of special events you expect to hold in Q4? And are you expecting special event revenues for full year 2024 to be in line with 2023?

Raúl Alarcón: We produced three major successful events in Q4 in New York City and Miami. Revenues generated from the [Technical Difficulty] were profitable. So, yes, we expect our results for the year to mirror and, in some cases, exceed our revenue generation through special events and concerts in 2023.

Brad Edwards: Great. And then, moving -- shifting back to audio, moving on to the Orlando and Tampa stations, how have those stations performed year-to-date from a revenue and OIBDA perspective?

Raúl Alarcón: Year-to-date revenues at our Orlando, Tampa metroplex were up 17% and OIBDA was also up $1.2 million.

Brad Edwards: Great. And then, moving back to capital structure, the company's -- how are you planning to address the 2026 notes?

Raúl Alarcón: Well, with the proceeds from our anticipated asset sales in hand, we'll be looking to meet with our bondholders prior to the maturity date of our bonds, with an eye towards either extending their maturity or refinancing them in their entirety in a manner acceptable to all parties. We firmly believe that the outstanding growth in EBITDA during this intervening period will prove instrumental in providing seamlessly beneficial recasting of the company's capital structure moving forward.

Brad Edwards: Great. And then, staying on that -- staying on this subject, finally, can you -- last question, can you comment on the status of the SBS' asset sales?

Raúl Alarcón: Yes. We've had the great good fortune of being in a market environment where the prices of these premier assets has actually increased over time. Now, obviously, that has complicated the selling process as our ultimate goal has been to lock-in top dollar prices for these assets. But we are confident that we'll be announcing the conclusion of our sales processes of these assets in the very near future.

Brad Edwards: Great. Thanks for your -- thanks Raúl. And that covers the list of questions submitted by the company stakeholders. Thank you, Raúl. And I will turn it back to you for any closing remarks.

Raúl Alarcón: Well, thank you, Brad. And with that, ladies and gentlemen, I'd like to thank all of you on the call for your time this morning. Your continued support is greatly appreciated by all of us at SBS. I look forward to updating you on the company's progress again in the near future. Thank you, and good morning to all.

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