Spanish Broadcasting System Inc

OTC:SBSAA

Earnings Call Transcript 2024-Q1

[Operator]

Good day, and welcome to the Spanish Broadcasting Fourth Quarter 2023 and First Quarter 2024 Conference Call. [Operator Instructions] I would now like to turn the conference over to Brad Edwards with Investor Relations. Please go ahead, sir.

[Brad Edwards]

Thank you, Cole, 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, gain on the disposal of assets and other operating income or expense, 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 2023 fourth quarter and 2024 first quarter earnings releases, which are both available on the Investor Relations section of the company's website at www.spanishbroadcasting.com.

With that, I will now turn the conference over to Mr. Raul Alarcon.

[Raul Alarcon, executive]

Good morning, ladies and gentlemen, and thank you for joining us for the SBS Fourth Quarter 2023 and First Quarter 2024 Earnings Call. Before turning to a review of our results as well as our outlook, I want to share how gratified I am to resume my role as President of SBS. As many of you know, I served in this capacity for many years, and it's an honor to serve once again.

I greatly appreciate the support of our Board of Directors and their trust and my leading SBS through our current operational reset and into our next stage of meaningful and profitable growth.

I'm also pleased that the Board unanimously agreed that Frank Soricelli take over the duties and responsibilities of Chief Financial Officer. Frank has been an incredibly valuable part of our corporate team since he joined SBS in 1992 and has an extensive understanding of what matters most in successfully navigating today's challenging and competitive environment moving forward. I could not think of a better partner to have alongside me as we work to drive accelerated growth, realign our operations and deliver increasing returns for our stakeholders. With that, I'd like to turn to our first quarter performance and our outlook for the rest of 2024, while touching on some of our long-term plans and missions. But before I get to that, let me recap 2023. Our successes as well as the plan we implemented late in the year to refocus each and every one of our business units for peak performance and sustained operating leverage. We successfully reached a number of operating thresholds in 2023, including the profitability of our start-up Orlando and Tampa duopoly, our success in securing a competitively superior signal in the highly attractive Houston market, all the while maintaining solid rating performances in all of our key markets. Our engagement with the nationwide Hispanic audience and their continued love of our brands, our talent and our unique proprietary content is constantly confirmed by the ratings we generate among the many diverse demographic audiences we target. In fact, it's precisely our continued ability to connect our advertising brand partners with the massive audiences that comprise the new American mainstream, that's the key to this company's future. It's as simple as that.

However, [indiscernible] as we all know, simple is not necessarily easy, and 2023 was not without its challenges. While our audio and digital assets remain firmly positioned in their respective markets, our internal operations and the efficiency, which has characterized our business model for over 4 decades, needed to be refreshed, retooled and refocused, which in fact is a process that needs to be constantly reimplemented, month in and month out, before any business can be said to be operationally optimized. And that's why late last year, we began the process of taking a hard look at every one of our businesses and enacting targeted initiatives to streamline operations and better manage our cost profile. We began to see the early results of those efforts in the fourth quarter of 2023 when we managed to rein in overall station and corporate expenses to end flat in the fourth quarter as opposed to having costs grow as they did during the first 3 quarters of 2023. This disciplined approach to costs continued into Q1, where we delivered a significant improvement in station operating income and adjusted OIBDA, with operating expenses falling 10%, but we still have much more work to do. We're going to relentlessly pursue operational efficiencies to further streamline our operations and drive accelerated growth. Indeed, our realignment plan remains in its early implementation and we can see additional pathways to improve performance moving forward.

In the first quarter, our consolidated adjusted OIBDA grew approximately 100% compared to the prior year, proved positive that our initial steps to reignite growth, streamline our operations and drive profitability in 2024 and beyond are working. As we look to the second quarter, we expect another triple-digit year-over-year growth rate in adjusted OIBDA. Our outlook is strong beyond the second quarter and we are confident that 2024 will be a turning point for SBS and our multiplatform operations. Now let me outline a few of the many reasons for my confidence in the future of this company, in the future of SBS. First, our audio station brands remain at the top of the rankings across the most critical Hispanic DMAs in the country. When combined with the power and reach of our AIRE Radio Network and our digital assets, no one has a stronger, more deeply rooted connection with the national Hispanic constituency than does SBS. Second, our ability to deliver captive audiences to our brand partners and help them connect with many of the most sought-after demographics in the country has now been proven and reproven, time and again, year in and year out. Third, our Live Events division is set to have a robust lineup of shows this year. In addition, last week, we announced the return of our Summer Spotlight Series, which highlights multiple upcoming Latino artists in an intimate, immersive, live Q&A experience. Fourth, and here's where it gets really interesting, our digital initiatives, including DigIdea, where the early returns have been promising, as well as our new [indiscernible] initiative, which is proving to be even more immediate and impactful as it deals directly with our audience, will be the focal point of our efforts to extend our spear of influence beyond over-the-air terrestrial radio going forward. While I'm not going to be detailing the specifics of these initiatives for obvious reasons, I will say that we are in the midst of aligning our content across a broad spectrum of platforms in order to more fully capture, retain and follow our content devotees so that we can effectively become their lifestyle companions wherever they go, whatever they do and however they go about doing it. Across our digital platforms, our online, mobile and social media engagement levels are at historic highs, and the initial results verifying these pathways to further growth are more than promising. They're real. And not only that, but we've discovered a boomerang effect whereby our original over-the-air performance also benefits. Lastly, we have the great good fortune of operating in the Latino ecosystem, which is not only growing its absolute numbers by leaps and bounds, but is also establishing itself as the global trendsetter in all aspects of culture, lifestyle and in what I call its coolness quotient. Hispanics are the new American mainstream, growing in number and highly sought out by brands, marketers, politicians, looking for a way in to these consumers. As I look to the future, I am confident in SBS establishing a new trajectory for growth and better utilizing the power of our assets and brands by translating these strengths into more profitable growth for our company. Serving Hispanic audiences has been my life's passion. That's not going to change. And working alongside the talented SBS team, I can attest to the realization that our future has never been brighter. Our overall market position is strong, our realignment plan is 100% aimed at elevating our operations, and I remain confident that we're moving along the right path, as you can see from the early returns in our performance as we realign and restructure our operations for what's coming. We have the brands, we have the talent, we have the passion and we have over 4 decades of experience serving the passionate, engaged Hispanic audience across this great nation and beyond. Thank you once again for your time and attention today. And now let me address a few of the questions that we've been fielding from our stakeholders.

[Brad Edwards]

Thanks, Raul. So we received several questions from our stakeholders. First category was the entertainment division. So stakeholders want to know about the cadence of events over the rest of the year as well as some more details on the division's performance in the first quarter.

[Raul Alarcon, executive]

Okay. Okay, Brad. Well, look, we want to be more prudent, given some of the softness in ticket sales and in concert events. Post-pandemic, I think there was a flooded events and tickets went out of control and there was a lot of churn through that time. And I think there's been a softening after that, that we have felt industry-wide. So we're trying to be prudent. With that said, we have a solid lineup for the rest of the year, a lineup that will continue to perform well for us and drive engagement with our listeners, as they always do. We've got a captive audience there. And it just works well. Concerts work well for us. We give away tickets. We did contests, and the people are there. We sell sponsors to our ad partners. And it's a good business for us. We just want to be a little bit more prudent for the rest of the year. I think it's always going to be a successful business for us. As you know, we can scale up or down the size of the events, and that's within our control. We don't want to lose that engagement, but we want to be sure that we're not on edge in terms of profitability. And we always have the option of doing some shows co-promoted with some other people, which eliminates the risk for us and really just has all the rewards and none of the risk, and we've done that very successfully in the past. So we're going to be looking at that very carefully and -- but we're certainly going to be participating in line [indiscernible], I don't see that disappearing from our lineup of community outreach that we do. I really consider it to be very much an outreach to our listeners.

[Brad Edwards]

Right. And then we also got some questions about the -- trying to get a little bit of a further breakdown of local revenue as well as national revenue in Q1. And maybe could you provide a little bit more color there?

[Raul Alarcon, executive]

Yes, sure. So I'll say that in Q1, we had higher local and network sales that were somewhat offset by some weakness that we experienced in the national category. I think that last time that we looked at this national, now it started to click in a little bit stronger, but that was a question in terms of Q1. Higher local network sales offset by slight softness in the national category.

[Brad Edwards]

Right. So that leads us into another category that investors had questions about, which is any insights that we can give into the 2Q pacings?

[Raul Alarcon, executive]

Yes. 2Q pacings look good. Local sales are up mid-single digits, slightly offset by network and some national sales during the Q2, during the quarter. Again, our efforts regarding revenues across the board is intense. And of course, we can't control the macroeconomic environment. But I would have to say that the fact that our pacings are up, Q2 pacings are up slightly, local up mid-single digits, I think, is a good harbinger of things to come.

[Brad Edwards]

Great. So moving on. We also got questions about, obviously, the Orlando and Tampa station duopoly. And maybe, can you provide a more broader update on the ratings and financial performance of those 2 Florida stations?

[Raul Alarcon, executive]

Yes. Yes, certainly, I can. First of all, the audience should understand that this is a very critical, as I saw it, acquisition for us because it really rounded out our penetration in the Florida market. And there's a lot of things that we're doing with respect to combined selling, including, of course, Miami, which is our leading market in the state. But having a footprint in Orlando, in Tampa is very positive to the efforts individually and collectively for the 3 markets. And we've done very well there. We've done very, very well in Orlando. We had a little bit of a nuisance with Nielsen. And we went round and round with them on what we felt were some inaccuracies, let's say, in Tampa. And it took us a while to get them to focus on that. But our duopoly, I call it a duopoly, Tampa and Orlando, has continued to perform ahead of all expectations. And in fact, they delivered positive adjusted OIBDA for the full year 2023. And a little bit more insight on this. Just in the first quarter of 2024, we almost matched the positive financial impact we achieved in all of 2023. So I think that's, again, a good indication. We've been -- have taken care of the situation -- and Nielsen has apparently taken care of the situation in Tampa where we now have the strong ratings that we always felt we had. Now it's being registered by Nielsen consistently in a lot of the demos and dayparts that we just weren't performing in Nielsen as we knew we were performing in reality. But that seems to have been taken care of. And again, we have -- the stations are still, as far as I'm concerned, even though they're profitable, are still a start-up. So we're very happy. And obviously, that gives us -- Tampa, Orlando and Miami gives us real good footing in terms of political business this year, having that trifecta, or as others have called it, the golden triangle in terms of Hispanic audiences in the state. So we're very happy about that.

[Brad Edwards]

And then on the -- you've mentioned the topic of political. As you can imagine, we got that question. So we got a number of questions about our expectations for political ad spending in 2024. So anything more you can expand, like your opinion on not just expectations for presidential election, but also the downstream elections as well?

[Raul Alarcon, executive]

Yes. Well, I'd like to say that I have a crystal ball and all the answers regarding political advertising this year, but of course, I don't. We've seen some political activity already, not as much as we would have liked, but still it's early. And of course, there's the big question about where is it all going? And I don't know if anybody has the answer to that. Of course, there is going to be -- well, we all believe there's going to be an election and we all believe that they're going to be at the presidential level, 2 candidates that are going to be vying for that. So I don't think that's much of a problem. But I don't -- I dare not venture to say that it's going to be a robust political cycle this year. I just -- it's too early to tell. People are saying the whole spectrum advances, it's going to be very strong. It's going to be a little bit late. No, it's going to be regular. And so I don't want to venture out on that, except to say that we're prepared, number one; and number two, we're out there looking at the business, a political business; and number three, of course, aside from the presidential races, we have the congressional races and a bunch of other things that we are going to be falling down in terms of political advertising necessity. So we're all over that. But as I say, we've seen some political business. I can't say that, that's pointing to a big political season or a small political season or early political season or late political season. So -- but we do have our positioning in the Hispanic market, in a number of important markets throughout the country. So we're well positioned for that. And of course, what we always have to say is whether it's the Republicans or the Democrats, everyone wants that Hispanic vote, which traditionally had been, let's say, leaning more Democrat. But as of recently, you've seen some pretty startling information regarding that nuance in the, let's say, the faith that Hispanics traditionally were seen as a Democrat voting block. I think the fact that they're opening up now to other options across the aisle is very interesting, and it just positions the Hispanic market in a very ideal situation to be able to take advantage of the fact that both parties want and need the Hispanic vote. So in the sense that we are 100% Hispanic and that's what we're focused on in some important markets, I think that bodes well for us. So we'll see how the political cycle turns out. We've got -- our eyes are on it.

[Brad Edwards]

Great. And then we did get some questions on the Houston market and the recent audio station acquisition there. Questions primarily were about any update we could give on the timing of the acquisition closing as well as plans regarding the planned station -- the format change?

[Raul Alarcon, executive]

Yes. Well, here again, Houston was a market that I had, had my eye on for a long, long time. And we were very fortunate to pick up a station owned and operated by [indiscernible], it's actually a forced divestiture, mandated divestiture and a flamethrower signal in that market. And of course, that market is the third largest Hispanic market in the nation, which is astounding to say, and it's the fourth largest market in the country. So it's an important place that we need to be.

And I think we have the right station in terms of its coverage of the market. We have a format ready to go. As a matter of fact, we listen to it in a secure online site. And so we've been tweaking that thing for a while. And I'm very happy with the sound. I'm very happy. I was in Houston last week. And so I'm very happy about our being able to enter that market. And we're going to enter it strong, like we've entered all the markets. The latest 2 being Orlando and Tampa, we made a very big splash when we came to those markets, and we're going to do it again in Houston. So I'm very positive on that. With respect to closing on the acquisition, I would say that while it could happen earlier, and that depends on a couple of things that are taking place, it's certainly going to be this year. It will certainly be -- certainly, at the latest, of course, it will be fourth quarter. I don't have anything more specific to say about that, except that we're very excited to get into that market.

[Brad Edwards]

Great. And then the last question that we have are about MegaTV. And can we provide an update on that asset? And do we continue to plan to sell that asset and/or real estate kind of other assets, either combined or separate?

[Raul Alarcon, executive]

Yes. Well, Brad, as you know and others know, we made a decision to exit the TV business for a whole host of reasons not the least of which is we felt that was the way strategically for our company to proceed. Now we are very fortunate in the sense that we're dealing with a total of 5 television stations in 2 markets. And 2 very important and valuable real estate parcels that go along with the operations of the television station. We have our sound stages there. And so when we looked at this, we saw that there was a real possibility of either selling it entirely as a package which, I guess, all things considered, would be my preference. But what we've had happen is a whole host of interested parties come to the table regarding one piece or a different piece. We have what a friend called a matrix of options here, which gives us a lot of flexibility. And I was, frankly, I was very surprised about that. And so there is very good interest. I think that, yes, we're absolutely committed to selling the television. We will be selling it. And I just want to align the best -- all I'm looking for is obviously the largest number, so looking at if we sell it all as one package or if we parcel it out. And by the way, there are interested parties that are not necessarily broadcasters due to the fact that we have 2 parcels of land, which are extremely valuable. One here in the Palmetto in Miami and the other one in the Puerto Rico -- in [indiscernible] Puerto Rico.

So we're -- I believe it's going to all shake out. It might take a little time for us to pick and choose, which is the format that we'd rather go with in terms of the sellers -- excuse me, the buyers. But I have no doubt that we'll be able to put together an incredible and a profitable sale of the licenses and the real estate soon. We've been -- as a matter of fact, in the last 30 days, we've had a lot of activity. In the last 2 weeks, we've had a tremendous amount of activity. So I'm looking forward to that. I think it's going to end up very well for us. And of course, we'll keep all of the stakeholders advised. But my thinking hasn't changed on that one bit. And if anything, it's becoming stronger in the sense that I think we're going to be able to realize some good modernization proceeds from the sale of those assets. Lastly, I want to note that the multimillion dollar settlement on the failed sale of the TV, there was a question regarding whether that was part of the operating income and adjusted OIBDA. And so the answer is that it was not, that payment was not included in the operating income and adjusted OIBDA. So I just wanted to have that clarified. But other than that, my opinion still holds strong regarding the monetization of these television assets and real estate.

[Operator]

And this will conclude our presentation. I would like to turn the conference back over to Brad Edwards for any closing remarks.

[Brad Edwards]

Thank you, Cole. Thanks, everyone, for joining us today for our fourth quarter 2023 and first quarter 2024 earnings conference call. Have a great summer, and we'll talk to you on our second quarter call in the near future. Have a great day.

[Operator]

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines at this time.