Spanish Broadcasting System Inc
OTC:SBSAA
Earnings Call Analysis
Q3-2023 Analysis
Spanish Broadcasting System Inc
The company reported revenues from continuing operations totalled $35 million compared to $38 million for the same period last year, indicating an 8% decrease. This decrease was primarily due to declines in other revenues, network, local and digital sales. However, some positive trends were noted, with barter and national sales witnessing increases. Despite an overall decrease, when excluding political sales and prior year insurance proceeds, net revenues were flat at $35 million, balancing out the dip in revenue with cost-saving measures and other strategic sales.
Operating expenses increased by 4%, driven mainly by increases in barter expense, compensation, benefits, digital sales cost, and music license fees. When excluding barter expenses, operating expenses were reported as flat, approximately $23.1 million for both periods under review. Encouragingly, corporate expenses saw a reduction of 5% due to decreased compensation, benefits, and travel & entertainment expenses. These figures provide insights into the company's efforts in managing costs and improving efficiency amid market challenges.
Adjusted OIBDA, a measure of the company's operational efficiency, totalled $6.7 million, a 36% decrease compared to $10.4 million in the prior year. Moreover, station operating income witnessed a 28% reduction to $10 million from $14 million. When isolating variables such as political sales and insurance proceeds, adjusted OIBDA decreased by 9%, providing a clearer picture of the company's core financial performance excluding non-recurring factors.
The company has demonstrated prudent financial management with $500,000 in capital expenditures for Q3 and anticipates full-year capital expenditures to be within $2.4 million to $2.7 million. Expectations for cash taxes are between $1.8 million to $2.2 million. The company also possesses liquidity through cash on hand estimated at $7 million and additional access to a $6 million revolving credit facility. This demonstrates a strategic approach in maintaining sufficient liquidity while planning forward-looking investments.
Strategically, the company has also been focusing on the amendment of the $7.5 million KROI radio station purchase agreement and cost-cutting measures in response to market dynamics, which are forecasted to yield significant cost savings. They are pursuing the sale of television operations and real estate assets as part of realigning resources for sustained growth. This indicates the company's adaptive strategies to ensure they remain robust in an evolving economic landscape.
The company's national sales were up by 7%, which is particularly commendable considering the broader national market's downturn by 8%. Furthermore, local markets declined by 7%, however, the company's performance was less affected than the wider market trend. In Orlando and Tampa, El Zol stations showed promising growth and a strong audience base among key demographics, leading to anticipated positive adjusted OIBDA for these operations. This implies an effective execution of the company's market-related strategies, outpacing competitors in key areas.
Digital sales comprised roughly 7% of gross revenues with $8.4 million in totalled sales, slightly behind the previous year's figure of $9 million. With the company investing in increasing web traffic, content creation, and a full-service digital marketing agency, the current low-margin digital business is anticipated to improve over time. These advancements suggest a long-term vision towards bolstering the company's digital capabilities and revenue streams.
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Good day, and welcome to the Spanish Broadcasting System Third Quarter 2023 Conference Call. [Operator Instructions] Please also note, this event is being recorded. I'll now turn the conference over to Brad Edwards, Investor Relations. Please go ahead.
Thanks, Tom, 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 that we will be discussing non-GAAP financial measures. The company believes that station operating income, SOI and adjusted operating income before depreciation and amortization, gain or loss on the disposal of assets, impairment charges and other operating expenses, 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's calculated in accordance with U.S. GAAP.
A reconciliation of the company's U.S. GAAP information to SOI and adjusted OIBDA is provided in the tables attached to the company's third quarter 2023 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 2023 Third Quarter 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 Jose Molina, our Chief Financial Officer; and Richard Lara, our General Counsel.
During the third quarter, we continued to expand our multiplatform reach, invested in strategic areas of our business, and drove further aggregate audience growth. The underlying strength of our audio network and digital assets remains unmatched in Spanish language audio and we are focused on driving improved performance and finishing 2023 on a very high note.
Our Orlando and Tampa audio stations continue to perform ahead of our expectations and combined will be profitable for 2023. In addition, our AIRE remains the largest minority-owned Hispanic audio network and our digital presence has never been stronger.
Now let's review our operations, and let's start with AIRE Radio Networks. For the third quarter of 2023 AIRE Radio Networks was down 23% per Miller Kaplan, and the network revenue was down 12%. The network category was significantly impacted by insurance categories. AIRE Radio Network, the largest minority owned Hispanic audio network, delivering 95% of all Spanish language listeners across the country, adults 18 to 49 and its commitment to super-serving Hispanics.
AIRE Radio Networks reaching 15 million weekly Hispanic listeners across more than 300 affiliates, NMSDC certified, with presence in the top 50 U.S. Hispanic markets. Some of the key highlights for AIRE's new initiatives include El Terrible Morning Show, La Mezcla with Alex Sensation, The Influencer Network, delivering campaign messaging through a national platform while penetrating local markets and our Artistas360 were brands, they are aligned with Latin artists.
The Audio division at SBS stands as a shining beacon of example of dedication to serving the Hispanic community. We have not only achieved our goals, but have exceeded them significantly. Our impressive ratings are a clear indicator of our success, yet the increasing loyalty and engagement from our audience is even more rewarding.
Our strategy has been straightforward but impactful. We focus on crafting distinctive, captivating content that truly connects with a diverse Hispanic audience. This achievement is the result of our imaginative efforts and the synergistic work of our team. SBS proudly hosts 3 of the top 10 most streamed stations in America, WSKQ Mega New York, the most streamed station in America; KXOL Mega Los Angeles; KLAX La Raza Los Angeles. Additionally, SBS has WPAT Amor New York among the top 20 most streamed stations in America.
Key milestones. New York, WSKQ FM Mega 97.9, leads the pack reining as both top station in New York and the leading online streaming station in the country.
Miami, WXDJ FM El Zol 106.7 excels ranking #1 in crucial demographic groups. Orlando WPYO FM El Nuevo Zol 95.3, maintains its lead with El Despelote with Rocky, the Kid dominating key demographics and #1 in the market among all stations in the adults 18 to 34 demo.
Puerto Rico dominating the airwaves with WMEG FM Mega 106.9 and WODA FM La Nueva [ integrado ] and the successful rebrand of WRXD FM Estereo 96.5; San Francisco, KRZZ La Raza 93.3, tops all Hispanic demographic groups. And when you look at all of our stations and our alignments, when you look at the performance of Miller Kaplan in all of these big markets, SBS typically ranks in the top tier with respect to billing across the board. In particular, New York, every month, it's either #1 or the #2 biller in the entire New York market.
Now in New York's competitive market, our content and teams have captivating the discerning Hispanic audience. Our forward-looking approach has made us a vital part of their lives. KLAX FM Morning Show Al Aire with Terry is reaching #1. As we celebrate these accomplishments, we remain committed to our ethos of creativity and innovation.
Looking ahead, our goal is unwavering to continue being the preferred source of entertainment and information for the entire Hispanic community. In addition, our existing achievements, we've reached a remarkable milestone in Tampa with our station WSUN FM El Zol 97.1, this station has now become the #1 Spanish language station among all adults, 18 to 34 demographic. This accomplishment is a testament to our deep understanding of the diverse preferences and interest in younger Hispanic listeners. Our ability to connect and engage with this demographic group in Tampa underscores our deep commitment to delivering content that resonates across all age groups. Within the Hispanic community, this success in Tampa further solidifies our position as a leader in the Spanish language broadcasting.
Now turning to our mobile and digital platforms and strategic initiatives. Over the last several years, we have had great success transforming SBS into a leading multimedia Hispanic media company. Today, we connect with brands with more Hispanics than ever before and aggregate audience continues to expand.
For our brand partners, there has never been more of an important time to have a Latino-focused marketing strategy and outreach program. The Latino population is growing rapidly in size, cultural influence and 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 integrated advertising opportunities that cross our major media platforms and offers access to coveted demographic groups.
As I stated earlier, our aggregate audience continues to grow. As of September 30, our total audience was up 10% compared to Q3 in the prior year. September 2023, we had 3.3 million unique listeners to live audio compared to 3 million in 2022.
Our LaMusica platform reaches over 3.7 million people across all devices, who combined for over 26 million streaming hours per month. Usage and adaptation 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 and a personalized experience.
Overall, we have placed a strategic emphasis on identifying new digital revenue streams as well as increasing our CPMs on existing digital office offerings. We have launched Digidea, an in-house marketing agency to allow us to sell additional products, our clients need as SEO, SEM, OTT ads, and more.
During the second quarter, our total streaming audience surpassed 3.3 million unique listeners per month. This audience has delivered 37 million listening hours and over 80 million total sessions in the quarter. Given Hispanics heavily over-indexed on 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. A key driver of our growth in streaming hours and sessions has been the expansion of our LaMusica user base as well as increasing consumption of our podcasts and playlist products with an average time spent listening of over 45 minutes in the most popular categories.
In summary, our audio network and digital assets remain at the forefront of the Spanish language media in our aggregate audience remains up significantly compared to last year. We're excited about the future for SBS and our audiences. I want to thank you for your time and attention.
Now let's turn the call over to Jose Molina for the financial overview. Jose?
Thank you, Albert. Before turning to our results, I would like to mention that, during the comparative prior year period ending September 30, 2022, our operating results were impacted by the receipts of $2.3 million related to the 2020 business interruption insurance claim recognized as other revenue and political sales of approximately $700,000.
In addition, our operating expenses in the third quarter of this year were impacted by investments in our unique Spanish language talent and content for our terrestrial and digital properties and our digital infrastructure and capabilities, personnel offerings such as Digidea, our pure-play digital marketing department.
Now let's turn to our third quarter results. Our revenues from continuing operations totaled $35 million compared to $38 million for the same prior year period, resulting in a decrease of 8%. The decrease was primarily due to other revenues, network, local and digital sales, partially offset by increases in barter and national sales.
Excluding the prior year insurance proceeds and political sales, our net revenues from continuing operations were flat, totaling $35 million for both the current and prior year period. Our operating expenses increased 4%, primarily due to increases in barter expense, compensation and benefits, cost of digital sales and music license fees, partially offset by a decrease in advertising and promotions and the allowance for doubtful accounts.
Excluding barter expenses, our operating expenses were flat, totaling approximately $23.1 million for both the current and prior year period.
Our station operating income, a non-GAAP measure, totaled $10 million compared to $14 million for the same prior year period, representing a decrease of 28%. Excluding the prior year insurance proceeds and the effects of political sales, our station operating income was down $1 million or 9%, totaling $10 million compared to $11 million for the prior year period.
Corporate expenses decreased 5% due to decreases in compensation & benefits and travel & entertainment, partially offset by increases in professional fees and outside services.
Adjusted OIBDA, a non-GAAP measure, totaled $6.7 million compared to $10.4 million for the same prior year period, representing a decrease of $3.7 million or 36%. Excluding the prior year insurance proceeds and the effects of political sales, our adjusted OIBDA was down 9%, totaling $6.7 million compared to $7.4 million for the same prior year period.
Capital expenditures totaled approximately $500,000 for the third quarter. As of yesterday, we had cash on hand of approximately $7 million. In addition, if needed, we have approximately $6 million available of our revolver, which is currently limited to $7.5 million based on our leverage and fixed charge ratios.
For the full fiscal year of 2023, we now expect capital expenditures to be in the range of $2.4 million to $2.7 million and cash taxes to be between $1.8 million to $2.2 million.
As previously reported, we terminated our agreement with Voz after they failed to cure their breach by, among other things, failing to timely close on the sale of MegaTV operations and the related assets. We then filed a lawsuit related to the termination of these agreements, where we are seeking to recover monetary damages.
In general, we do not comment on the detail of current litigation or their potential outcomes. As to the status of the case, currently, the lawsuit is in its initial stage. All of the defendants have been served with a legal complaint. And some with initial discovery requests. We are awaiting their responses.
Also reported on November 15, we entered into an amendment to the $7.5 million KROI radio station purchase agreement, which provided us the right to delay the closing until mid-2024. As of today, we've made approximately $1.9 million in payment towards the purchase price. Under this amendment, we are scheduled to make additional $1 million payments in January, March, April and May and the remaining balance of $1.6 million on the closing date. We intend to use cash on hand and asset proceeds to close on this transaction.
Lastly, I'm pleased to provide you with an update on our strategic initiatives aimed to enhance the company's financial health and liquidity. In response to current market dynamics and a commitment to optimize our resources, we have and will continue to implement cost-cutting measures that are already yielding positive results. These series of cost-cutting measures will result in significant cost savings.
In addition, we continue to pursue the sale of our television operations and real estate assets, which are listed as discontinued operations. We have engaged with reputable brokers to facilitate the strategic sale of these assets and to ensure a seamless and efficient process. Their network and market knowledge have generated considerable interest from potential buyers, which should maximize the value that we can extract from these assets.
Together, these strategic initiatives will allow us to unlock value and redirect resources, which should position us for growth in the face of economic uncertainty.
This will conclude our formal remarks. And with that, I would like to turn the call over to Brad for any questions.
Thank you, Jose and Albert. So we did get some questions.
First one being, digging a little bit deeper into the third quarter results, particularly on the revenue side. Could you give a little bit more color on the Q3 performance in terms of local versus national network and digital?
So the main sales drivers that decreased the third quarter were network was down 18%, digital was down 14% and local was down 4%. And some of these things that offset the performance, these were some of the increases -- national was up by double digits, 10%.
And barter was up 57%. And I want to give a little color to that. We were doing everything possible to reduce the cash expenditures. So that's why barter was up. We've been strategically using barter to get maybe marketing services that we typically need.
And look, some other highlights for Miller Kaplan, which excludes our Puerto Rico market. Our national markets were down 8% and our -- by Miller Kaplan. Miller Kaplan stated that National as an industry, where in the markets that we serve were down 8% and SBS was up 50 -- excuse me, 7%. So down 8%, and we were plus 7% in national, will beat the market basically by 15 points when the national markets overall are significantly down. So it shows a very positive story that Spanish broadcasting still continues to grow nationally. Our local markets were down 7%, and we were down less than that. So we beat the local markets as well.
Some of the categories that were strong were entertainment, automotive, food and beverage and general services. Some of the challenges that we had, the categories that were weak, obviously, in 2022, we had political. So the entire industry, the broadcast industry is going up against the political comps from the prior period. So political was down, the Healthcare division was down, professional services, and retail was down. A lot of it has to do with a lot of retailers that are leaving like the state of California, and they're consolidating in other states. So some of that has impacted the performance.
Right. Thank you, Albert. Turning to the next area, the Orlando and Tampa stations, how did they do in Q3? And what was the station's -- what was the revenue impact in the quarter? And how do you see profitability tracking for the rest of this year?
So I want to go over -- the station is called El Zol in both markets. So Orlando, it started off immediately with a very, very strong ratings performance. And right now, we basically lead the Orlando market in ratings. And in financial performance, when we took over the station, the station was ranked about 22 or 23 and the station with respect to revenue rank right now is in, I believe, in October, it was the third ranked station in the market with respect to billing. So we're very pleased about that.
I also want to say I'm really pleased about Tampa, and I'm going to give you some color on Tampa. Tampa, although the ratings didn't grow as fast as Orlando did. The performance of Tampa compared to where it was before, has significantly increased. When -- even when you look at Middle Kaplan, our station when we took it over, it was ranked 23. And I think year-to-date, Tampa will be maybe 17 or 18. And I think every single month, it's getting -- the shares are growing, the revenue shares are growing, the audience share is growing and the rent is growing. So I feel very comfortable that the station is going to do really well.
And in particular, what I said in my comments before that for the last 2 months adults 18 to 34, El Zol in Tampa is #1 station. So when you start delivering strong numbers, 18 to 34, the 18 to 49s and 25 to 54 key demographic groups are going to continue to grow. So we're really pleased with that.
Jose, do you want to give some other color?
Sure. As to the financials for the third quarter, Orlando and Tampa had combined net revenues of about $1.9 million and combined adjusted OIBDA totaled a loss of about $100,000. For the third quarter, our LTM adjusted OIBDA was a loss of $1.7 million, which is an improvement of about $400,000 compared to the second quarter LTM loss of approximately $2.1 million. So we're slowly but surely reducing that loss.
Our LTM results include significant promotional expenditures, which occurred at the latter half of 2022. Given the significant promotional expenditures during 2022, we continue to expect our Orlando and Tampa operations combined to have positive adjusted OIBDA for 2023.
Not surprising, but another area of questions was Q4 pacings. So how did October, November do in terms of pacings. And to the degree that you can, can you break that down in terms of local national network and digital?
And then maybe, Jose, could you provide a little bit more detail on how we should think about operating expenses for the full year?
Sure. Let me give you a little color on Q4. Let's look at October. October overall was down low single digit. For obvious reasons, we were excluding political sales. But if you exclude political, October was up mid-single digits. And I'm going to say that we did -- we performed really well compared to where the market is at.
And -- but it's important to know that our core business is still solid. November was down low double digits, excluding political. And it was still up when you -- even when you excluded the -- we were down like high single digits. So -- and look, we were doing everything possible now with -- as it relates to the operating expenses, and I believe, Jose, you wanted to give a little color on that?
Sure. Sure. For the full year of 2023, we believe that our operating expenses will increase in the low single-digit range. And corporate expenses will decrease in the low double-digit range for the full year.
And then last question we have here is regarding the digital business. Can you provide some detail in what exactly the investments in digital entail and when you expect to see returns on those investments?
Look, we've increased the traffic and engagement on our websites, on our stream shows, on social media, on LaMusica. And look, after a very successful refinance, about 2 years ago, we wanted to make sure that we were investing in developing short-form content, podcasts, content distribution partnerships like Odyssey and iHeart that we're putting our premier content on them on their platforms.
We've invested in training and personnel and different system platforms that we believe that the marketplace was asking for, and we wanted to make sure we're super serving our clients. And in addition, for our clients, we started a marketing solutions company. It's called Digidea Marketing Solutions. It's a full-service digital marketing agency, allowing SBS to expand beyond our current owned and operating digital platforms and extend our reach to 250 million verified users.
Jose, did you want to give some financial color on [ digital ].
Sure. Yes. Digital currently right now is approximately 7% of our gross revenues. As of September, our gross digital sales totaled $8.4 million versus $9 million in the prior year. And that's year-to-date as of September. And then currently, our digital business is a low-margin business. But as we build and scale our digital, those margins will significantly improve.
Albert and Jose, that's all the questions that we have. So now I'll turn it back to Albert for closing remarks.
Look, I want to take a moment to all of our investors and our clients and all of our colleagues in the industry and the SBS family. After much reflection and consideration, I've decided to resign from my position as President and COO, Spanish Broadcasting System. It's been an incredible journey. And I'm immensely proud of what we've achieved together, in particular to the beacon of the Hispanic voice in America, which is my dear brother, Raul Alarcon, Jr. that he's like a brother to me.
While stepping down from the role of President and COO, I am pleased to announce that I'll be staying on as a senior adviser. In this capacity, I will continue to support 1 million percent, the company's vision, providing guidance and strategic insights, to ensure a seamless transition.
Look, and I'm going to continue to look forward to continuing to collaborate with all of you and with the SBS team in my new role. So Jose, is there anything else that you want to add to, that you and me, have worked next to each other for 25 years.
Albert, we wish you the best in your new role, and we'll be working together still. So you did an amazing job. And we'll continue to do amazing things.
As to the investors and employees, we look forward to the next call -- fourth quarter call. Thank you so much for your time.
Thank you, guys. We appreciate it.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.