Q4 2019 Earnings Call

Ladies and gentlemen, standby your conference call will begin momentarily. Thank you for your patience in standby.

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Good day, ladies and gentlemen, and welcome to Hemisphere Media group fourth quarter and full year 2019 financial results Conference call.

My name is crystal and I'll be your operator today.

Replay of this call will be available beginning at approximately one PM Eastern time today Tuesday March 3rd 2020 by dialing 855.

Eight fivenine to zero five steak or.

Well from outside the United States by dialing 4045373 406.

Front I'd for the replay is 9578 to five four.

I'll now turn the call over to Miss actually Scott.

Thank you operator, and good morning, everyone I'd like to welcome everyone to today's conference call I'm actually Scott and I'm with Edelman financial communication hemispheres outside Investor Relations Sir.

Today's announcement and our comments may contain certain statements about hemispheres that are forward looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995.

These statements are based on the current expectations at the management of Kinda sphere and are subject to uncertainty and changes in circumstance.

Which may cause actual results to differ materially from those expressed or implied in such forward looking statement.

In addition, these statements are based on a number of assumptions that are subject to change. Please refer to our company. Most recent annual report on form 10-K, and our other public filings for a more complete discussion of forward looking statements and the risk factors applicable to our company.

Forward looking statements included here in our me doesn't the date hereof and hemisphere undertakes no obligation to update publicly such statements to reflect subsequent events or circumstances.

During today's call. In addition to discussing results that are calculated in accordance with generally accepted accounting principles. We will refer to adjusted EBITDA, which is a non-GAAP financial measure a reconciliation of GAAP to non-GAAP information is included in our earnings press release, which was issued earlier this morning.

Management believes that this non-GAAP information, it's important to investors' understanding of our business.

I will now turn the call over to Alan.

Thank you Ashley and good morning, everyone before I discuss our performance I want to let you know that Craig Fisher is not able to be at our call today do a personal matter. So while we celebrate our remarks and handling acuity.

As we close out 2019, we continued to execute our ambition to drive value across our entire platform and deliver fresh and compelling content to our unique and valuable audiences to fourth quarter had some challenges, but our fundamentals remain strong and we are well positioned to succeed and any bobbing media landscape.

In Puerto Rico Wobble was once again the dominant number one station across all key sales demographics and in fact expanded its lead against Telemundo. Among adults 18 to 49 Wapas ratings increased <unk> increased by 18% versus Q4 2018.

Well. This performance was highlighted by a new hit realities, you're getting dose, which nearly doubled the time period you get adults 18 to 49 in December we produced at first WAPA cannot ludo crossover event with airport or we can get out it was facing off against cannot lose Colombian get adverse event was a huge had in both markets setting ratings records for the franchise.

As previously announced we're pleased to have reached a multiyear agreement with dish network to distribute WAPA and WAPA America, ending this rather relatively short dispute and blackout Wahoo is restored in December 16th and WAPA America on January 28, we're very pleased with the economic terms of our agreement, which reflect the tremendous value of our channels.

In conjunction with these agreements we also entered into multi year renewals with dish for Citrus Central America, TV and television dominicana.

Follows a very tumultuous summer a political unrest in Puerto Rico, the fourth quarter was relatively calm Nonetheless, there's still it's been a great deal of uncertainty as to the upcoming 2020 gubernatorial elections and what is the government is ready to move forward productively and transparently does it had a dampening effect on the advertising market in Q4.

Well Wapas results were impacted by these issues. We continue at the clear revenue later in the market what a very strong share.

As we look ahead economic metrics in Puerto Rico are stable and generally positive. According to the U.S. Census Bureau, Puerto Rico's population 2019 actually had a modest increase the first actually increasing 15 years.

Similarly, according to Nielsen the number of TV households, in Puerto Rico increased by 1.4% in 2019, the unemployment rate remained stable at 8.4% in December at or near 50 year lows.

I said, Puerto Rico did experience, a 6.4 magnitude earthquake, which struck the southwest part of the out on January seven and was followed by numerous after sharks. Fortunately none of our employees was injured and our facilities were unaffected as the damage was geographically limited to the southern part of the island.

Well there was an immediate widespread power outage.

He was fully restored within a few days.

The lives of many people and if that's the part of the island, however remain disrupted and numerous schools remain closed.

The earthquake in aftershock have adversely affected the advertising market in the first quarter as advertisers have elected the poor spending preferred show sensitivity to the populations concerns and priorities.

Beyond Puerto Rico. During Q4, we entered into a multiyear renewal with Comcast for carriage of all five of our U.S. cable networks.

Further testament to the value of our content and an important audiences well most linear cable networks are suffering significant ratings erosion our channels continue to perform strongly.

The only sorts 12th consecutive quarter of year over year ratings growth. It gets used to outpace Univision Telenovelas channel in total day ratings by 22% and a prime time ratings by over 100%.

One of America's audience increase by an impressive 21% versus fourth quarter 2018 led by over 65 hours per week, the best Live news and entertainment programming for Puerto Rico.

Central America day, they had its sixth consecutive quarter of year over year ratings growth with a robust 53% increase in total day ratings versus fourth quarter 2018.

So what do you know continues in its position as the second highest rated Spanish language cable channel in total day According to Nielsen.

Our joint venture, Colombia cannot who know continues to experience impressive growth in both ratings and revenue. Additionally, we're very encouraged by the robust double digit growth the Colombian TV AD market in Q4.

You know has entered into strategic programming alliances with so many as well as some minor Colombia, leading digital and print newsmagazine, which we believe will accelerate the joint ventures growth.

Our premium subscription screaming service on tie a continued its terrific momentum and India with over 600000 subscribers, a very strong growth trajectory.

Hi subscribers have embraced its original series, which wed roshe their limited late contemporary subject matter and high production values are unlike anything available banners television.

Leveraging our deep and valuable library, we have begun to generate revenues from licensing or content to screaming services in the U.S. and Latin America, including Amazon in Latin America, which has driven solid revenues after just a few months.

I should note that we did experience a decline in our subscriber numbers in Q4.

No what it last quarter. We believe this decline was in large part due to one major U.S. distributor that its alternate signup process, making very burden subscribed to the Spanish language package. We are in conversations with this distributor and are hopeful that they will address the tissue in the near term in the meantime, we're still seeing consistent growth from some of the largest distributors.

We're also optimistic that you did you do TV and Hulu well soon introduce a Spanish language offerings.

We continue to pursue M&A opportunities that will accelerate our growth I remain hopeful that we'll be able to successfully execute on such opportunities.

Before turning to the financial review I would like to briefly share viewpoint regarding the grown a virus.

First I was let's go out to those affected and we hope to spread is contained and good progress is made in terms of a global solution.

Equally none of our employees it had been affected but we recognize that the outbreak is causing meaningful disruption to the daily life for many around the world.

We're closely monitoring the situation.

We currently don't believe that the bars love a negative impact on viewership or subscription, but the potential impact on advertising is unknown.

Turning now to a quick review our financials.

Net revenue in the fourth quarter was 39.3 million as compared to net revenue of 46 million for the year ago period, which included 5.8 million in business interruption insurance proceeds we received in connection with Hurricane Maria Excluding these proceeds net revenues decreased by 1 million.

Advertising revenue decreased 1.5 million due to decline and the Puerto Rico advertising market as well as the blackout on dish network beginning on October 24.

It's challenging to precisely ascribed to dollar impact on advertising of the dish network blackout.

The decline in the advertising market was driven by Puerto Rico's uncertain political climate as well as continued delays in disbursement of earmarked federal funds.

Affiliate fees decreased 200000 due to the dish network blackout that would've increased 600000, when excluding the blackout impact the decrease in affiliate fees was offset impart by contractual fee increases and the launch across the onus on spectrum.

Other revenue in the fourth quarter, excluding the 5.8 million business interruption proceeds received in the prior year period increased 700000, driven by the higher licensing revenue for content library and revenue contributor by Snap media, which was acquired in November 2018.

Operating expenses were 25.9 million, that's compared to operating expense at 26.2 million, but at the same period in 2018.

Adjusted EBITDA in the fourth quarter was 18.4 million, that's compared to 18.6 million for the comparable period last year.

Adjusted EBITDA for the full year 2019 was 66.5 billion, an increase of 11% as compared to 60.1 million for the comparable period inline with our guidance.

Capital expenditures were 5.4 million for the full year 2018 against which we received reimbursement of 1.7 million Mount shreds policies as well as 1.7 million from the FCC.

We spent 2020 capex net of FCC reimbursement to be about 3.5 million.

Turning to our strategic investments during the fourth quarter, we funded 4.4 million to come out who know down considerably from the prior year due to the completion of concession payments earlier in 2019 as was lower working capital needs. That's can talk of can I don't know continues to grow its revenues.

This brings our full year 2019 strategic investments to total of 31.7 million looking into 2020, we expect the annual that's been it cannot who know to continue to decline. Additionally, the remaining 1.5 million of our initial 10 million capital commitments up on tie up with net in the first quarter 2020, we continue to view this as a side.

Along investment and we'll keep you updated on the relationship moving forward.

Regarding guidance, we're forecasting a low to mid single digit percentage increase in adjusted EBITDA for 2020 as compared to 20, that's going to 2019, well now open the cold your questions.

Thank you.

Ladies and gentlemen, if you have a question at this time. Please press the star followed by the number one key on your Touchtone telephone. If your question has been answered or you wish or move yourself from the Q. Please press the pound key once again to ask a question. Please press star and then one now.

And our first question comes from Steve Cahall with Wells Fargo. Your line is open.

Thanks, Alan Good morning, maybe first that distributor that you said, it's kinda been a problem child the drug the sub counts a little bit lower I think you mentioned that last quarter as well. So just wondering what kind of progress you might have had quarter to quarter getting them to fix it and if you think this is something that can be sorted out within the next couple of months.

Well, it's absolutely somebody that can be sorted out I think it's around relatively easy fix if they are they focus on it but you know there a large big bureaucratic telecom telco, which you know I. It we're into Q I know that and know that they they understand this is an issue for them and this is.

Hey, I'm distributor that has historically done very well with his panic, but they're a static package. So it's a little mystifying to us as to why they haven't moved with a little more urgency on this but we expected the problem will be addressed I, just don't know exactly one.

Okay, and then on the Comcast deal just wondering are those networks gonna be an HD on comp yes.

As of now there's no change, although it's absurd that in your 2020. These distributors do not carry all Spanish language networks in HD and honestly, it's its insulting to our audience adult we were talking to Comcast as well as other distributors some distributors perfectly spectrum had been.

Our aggressive in converting <unk> HD Comcast has the intend to do it but again you know there's a Q there and then you know its question of their level of priority.

I will say our video de with Comcast is in HD.

Okay, and then with a pen Ty I think you're up around 100000 subs sequentially can you speak at all or what kind of momentum you've seen early this year and what the original programming pipeline looks like for Pentile.

I don't want to talk about current quarter, but with but we feel very good about the cadence of growth and the and the trajectory. We think we're barely scratching the surface on the opportunity here.

We see broad acceptance among our subscribers of the Oh, the service and continued a robust growth and you know we're hopeful that add that that will continue we have great programming schedule for 2020, we've increased our investment in programming based on the results we've seen to date.

We will have second season of our two biggest hit theories that we introduced last year as well some new series that we're super excited about.

And then last one for me I'm you know there was a lot in the press about a bid for Univision and I think you've got a fair amount of connectivity there between been Sandusky in searchlight can you just talk about what that relationship is like in is there an opportunity to work together going forward or do you still see them, primarily as a competitor maybe just help put all that in context.

For us thanks, a lot.

Sure well you know clearly I can't comment on a on the rumors of our involvement in potentially Univision bid, but you know there based on searchlights involvement in both hemisphere, and Univision I would and I would assume although it's premature at this point to really talk about it.

You know and we clearly have not any specific discussions I would believe that given that there would there's plenty of opportunity for us to pursue synergistic and strategic.

Initiatives together with Univision and and we'll see that yield was ball to close is what happens, but I think there's there's some really interesting opportunity though.

Great. Thanks, a lot.

Thank you and again, ladies and gentlemen to ask a question. Please press star and then one now.

And our next question comes from carry Baker from Guggenheim. Your line is open.

Hi, Thanks for the questions. Alan can you maybe talk a bit about what's embedded in your advertising outlook for 2020 I'm just in terms of the low to mid single digit EBITDA guide.

I understand you're seeing some softness in the first quarter due to the earthquake impact you see this carrying forward beyond one Q.

Any incremental color on core advertising in Puerto Rico would be helpful.

Sure I I mean, I would love to wish I had a better crystal ball in Puerto Rico, it's such a volatile market that changes very quickly.

So I don't have any long term.

Real strong.

When if you want it I will say that first quarter has been adversely affected by this earthquake, which obviously is a onetime event, we're hopeful that that that the effect in first quarter is more of the nature of a delay in a in advertising spend as opposed to a cancellation or reduction in advertising spend.

We're not projecting a particularly robust a marketing in Puerto Rico were looking at a kind of a stable.

Situation in Puerto Rico relative to where it wasn't however, we think there's some potential upside there to the extent that federal funds do get dispersed and competence is restored in both the government and the economy. So I think we've taken a relatively cautious view betting that cautious view is warranted given given the history, Puerto Rico.

From a performance standpoint. However, you know why is you know is running on all cylinders. A we are we have a dominant first physician and ratings in the market. We've grown since last year and we expect our share of the advertising market to be very strong.

Okay. That's helpful. And then maybe on political for in Puerto Rico can you give us any sense of kind of expectations for this year and maybe a maybe a sense of what you guys did in 2016 and how you see this this election cycle shaping up versus 2016 sure. There's a couple of components to that the the poor.

So we can gubernatorial primaries are on our in early June so a little early for spending to have taken place yet for the first time in history. Both parties have primaries, so that shouldn't normally be a positive sign however, our belief is that neither party perfectly well funded and does not have.

A ton of money to be spending on TV advertising that cuts against the opportunity as a result, when projecting our political to be kind of inline with what it wasn't 2016, a which was in the $3 million range, we don't think will be higher than that.

We also expect some relatively small amount of money sort of let's say six digit in for the presidential Democratic primary in March.

Okay. Thanks, that's helpful. And then maybe just a bigger picture question.

Can you maybe talk about your ability and appetite to.

Consolidate some of the your investments penta, either put tire could el Nino.

I'm sure look we were very pleased with both of those investments, we think that both big opportunities.

And and you know, we would you know kind of who knows it difficult situation because the foreign ownership rules in Colombia restrict us to owning 40% of the business. So as of today, you know consolidating its not a possibility that could change down the road, but that's not possible legally today on tie up we love the business and you know we left on more of it.

Okay. Thanks, I think that's it from me.

Thank you and I'm showing no further questions from our callers at this time.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program you may all disconnect everyone have a wonderful day.

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