Q2 2020 Hemisphere Media Group Inc Earnings Call

Ladies and gentlemen, today's conference is scheduled to begin shortly please continue to standby and thank you for your patience.

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

A replay of the call was they'll they'll be available beginning at approximately one PM Eastern time today Monday August <unk> 2020.

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The conference I'd put the replay is 4.3.

Seven to eight eight.

I'll now turn the call it over to actually Berlin, you may begin.

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

Today's announcement and our comments may contain certain statements about hemisphere 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 of the management of hemisphere and are subject to uncertainties and changes in circumstance, which may cause actual results to differ materially from those expressed or implied in such forward looking statements.

These statements are based on a number of assumptions that are subject to change.

If you refer to our companies. 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 herein are made as of the date, you're up 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 is important to investors' understanding of our business.

I will now turn the call over to Alan.

Thank you Ashley and good morning, everyone.

Hope you and your families and colleagues are encouraging stay safe and healthy during these difficult times.

Since the onset of the pandemic, we've been focused on providing our view, what's an uninterrupted news and entertainment programming, while protecting the health and safety of employees, it's safe guarding our financial profile from cost reduction measures.

As a result of these efforts we are weather really tough environment seeing improving results. We are we have set ourselves up for continued success over the balance of the year.

In Puerto Rico, we enjoyed a challenging April and may at the our old was subject to lock down.

Wow Wapas April gross AD revenue declined year over year by 24% well made decline was somewhat steeper.

Following the partial reopening the economy in June results improved to an 18% decline.

Moreover, after adjusting for revenues in June 2019, premise universe, Puerto Rico, and sports Wopat was actually flat in June versus year ago.

This positive trend has continued and accelerated into July with revenue actually increasing from 2019 by robust, 12%, excluding political at 23% including political.

The combination of federal aid in the $600 per week supplemental unemployment insurance has bolstered the Puerto Rico economy, and led to improving consumer spending and a solid advertising come back.

Most consumer spending metrics have improved significantly include an auto sales we saw its best month in a decade in June with our dominant ratings position, we're optimistic regarding sales performance for the second half the year.

One quick note a political advertising.

The Puerto Rico gubernatorial primaries were reschedule from June 7th to yesterday August nine.

However, many polling locations failed to receive Dallas yesterday, and as a result, a significant percentage of Puerto Rico's were unable to vote.

As of this morning. It appears that bought it will take place in August 16 at those locations that did not see balance.

Due to the postponement of the primaries from June we said no political advertising revenue. The second quarter. However, we have benefited from a fairly strong political AD spend during July and the first week of August comparable to our original pre cobot expectation, but the primary season.

Wow contingency record ratings as audiences.

Pandemic gubernatorial election.

Wapas Q2 ratings reached an all time high among adults 18 to 49, breaking the record set in the first quarter this year and growing by an astounding, 76% versus Q2 2019, Wapas primetime rating among adults 18 to 49 equal to Telemundo and Univision combined.

Turning to our cable networks older networks Expiries terrific ratings growth in Q2 and demonstrated resilience in AD sales performance.

After sales declined 9% in the quarter versus the second quarter 2019 with continued improvement over the course of the quarter television Dominicana actually grew by 10% in the quarter definable market trends and affirming its importance in the market.

These positive trends have continued into July with robust, 14% AD revenue growth for you what cable networks versus July 2019.

Well the visibility is limited we're optimistic that we can sustain growth over the remainder of the year.

Our AD sales performance was driven by terrific audience growth at our cable networks three of our networks proxy honest Cinelatino and Central America Daily Order limited at all times highest quarterly ratings according to Comscore.

Networks provided the most current and comprehensive coverage of the Koby crisis from Puerto Rico Central America, and the Dominican Republic, as well as top quality compelling entertainment programming on Cinelatino and possibly on its audiences restricted to their homes.

Past, you want us markets 14th consecutive quarter of growth with 20, 22% increase in ratings compared to 2019.

I see owners get used to drive new audiences to you do its unique and compelling line up all the best dramas from throughout the world, including Turkey, India and Brazil.

Cinelatino grew its ratings by an impressive 46% over the comparable year ago period and accounted for all the top 20 highest rated original Spanish language films or cable according to Comscore.

[noise] centered on Monday, Tuesday, we had outstanding growth more than doubling its year ago audience. So dramatically as now at seven consecutive quarters of year over year growth. These outstanding ratings were driven by strong interest in news from Central America, but their highest rated program I Primetime newscaster Mel Salvador, increasing its.

Year over year ratings by 167%.

WAPA America also had an outstanding quarter nearing its all time record ratings and grow ratings by 26% compared to the prior year.

Subscriber growth remained challenged during the second quarter.

The declines are primarily driven by two major distributors and will remain in discussions with them around the importance of our audience and the opportunity to grow their Hispanic basis.

We are pleased to announce that we've entered into a multiyear renewal with rising for all five or cable networks and we remain encouraged at several major distributors continue to show subscriber increases given it's giving us confidence that there are many growth opportunities.

In addition, we're optimistic that the virtual and B P D. Such as you too and who fled Spanish language programming to their offerings.

As I previously noted in our calls we're beginning to generate revenue from licensing our deep and unique library of content. We believe that this will be a strong source of revenue for us as we've already seen impressive viewership of our movies and series.

We continue to see solid revenue for our partnership with Amazon in Latin America, and we have recently entered into agreements with both trudeau and to be it or negotiating with other platforms as well.

In Colombia, because as you know continues to grow to audience with total day ratings, increasing by 13% compared to the prior year.

However, what can I wouldn't want significantly outperformed the overall TV AD market as sales have been adversely affected by the restrictions imposed as a result of the pandemic.

Like all Latin American countries, Colombia has been hit hard by Kobin 19, and the number of cases in the country has continued to accelerate.

The government, it's been aggressive intent in attempted to limit the spread but there's not a lot of visibility on the trajectory of cases.

Can I do know whats taken actions to greatly reduced programming and administrative costs, which are thus for offset revenue declines.

[noise] part-time continues to demonstrate growth and now was 800000 paying subscribers.

As audiences could you just said much of their time at home screaming has become a dominant source the viewing the surface has a wealth of content in the pipeline for the remainder of the year.

Movies and series produced by Hemisphere accounted for a majority of Penn ties most viewed programs in the second quarter.

The success of our content up on tie it reaffirms our expanded production strategy benefited upon tire well driving additional value for hemisphere.

We're honored up on step on Tai has received seven seven nominations for in Mine Award recognizing excellence by Latinos in movies and TV.

Regarding M&A.

During the quarter, we were heavily focused on managing our costs and maximizing revenue. However, we anticipate that attractive opportunity in the U.S. and Latin America may arise over the coming months with our strong balance sheet and available cash we're well positioned to take advantage of these opportunities.

In conclusion, we continue to monitor to be impacted the pandemic across all of the geographies. We serve we're focused on responsibly managing costs, while producing critical news and compelling entertainment content for audiences.

Well the environment, it's still too uncertain to provide guidance at this point, we remain optimistic regarding continued positive trends. Thank you everyone I'll now turn the call over to Craig.

Thank you Alex and good morning, everyone.

Let's start with our liquidity position, we ended the quarter with 105 billion of cash an increase of 10 million from the prior quarter.

We had 206 billion in debt as of June Thirtyth as mentioned on our prior earnings call, we have no near term maturities or maintenance covenants.

We remain focused on optimizing our cost.

In the quarter, we lowered our as she needs through reductions in personnel costs and marketing research.

To preserve liquidity, we renegotiate certain programs agreements the for payments into the second half a 2020 and into 2021.

Additionally, pursuant to the cares act, we participated in the employer payroll tax deferral, which differ the payment or for payroll taxes until 2021 in 2022.

Yeah, we claim employee retention credits during the quarter.

Moving to our results net revenues in the second quarter was 34.7 million a decrease of 11% as compared to net revenues of 39.1 million for the year ago period.

Net revenues for the six month ended June 30, 2020 were 67.1 million a decrease of 10% as compared to 74.3 million for the year ago period.

These declines were due to decreases in advertising and affiliate revenues, which were offset in part by increases in other revenue primarily from licensing of our content.

Advertising revenue for the three month period decreased three point threemillion or 21% from the six month period and for the six month period decreased 4.7 million or 16% over the comparable periods in 2019.

These decreases were primarily due to negative impact to the pandemic on advertising and the timing or cancellation of Miss universe, Puerto Rico, and certain sporting events, which were produced in televised in the second quarter of 2019, but not in the second quarter 2020.

Pro forma for these events advertising revenues were down low single digits in June showing improved trends relative to April and May.

We did not have any political revenue in the second quarter due to the postponement of the Puerto Rican gubernatorial primaries from June to August we did see strong political advertising revenue in July and August to date.

Affiliate revenues for the three and six month period decreased 2.3 million or 11% and 3.8 million or 9% respectively over the comparable periods in 2019.

These decreases were due to declining subscribers across all of our networks in the U.S. and Latin America, and the impact of unfavorable foreign currency movements.

Other revenue for the three and six months ended June 30, 2020 increased 1.2 million or 61% and one point threemillion or 52% respectively over the comparable periods in 2019, due primarily to the licensing of content to third parties.

As we noted before licensing revenue can be uneven given the timing and the availability of titles.

Operating expenses in the second quarter were 25.8 billion, an increase of 3% as compared to 25.1 million for the comparable period.

Operating expenses for the six month period were 54.1 million, an increase of 10% as compared to 49 million for the comparable period.

Cost savings measures implemented in response to the pandemic, which resulted in reductions in SGN, a well more than offset by higher cost of revenues increased stock based compensation and bad debt reserves.

Cost of revenue increased due to ongoing investment in programming specifically as a result of the cost of content acquired for license to third parties and the production to get US Wapas successful daily reality show, which began production in May 2019.

These increases were partially offset by the timing or cancellation of Miss universe, Puerto Rico and certain sporting events.

Operating expenses for the six month period also increased due to higher non operating expenses, including professional and advisory fees incurred in connection with our pursuit of strategic transactions in the first quarter of this year, a decline and reimbursements received from the FCC for a quick equipment purchased purposes required in connection with these spectrum repack.

At a loss on the disposal of assets and the lower utilized the operations of our business.

Adjusted EBITDA in the second quarter was 13.3 million a decrease of 24% as compared to 17.5 million for the comparable period.

Adjusted EBITDA for the six month period was 24.8 million a decrease of 23% as compared to 32.4 million for the comparable period.

Our gross leverage ratio was approximately 3.5 times and net leverage ratio was approximately 1.7 times consistent with the prior quarter.

Capital expenditures were 300000 the quarter. This is compared to 1.4 million in Q2 2019.

As a reminder, we have reprioritized our capital plans for the year net deferred certain capital projects to the second half of 2020 and into 2021.

Turning to strategic investments as noted on our last call. We elected to take advantage of the favorable exchange rate in the first quarter and Prefunded can alvino through the second quarter. Therefore, there was no funding in the current period.

We believe our business has been operating well in a difficult environment. We maintained a strong financial position and we are pleased with the positive indicators. We have seen in July and on into August we look forward to updating you on our progress we'll now open the call to your questions.

Thank you, ladies and gentlemen, as a reminder to ask the question.

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Please stand by we compared to Q and a roster.

Our first question comes from the line of Stephen Tanal with Wells Fargo Silanis Okay.

Thanks, Good morning, So maybe first.

At this point.

Could you say, whether or not you think Q3 AD sales will be up maybe within without political and could you give us a sense that maybe how cable network AD sales have been trending it sounded like most of the positive commentary was on WAPA, Puerto Rico. So just trying to understand what the cable dynamic ads as well.

Good morning, Steve.

Listen to you know, there's not a lot of visibility the market as you know.

AD sales are being strictly bought a scatter basis in the decisions are being made on kind of a weekly or even the daily based sometimes but what we've seen so far as as indicated by the numbers that are that I gave you is very positive. We had it did a very strong July August is off to a good start so we feel good about where things are today and.

Add to the extent, we have visibility positive on the west side as I also as I mentioned, we had we had a really strong July up 14% versus year ago, and we are optimistic that we can't sustain those numbers going forward through the balance for the quarter.

Great and then on the sub declines I mean, it sounds like can really wide dispersion of trends. There I think if I heard things correctly, you said that you're up at some distributors and then I guess the numbers would imply your down pretty heavily at some other distributors. So maybe if we step back from it I mean do you think that the Spanish language pay TV base is it.

Growing or shrinking at this point and then how do you think about sort of getting your sub declined to track more consistently with kind of what you think the overall base is doing.

Well I just think our subscriber base is different we you know where were focused on the Hispanics subscribers, which are which are a subset of the overall subscriber base, but they have different a different demographic profile different socio economic profile and they are treated differently by distributors. Most importantly, so the distributors.

That have priced appropriately and have marketed towards the Spanish continue to see solid performance the ones that I would say abandon this bank market either by failing to market the them or by pricing in a discriminatory weigh against Hispanic by which I mean that they are that in order to subscribe to the spanning package.

You have to buy through an English package and then pay a premium just described your channels.

Unfortunately, there are the two subscribed the two distributors that that have really performed poorly.

Engaged in that sort of pricing behavior, which we feel is.

Bad business and also just you know bad policy in discriminating against the market that can lead to afford a those those those heavy prices.

So we've got a corrected we could leading of that can be corrected we feel that they can reverse that trend as well.

Got it Alan and then Craig maybe just get a 105 million in cash on the balance sheet do you have any major either minority investments are programming our capex. The comes up in the back half of the year that you think changes free cash flow or the cash profile the business.

And then also you took some costs out it looks like on SGN, a so any guidance or outlook on what SGN a might look like going forward after those initiatives.

Sure as I noted, we deferred some of the capital projects into the second half of the year, we're still anticipating around a 5 million or so in total capex for the year. So it'll pick up here in Q3 in Q4.

About half of that those still remains around the FCC spectrum repack. So we would anticipate reimbursement from that although the timing of that sometimes lags a quarter.

But like where we feel good about the cash flow generation in the quarter and we are we anticipate who continue to generate free cash here in the second half of the year, we will as I noted about I think you asked about the minority investments we had some big Canal, who know we pre funding at all even though through second quarter I think the funding in the second half of the year will be.

Similar to.

The funding we made in Q1, which is about 5 million so.

They've done a good job of managing their costs, there as well, reducing the funding requirements. So.

We feel good that we'll end the year with more cash than we have right now we continue to build on on that basis.

The as she and today, we continue to manage costs closely.

Some of the cost savings were variable nature. So as we've seen sort of the rebound in revenue here in July or some of those costs the variable costs will return.

We've but we'll continue to keep an eye on on management cost management.

Particularly as it you know.

Health issue changes over time between now and the ended the year until we have the ability to to control cost effectively through the balance of the year. So I think but weve the savings we've seen the quarter a good chunk of that will continue on just the variable cost so that will will probably come back in a little bit.

Great. Thank you.

Thank you.

Ladies and gentlemen that star one to ask the question.

And I'm showing no further questions from I'll call. It at this time, ladies and gentlemen, thank you for participating in today's conference. This concludes the program and you may all disconnect everyone have a wonderful day.

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