Q4 2020 Hemisphere Media Group Inc Earnings Call

Ladies and gentlemen, this is your operator your conferences scheduled to begin momentarily until that time your lines will once again be placed on hold thank you for your patience.

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Good day, ladies and gentlemen, and welcome to the Hemisphere Media group Incorporated's fourth quarter and full year 2020 financial results Conference call. My name is Jason and I will be your.

Operator today, a replay of the call will be available beginning at approximately one P. M. Eastern time today Tuesday March 2nd 2021 by dialing one 800 585, each 367 or from outside the United States.

For 16621 for six four to the conference I E for the call is 1563675 I will now turn the call over to Danielle O'brien you may begin.

Thank you operator, and good morning, everyone I'd like to welcome everyone for today's conference call I'm, Danielle O'brien, and I'm with Edelman financial Communications hemispheres outside Investor relations for them.

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 uncertainty and changes in circumstance, which may cause actual results to differ materially from those expressed or implied in such forward looking statements.

In addition, these statements are based on a number of assumptions that are subject to change. Please refer to our company's 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.

Looking statements included herein are made as of 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.

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 Danielle and good morning, everyone I Hope you and your families and colleagues are staying healthy and safe.

I'm incredibly proud of the results, we delivered for the fourth quarter and the full year our.

Our business performance was truly extraordinary in the face of the pandemic and macroeconomic headwinds.

For the second consecutive quarter, we delivered industry, leading revenue growth at a time when other media companies are reporting advertising and rating declines our business has resolutely defied these trends.

Our fourth quarter was the highest quarter of TV advertising revenue in our company's history, even when excluding political.

Overall in the fourth quarter, we grew net revenues by 19% driven by driven by an extraordinary 54% increase in advertising revenue.

This outstanding top line growth drove a 20% increase in adjusted EBITDA in the quarter.

As a result of our strong second half performance, we were able to largely mitigate the impact of the pandemic on our results.

In Puerto Rico, economic activity business trends and consumer spending built upon the momentum seen in the third quarter as many of the pandemic related restrictions are gradually lucid.

As a result of improving consumer behavior. The overall TV AD market grew by a remarkable 44% excluding political versus 2019 and wireless fourth quarter AD revenue was the highest in the history of Puerto Rico TV, even when excluding political.

Assuming additional federal stimulus as well as the release of billions of previously allocated federally funds relating to hurricane Maria the market should be well positioned for continued growth in 2021.

2020 marked whoppers 11th consecutive year as the number one station in Puerto Rico in light of the pandemic, we made the decision to reduce spending in the second quarter, but as the market recovered in the third quarter, we committed to bring our viewers continuous fresh programming and it paid off for the full year Whopper delivered the highest average total day ratings.

If any television station in Puerto Rico since Nielsen began measuring ratings in 2010.

We also renewed retransmission agreements with the two largest mvpds in Puerto Rico, which became effective on January one.

These renewals will result in a substantial increase net retransmission fees and reflect one singular strength and value. While it was extraordinary lineup of news entertainment and sports programming, leading market position and unparalleled ratings big Whopper indispensable to distributors in Puerto Rico.

Turning to our cable channels, we experienced meaningful ratings growth across all of our comps correlated U S cable networks as they continue to defy overall viewing trends are reflection of unique and relevant content offering our audiences continue to seek out.

This ratings performance helped drive double digit percentage of AD revenue growth in Q4, a very strong result in the face of a challenging advertising environment.

Partially honest delivered its 16th consecutive quarter of year over year audience growth growing ratings by 7% as compared to the fourth quarter of 2019.

And for the fourth consecutive year pass units grew its full year ratings this year, increasing by 18% over 2019.

Looking ahead, we have a fantastic content lineup for 2021, including the U S premiere of blockbuster Turkish drama mother, which previously set record ratings for Wap in Puerto Rico.

It's still a Latino marked its third consecutive year of audience growth increasing its ratings by 8% over the fourth quarter of 2019.

Central American Davis ratings increased by an impressive 40% over the fourth quarter of 2019, marking its ninth consecutive quarter of year over year growth.

We are pleased to announce a central America day of ads recently launched Fanapt is a growing over the top U S distributor focused on sports from Latin America and space are low speaks to the value of the channel stock of programming from El Salvador, Costa Rica and Honduras.

While the America continues to rank among the top five rated Spanish cable networks growing ratings by 10% in the fourth quarter and bringing its large and loyal audience unmatched coverage of the Puerto Rico elections, and the COVID-19 crisis.

The channel had an outstanding year and near its all time record ratings posting a robust 14% increase in total day viewership in 2020.

On March 1st television Dominicana launched on Directv in Puerto Rico, given the channel meaningful incremental distribution TVD of any kind of is now available on all major distributors in Puerto Rico.

A quick note on our subscriber numbers, we are encouraged that our subscriber losses decelerated sequentially in the fourth quarter. In addition, we are in continuous discussions with all major over the top distributors about launching the Spanish language package.

For tire is a key strategic initiative for us as a leading Spanish language subscription streaming service in the U S. Bowtie is ideally positioned at the destination for Hispanics did enjoyed blockbuster movies and premium original series that they cant find anywhere else in 2020, but high grew its subscriber base by approximately 40 per.

And now has over 900000 paying subscribers.

But highest focused on significantly growing and scaling its business and expanding its content offerings, where our comprehensive anti can drive dynamic and sizable growth by providing a 60 million U S. Hispanics with a service that uniquely speaks to that.

Turning to Colombia, and our best when it cannot who know the market continues to remain challenged by the pandemic.

While restrictions on business activity were lifted near the end of the year further lockdowns were implemented in January putting pressure on the economy Canal Uno outperformed the overall TV market throughout 2020 and was able to successfully mitigate market declined by prudently managing and reducing costs. We believe is 2021 progresses, Inc.

Columbia's Covid cases, lessen the market will be able to return to normalized advertising spending level below normalized advertising spending levels, and consequently kind of alumina as market share and revenue should continue to grow.

<unk> recently entered into a key strategic partnership with Televisa their most important content producer in Latin America. This agreement provides cannot lunar with access to hit primetime dramas, including televisions as number one show around the world that we're also at the Guadalupe.

On the M&A front, we continue to pursue various exciting potential strategic transactions, including opportunities that have arisen by virtue of the impact of the pandemic.

In closing we are extremely pleased with that performance this year, despite operating under terribly challenging circumstances.

Our extraordinary results during the second half for the year give us tremendous momentum and our 2021 early results have continued its impressive growth trajectory.

While the environment in the world are continuously changing our mission remains the same to drive value across our entire platform and deliver fresh and compelling content to our unique and valuable audience. Thank you everyone I'll now turn the call over to Craig.

Thank you Alan and good morning, everyone. We're excited to have completed a successful year for our business, which included record advertising revenue during the fourth quarter, a significant achievement given the headwinds we faced.

Net revenues for the fourth quarter were $46 9 million, an increase of 19% as compared to $39 3 million for the year ago period.

Net revenues for the full year for $151 2 million, an increase of 1% as compared to $149 4 million for the full year 2019.

The increases in both periods was due to growth in advertising revenue, which was offset in part by lower affiliate revenue and other revenue.

Advertising revenue for the fourth quarter increased $9 5 million or 54% as compared to the same period in 2019.

Advertising revenue for the full year grew $8 6 million or 14% with significant acceleration in the second half for the year.

The increase in both periods were driven by record advertising up Whopper and continued growth at our cable networks as well as political advertising revenue of $2 7 million in for $3 million for the three and 12 month periods respectively.

Affiliate revenue for the fourth quarter decreased 1% as compared to the same period in 2019 for the 12 months period affiliate revenue decreased $6 million or 7% as compared to 2019. The decrease in both periods were due to a decline in subscribers at our U S and Latin American cable networks and the full year was also impacted.

Unfavorable foreign currency movements.

Other revenue for the fourth quarter and full year decreased $1 7 million and 900000, respectively as compared to the same period in 2019 due to the timing of licensing of our content to third parties, which varies from period to period and the lack of theatrical releases due to the pandemic.

Operating expenses for the fourth quarter was $31 6 million, an increase of 22% as compared to $25 9 million for the same period in 2019.

Operating expenses for the full year for $109 5 million, an increase of 9% as compared to $100 1 million in 2019. These.

These amounts included a $2 8 million impairment charge related to goodwill and intangibles related to the snap acquisition and 900000 of content write downs.

Without these charges operating expenses increased 8% in the quarter and 6% for the full year the.

The increases were primarily due to higher news cost related to coverage of the elections higher programming costs due to the timing of premieres and increased personnel costs, including AD sales commissions driven by the record level of advertising revenue.

Higher expenses in both periods were offset in part by lower marketing and research cost benefits provided under the cares act and lower depreciation and amortization expense.

Adjusted EBITDA in the fourth quarter was $22 million, an increase of 20% as compared to $18 4 million for the year ago period.

Adjusted EBITDA for the full year was $63 6 million, a decrease of 4% as compared to $66 5 million for the year ago period.

Turning to the balance sheet as of December 31, we had $205 million in debt and $135 million of cash. This represents an increase in cash of nearly 43 million since the end of last year.

Our gross leverage ratio improved to three two times and net leverage ratio improved to one one times.

As we previously announced during the fourth quarter the board authorized a $20 million share repurchase plan and we repurchased approximately 33000 shares of common stock at a weighted average price of $10 59.

For an aggregate of $400000.

Capital expenditures were 400000 in the quarter, bringing the full year capex of $2 $4 million. Our 2020 Capex was lower than previously guided due to the deferral of certain capital projects and delays as a result of the pandemic. These.

These projects will be completed in 2021, we expect 2021 Capex net of FCC reimbursements to be approximately $5 million.

Turning to strategic investments, we invested $1 9 million and our joint ventures during the fourth quarter, bringing our full year investments to $9 4 million down from $31 7 million in the full year 2019.

The decrease was due to improved operating results for canal Uno, we expect to fund approximately $6 million to $7 million into canal Uno in 2021, as we continue to progress towards breakeven.

We are proud of our fourth quarter and full year performance, which is a testament to the resiliency of our business model and strong track record of execution. The first quarter is off to a strong start continuing our momentum from the fourth quarter. While we are optimistic for our 2021 performance given the pandemic and uncertainty around the timing and amount of federal stimulus.

And approved but unreleased aid package for Puerto Rico, we are not providing guidance at this time well now open the call to your questions.

Oh, it's this time, if you would like to ask a question. Please press Star then the number one on your telephone keypad.

We'll pause for just a moment to compile the Q&A roster.

Yeah.

Your first question comes from the line of Steven Cahill from Wells Fargo. Your line is open.

Thanks, So some really great results in Puerto Rico in the quarter I guess, maybe first off could you help us maybe break that down between what was your delivery growth and what was your pricing growth. My guess is it was strong on both fronts, but just trying to get kind of a relative sense of how much was with delivery versus.

Is the pricing impact.

It was really a combination of both Steve.

For much of the fourth quarter, we were completely sold out.

We try to minimize displacement from political there was a little bit of displacement of our results would have even been better we could not accommodate all of the advertising demand an area without without having excessive amount of commercial clutter, but.

But there was also there was also some solid pricing growth as a result of the interest out of the high demand for inventory.

Yeah.

Great and then maybe on the subscription side I guess first on sub declines I think those were down less than 1% sequentially in Q4.

With the better part of Q1 over is the sense that that trend can continue for for the U S. Cable networks and then I know you've got a couple of Retrans deals done in Puerto Rico. So it was just wondering if you could give us an outlook for 2021, either on total company affiliate or for Retrans growth.

Uh huh.

We did enter into Retrans deals as I said with the two largest distributors in Puerto Rico, which make up the vast majority of subscribers in Puerto Rico and that will translate into a very meaningful data.

<unk> growth for next year.

Revenue growth for us for next year in terms of velocity of subscriber losses.

We're optimistic that the that.

The decreased velocity of losses will continue into the first quarter through the year, but a little too early for us to really jump to any conclusion as you know we see results generally on a two month lag.

So we don't see them in real time and hard to know hard to know in real time, how the distributors are doing other than what we've seen on a 60 day delay.

And maybe last one from me, which is a bit off the wall.

White Hot spot market out there you are clearly understand the stock market as well as anybody do you see this as a particularly opportunistic time to look at either capital raises or mergers and you probably got more cash on the balance sheet than you typically do.

So with that buyback authorization, how do you also think about putting some of that to work.

Yeah, our capital allocation policy continues to prioritize disciplined strategic M&A.

<unk> built a significant cash balance this year and we think we have ample liquidity along with borrowing capacity to pursue the transactions that are in our pipeline. As you noted we implemented the share buyback plan in November we believe our stock is cheap, particularly given the performance of our business.

And we'll continue to evaluate with the board the best use of our capital to create shareholder value.

Great. Thank you.

Your next question comes from the line of Curry Baker from Guggenheim Securities. Your line is open.

Hey, good morning, guys. Thanks for the questions maybe.

Maybe can we start with 10 tayo.

Obviously, you guys saw a nice growth there.

20 can you maybe talk to what you guys see as the Tam or the opportunity there over the next one.

123 years.

Do you have any funding commitments there.

Any expected funding commitment commitments there this year and can.

Can you speak to whether that business is breakeven profitable any color there would be great.

Yes.

Cory it's Alan we are.

We're big fans and believers in PON tire.

And.

In contrast to some of the Big General market services that have launched or about to launch it has.

It's been around for three years now so we have a really low a lot of data and a strong track record and a strong track record record of growth.

And we have proof of performance for three years. So we feel very good about the growth trajectory and we think frankly, we can accelerate that growth trajectory going forward.

As production returns to normalcy following.

The end of Covid, and and we're big believers that with 60 million Hispanics in the U S and being the leading service.

For those for that audience and really being unique in terms of the quality and type of content that we provide that nobody else in the market is providing.

We think it's a very singular sort of service.

That can really drive substantial growth going forward.

And we don't have contractual funding obligations per se, we are in constant dialogue with our partner Lionsgate and with the management team on their funding needs and the timing of that funding.

Okay can you guys comment on just the profitability of where you guys are at.

We we have not commented specifically on the profitability but.

But we believe that upon tier.

It is worthy of additional investment to drive growth.

So we're more focused right now on the growth opportunity zone on profitability I think that price the appetite could be profitable as we wanted it to be profitable today, but I think the question is do you continue to invest to drive further growth and I think that that is out perspective.

Now.

Okay.

I know you guys. Just just spoke to the two renewals that were completed in Puerto Rico on the Retrans side are there any other renewals up end of this year or throughout this year on the cable side.

Or in Puerto Rico that we should be aware of.

We don't we don't comment on individual deals and renewals in our terms are typically staggered.

But there is that to the extent that they are already significant renewals, we will certainly.

<unk> disclosed M&A out there for you guys.

But.

Right now we feel very good about where we sit in terms of our existing deals and any any any upcoming renewals.

Okay.

I think that's all I've got thanks, guys.

Thank you.

That concludes Q&A I would now turn the call back over to Alan Sokol for closing remarks.

Nothing more from my side and thank you everybody for joining and continued good health to everybody on the phone.

That concludes today's conference call you may now disconnect.

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