Q2 2021 Hemisphere Media Group Inc Earnings Call
Excuse me, ladies and gentlemen, this is the operator today's call is scheduled to begin momentarily until that time your lines will again be placed back on a music hold thank you for your patience.
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Good morning, ladies and gentlemen, and welcome to the Hemisphere Media Group, Inc. Second quarter 2021 financial results Conference call. My name is brandy and they will be your conference. Operator today. Please be advised that today's conference is being recorded I would now turn the call or would you Danielle O'brien. Please.
Go ahead.
Thank you operator, and good morning, everyone I'd like to welcome everyone to today's conference call I'm, Danielle O'brien, and I'm with Edelman financial Communications.
Outside Investor Relations firm.
Today's announcements and our comments may contain certain statements about hemisphere that are forward looking statements within the meaning of the U S Private Securities litigation.
75.
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 other public filings for a more complete discussion of forward looking statements.
Factors applicable to our company.
Forward 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 included in accordance with generally accepted accounting principles, we will refer to adjusted EBITDA, which is a non-GAAP financial measure.
Filiation 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 book.
I'll now turn the call over to Alan.
Thank you Danielle and good morning, everyone. We continued our strong momentum into the second quarter following our industry leading results over the 3 previous quarters.
Growth was driven by exceptional advertising revenue results and our acquisition upon tire.
We're very excited by our early results up on time as we announced in March we acquired Lionsgate stake upon tie the first and leading Spanish language subscription streaming platform between the best and premium movies and series.
June 30 volume just our first quarter. After the acquisition, we reached nearly 1 million subscribers a terrific be getting for us with a large and untapped addressable U S. Hispanic market, which is expected to flow to $75 million by 2030, we have just begun distress scratch the surface.
Our previously stated goal is to attain 2.5 to 3 million subscribers by 2025.
We are very confident that we can achieve that objective.
Pankaj offer subscribers and unparalleled deep library of premium original content.
That's a significant first mover advantage in the Hispanic streaming space.
Our second quarter programming on tire was highlighted by the second season of our hit reality series Derbez family vacation.
During its first 30 days was the second most watched series and Pankaj history and helped drive a 90% increase in total hours viewed over the previous 30 day period.
And as we have previously stated we are meaningfully increasing investment in content. We've entered into a number of key talent deals in co production arrangements with some of the leading producers in Latin America.
We are very excited about our upcoming content pipeline as our production schedule is ramping up through the balance of the year.
In September we will be releasing season 2 of its way to the last years.
Highest most successful series to date also this past Friday, we released illegal and you laid out at our first moving produced by Hemisphere for Pantoja since the close of our acquisition were confident that this thriller with an all star cast will be a big hit per pantoja.
We're also making great progress in growth monetize distributions pentair.
Anti S entered into an important distribution agreement with Youtube TV and is in advanced negotiations with several other key distribution partners.
We have begun to leverage the hemisphere portfolio of assets to help drive growth half on tire through promotion production and distribution and we've already seen terrific results.
With the support of a major promotional campaign a whopper since July 31 pad Thai has been the number 1 entertainment at in Puerto Rico on Android head of Netflix Disney plus Amazon and HBO, Max and we're strategically leveraging hemisphere as other assets to drive further growth.
Now turning to our television networks, we delivered an outstanding quarter of revenue growth, including advertising revenue increase of 40% over the second quarter of 2020 as well as a 10% increase over 2019.
In Puerto Rico, economic indicators from our business trends and consumer activity remained very encouraging in fact, the economy is stronger than it has been in many years.
In addition to the significant level of federal stimulus related to Covid, Puerto Rico still billions and hurricane recovery funds that have yet to be disbursed, and which week and which we expect will now start flowing at a faster pace.
The combined impact of these factors and improved consumer confidence should drive renewed strength in many sectors for the coming years, and we are well and we are well positioned to benefit from such growth.
Key economic metrics reinforce Puerto Rico's improving economic picture.
New order sales through June have more than doubled compared to the first half of 2020 and are up 31% from 2019.
Cement sales through May were higher than the same periods in both 2018 in 2019, when the island was rebuilding following hurricane Maria.
And the tourism industry has seen a remarkable turnaround.
Airport passenger airport passenger traffic during June was the highest since privatization of the effort in 2013.
We saw another outstanding quarter of revenue growth for Whopper, and the network maintained its long standing dominant position.
As has been the case for every quarter since Nielsen began measuring the market Whopper remains the number 1 station.
With at least 20 out of the top 30 shows in every key demographic categories.
Wap experienced strong growth in both advertising and retransmission fee revenues, while the U S continues to see organic subscriber declines Puerto Rico has been very stable and once again had a quarter with no subscriber losses.
Our audience ratings and advertising share with both outstanding in Q2.
Or are they Miss universe passion on May 16 was the highest rated program in Puerto Rico in the past 6 years and delivered an outstanding 75% of audiences and the key demographics.
These results are a testament to the single apparel Wawa as well as the continued overall strength of broadcast television in Puerto Rico.
We are thrilled to announce that we've signed Jay for the sector as a host and news commentator Jay is a massively popular journalists radio host and political analyst with a track record of very successful shows on Wampus top competitor on the island and as a base and over 1 million Facebook fans at 600000, Instagram followers, we're confident that as a member of the <unk>.
Jay will further drive ratings and advertising growth.
Turning to our U S cable channels outperformance was strong our channel continues to be leaders in their respective categories. As we delivered solid advertising revenue growth.
All 4 of our measured channels are among the top 15 rated Spanish cable channels and coverage ratings with 3 of the 4 of the top 10 Monday to Friday, including pasture on it the number 2 weighted channel Monday to Friday.
Regarding distribution, we are excited to announce that we have reached an agreement with Youtube TV to carry 3 of our channels that are Latino America AD hoc Jonas with launches expected before year end. We're encouraged that this new launch together with our other recent launches and mitigate organic subscriber declines. We're also optimistic that Youtube launch.
Accelerate the timeline for launches on other major major virtual mvpds.
Turning to Colombia, and our investment in Colorado, who know the market remains challenged by heightened Covid cases, though at a lower rate than seen in the past several quarters.
Vaccines are becoming more widely distributed and we are beginning to see a more normalized at more normalized advertising activity return. Despite these challenges cannot deliberate strong advertising growth in comparison to both 2020 and 2019, while we are cautiously optimistic that the remainder of the year, we'll see a stronger overall advertising market.
In closing we're thrilled to have continued our strong momentum in the second quarter and we're off to a great start to the back half of the year.
Hi is off to an exciting beginning and it's very well positioned for continued robust growth as the market leader in that in the Spanish language screening space.
We look forward to continuing to transform the growth profile of our business and are committed to meaningful value creation for all of our stakeholders. Thank you everyone I'll now turn the call over to Craig.
Thank you Alan and good morning, everyone. We're excited to have continued our strong performance into the second quarter net.
Net revenues for the second quarter were $50.5 million, an increase of 45% as compared to $34.7 million from a year ago period.
Net revenues for the 6 months ended June 32021 were $88 million, an increase of 31% as compared to $67.1 million for the same period in 2020.
The increases in both periods were due to higher advertising revenue as well as growth in subscriber revenue due in large parts of the inclusion of <unk>, which the company acquired on March 31.
Subscriber revenue for the 3 and 6 month periods increased $12.9 million or 67% and $13.1 million or 33%, respectively as compared to the prior year periods. The increases were primarily due to the inclusion of pump tire as well as contractual rate increases and new launches of our networks offset in part by <expletive>.
Klein in U S cable subscribers.
Advertising revenue for the 3 and 6 month periods increased $4.9 million or 40% and $9 million or 37%, respectively as compared to the prior year periods. The increases were primarily due to growth in the Puerto Rico television advertising market, coupled with an increase from what the share of the market. Additionally, we saw.
An increase in advertising revenue at our cable networks as.
As compared to the second quarter of 2019 advertising revenue increased 10%.
Other revenue for the 3 and 6 month periods decreased $2.1 million and $1.1 million, respectively as compared to the prior year periods. The decreases were driven primarily by the timing of the licensing of content.
Operating expenses in the second quarter were $43.3 million, an increase of 68% as compared to $25.8 million for the comparable period operating expenses for the 6 month period were $75.8 million, an increase of 40% as compared to $54.1 million for the comparable period the.
The increases were expected and were largely due to the inclusion of pump higher.
Operating expenses in the current periods were also impacted by higher sales commissions due to higher advertising revenue increased amortization of acquisition related intangible assets and costs incurred in connection with the pump higher acquisition.
The prior year period, reflecting cost reductions as a result of the pandemic, including the postponement or cancellation of certain programming and sporting events as well as temporary salary reductions in employee retention credits.
Adjusted EBITDA was $12.3 million for the second quarter, a decrease of 8% as compared to $13.3 million in the prior year period. The decrease was expected as a result of the inclusion of pump tire.
Adjusted EBITDA was $28 million for the 6 month period, an increase of 13% as compared to $24.8 million for the same period in 2020.
Turning to the balance sheet as of June 30, we had approximately $254 million in debt and $72 million of cash our revolver is currently undrawn.
Our gross leverage ratio was approximately 3.8 turns and net leverage ratio was approximately 2.7 turns which reflects upon tires operating results since the acquisition.
Capital expenditures were approximately 3 million in the first half of the year and we funded $1.6 million into canal Uno year to date at the channel prudently manages its cash flow.
We are pleased with our performance and execution for the first half of the year and are off to a strong start in the third quarter with the growth of <unk> and a rebounding Puerto Rico economy, we remain optimistic for the remainder of the year and beyond we will now open the call to your questions.
At this time, if you would like to ask a question. Please press Star then the number 1 on your telephone keypad again Star then the number 1 we will pause for just a moment to compile the Q&A roster.
Your first question comes from the line of Steven Cahall with Wells Fargo.
Thanks, maybe Alan first.
Took a while to get the Youtube deal done. So congratulations on that I was just wondering if you could speak to.
Why the digital distributors have taken a little longer to come onboard with with the networks is this just them being a little slower to aggregate content, particularly Spanish language content or were there some key sticking points like advertising loads or affiliate rates versus your other networks and you mentioned, how this might accelerate.
From the conversations with other digital distributors. So I was wondering if you could expand on that comment as well.
Sure Good morning, Steve.
It's it has nothing to do really with us or with the market I think it was just they were all in.
The virtual Mvpds just their own price.
Priorities and obviously, we tried to push it Hispanic and tried to book our channel has a higher priority for them and we were finally able to breakthrough.
It took a while but we got through the Youtube TV. We think this should hopefully open the flood gates with all the other virtual mvpds so that they all similarly.
Similarly focus and realize the opportunity with Hispanic market.
Yeah, and then it seems like the AD market in Puerto Rico is as strong as it's been since I've followed the company do you feel like we're entering a period, where this is more structural and there's some legs to it always should we think about this is a little more cyclical like maybe has a couple of quarters left.
Before it goes back to more of a steady state which was unfortunately historically.
Sort of a state of volatility.
I think we feel as good about the Puerto Rico economy, as we have felt since we acquired <unk> in 2007.
And I think.
To a large extent this is structural and sustainable.
Given the impending major infrastructure projects debt that will.
Start.
Occurring in Puerto Rico over the next 12 months, we think that will have a long term positive impacts for the island.
The economy is healthy unemployment is down all the metrics are very positive so.
So we feel very good about it in the long run though.
The health of Puerto Rico will depend on an efficient.
And our efficient government and and efficient way of operating the island, a weighted had not been done before but we feel good about where things are right now we feel good for the foreseeable future.
And then could you talk about the content pipeline that's upcoming at Penn tie a little bit there is a lot of content. It seems like coming in the back half of the year from sports to movies to lots of streaming services sort of making up for stuff that was deferred during the pandemic. So how do you feel about kind of gross adds and churn.
And what that pipeline looks like for the back half of the year, what we're really optimistic Steve I mean, we are starting to ramp up.
Production on potash and acquisitions.
We have a unique set of relationships with the top producers and distributors in Latin America, which would be impossible to replicate we have unique knowledge and experience of the Hispanic market and a depth of content as well as our strategic advantages.
Advantages, we using the hemisphere assets to help promote and otherwise.
Dry part highest growth so we feel great about the confluence of those different <unk>.
Facts that will help drive accelerated growth app on tie up.
And we also just limited different lane nobody has the singular focus on Spanish language premium content that we do and nobody has the depth of content that we do in the market.
And then lastly, I got to throw this 1 out a couple of weeks ago Press reported that you might be exploring a sale of the company I was wondering if you could make any commentary around that or talk about your view on what the backdrop is for industry consolidation at the moment.
Well on the first question, Steve we don't comment on market rumors or speculation.
And in terms of consolidation.
I think it's.
Obviously, we've seen consolidation we feel very good about where we are as an independent company. Although we're not a large company within our space. We are a major company and we feel very very good about our leverage and our ability to continue to grow in this environment.
Great. Thank you.
Your next question comes from the line of Curry Baker with Guggenheim Securities.
Hey, good morning, guys.
Maybe to start out with could you provide a little more color just how the advertising market for your U S. Cable networks is pacing and then and then maybe some color as well just on audience performance and metrics there.
Sure we had a good quarter in the U S. We feel very good about our U S business.
Aaron.
<unk> were up significantly over 2020 and were up over 2019, as well and I think from both Puerto Rico and the U S being up over 2019 puts us in a somewhat unique position vis vis our peer group of media companies all of which were to my knowledge below their 2019 levels.
And I'm sorry, your second question Corey.
Just the.
Ratings and audience.
Metrics.
Additional color you could share there.
We're not also not Nielsen rated we have comscore ratings and they provide a limited amount of insight into into ratings, but as I noted all 4 of our net all 4 of our weighted networks are top 15, PON highest day number 2 network. So we feel great about our leadership position in the space that we occupy.
Okay, and then on the subscriber front the U S cable networks.
Can you give us any indication of what you're seeing kind of trends sequentially getting better.
Just any incremental color there.
Yeah listen I think are.
Our second quarter results. This year were better than they were a year ago in terms of subscriber losses. So that's a positive I think second quarter tends to be a difficult quarter for the industry.
And we're also was feeling great debt, our recent launches and expansions of coverage and continued conversations about future launches will go a long way towards mitigating any future organic subscriber declines.
And then.
Is there is there any way.
Can help us think about kind of.
The path or metrics to profitability at <unk> kind of what that roadmap looks like at a high level.
Yes, I think look what I can say is that at our stated goal of 2 and a half to 3 million subscribers by 2025, we will be very profitable.
Our model is different than that of the big general market size, we're not spending millions of dollars an hour on programming.
As I've said before our entire.
Programming and production budget is a couple of episodes of Amanda Lauren So we produce at a much lower price points at a much more cost effective price point.
And our audience doesn't come to us to watch massive special effect they come to us to watch content that is culturally relevant they cant find anywhere else that speaks to them that it's of a premium nature that you can't find on broadcast television.
Okay. Thanks, that's all I've got guys.
Thank you.
Thank you I will now turn the call back over to Mr. Alan Sokol for closing remarks.
Nothing further I appreciate everybody's attendance and have a good day.
This concludes today's conference call you may now disconnect.
Okay.
Okay.
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