Q3 2021 Hemisphere Media Group Inc Earnings Call
Ladies and gentlemen, thank you for standing by today's conference is scheduled to begin momentarily until that time your lines will again be placed on music hold thank you for your patience.
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Ladies and gentlemen, this is the operator todays conference is scheduled to begin momentarily until that time your lines will again be placed on music hold thank you for your patience.
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Good morning, ladies and gentlemen, and welcome to the Hemisphere Media Group, Inc. Third quarter 2021 financial results Conference call. My name is Stephanie and I will be your conference operator today.
Be advised that today's conference is being recorded I will now turn the call over to 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 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.
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 and the risk 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 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 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 good morning, everyone. This was another strong quarter for our business building on an exceptional first half of the year the third quarter saw growth in subscriber fees as well as advertising revenues excluding political are.
Revenue performance is especially impressive given that in Q3 of 2020, we delivered industry, leading AD revenue growth in the midst of the pandemic. Our AD revenue results. This quarter represented a tremendous 24% increase over Q3 of 2019.
But I our market, leading Spanish language subscription streaming platform continues to perform very well as we expected when we acquired the business as of March 31.
<unk> is a top 15, grossing entertainment app, both itunes and Android and the clear leader in the Spanish language space.
Hit 1 million subscribers in the third quarter, a major milestone and are confident in our goal of two five to 3 million subs by the end of 2025.
As we previously indicated we are increasing investment in both programming and marketing to drive subscriber growth and retention in 2021. We premiered seven original series. This will increase to 19 original series in 2022, many of which are currently in production post production.
During the quarter. We also entered into several major co production agreements with some of the leading and most prolific producers in Latin America, including free minutes on fiber that the producers apartheid upcoming original series Senorita 89, and try it didn't they films that produced a Netflix is first original Spanish language series looked at Quintiles.
Our third quarter programming up on tire was highlighted by the release in September of season, two of our regular Jarvis, whereupon ties most successful series to date in fact September had the second highest number of unique viewers in franchise history instead of record for viewing of television series in a single month.
We also released the first one will be produced by Hemisphere Potash Corp, and tell you since the close of our acquisition <unk>, which was the most highly viewed program on the service in August.
Importantly on tire launched on Youtube TV in September expanding <unk> reach to the millions of Youtube TV subscribers and we are in advanced negotiations with several other key distribution partners.
We've had great success, leveraging wireless massive audience space to create awareness upon tier and expose Puerto Rican tipper tie is offering.
As a result from June one through October 31, <unk> was the number one most downloaded entertainment app in Puerto Rico on Android and of Netflix Disney plus Hulu in HBO Max in fact during this five month period <unk> grew its total downloads by 65%.
Turning to our networks, we delivered a strong quarter revenue growth, especially impressive given our outstanding performance in Q3 of 2020.
The third quarter of this year, we grew AD revenues by 24% over Q3 of 2019. We also grew subscriber fees year over year, driven by strong retransmission fee growth in Puerto Rico, which has defied U S trends with minimal subscriber declines.
Puerto Rico continued its strong economic recovery with both business trends and consumer activity remaining robust.
The island has made tremendous progress on the vaccination front in fact, Puerto Rico has the highest vaccination rates in the U S, which has facilitated a return to normalized commercial activity and strong growth in the advertising market.
Most of the economic metrics are trending very positively the tourism and hospitality sector in Puerto Rico has seen tremendous growth in August occupancy rate exceeded the comparable period in 2019 for the fourth consecutive month year to date airport passenger traffic has more than doubled compared to last year and has now exceeded 2019 levels.
Auto sales were up 66% compared to the first nine months of 2020, and 32% compared to 2019 and year to date cement sales through August were higher than the level of sales teams with the same periods in 2018 in 2019, when the island was rebuilding following the 2017 hurricanes.
The Puerto Rico economy should continue to benefit from the tens of billions of dollars in federal Hurricane recovery funds that have yet to be dispersed because.
The economy is performing at its highest level in many years and the dispersal of these federal funds should fuel continued consumer spending and growing economic activity for the coming years.
Why they had another outstanding quarter with ratings and market share holding strong the channel maintained its number one position in the market, reflecting the extraordinary quality and innovation of our programming.
Very proud to announce that Wap has been nominated for a prestigious International Emmy Award. The first Puerto Rican television station to ever be nominated. Additionally, Rob has been nominated for 14 Regional Emmy Awards, a record for any television station in Puerto Rico.
We truly have an amazing team that produces nearly 70 hours a week of the highest quality news information and entertainment programming, ensuring Bob is unparalleled rating success and status at the network of choice.
This quarter, while the air to at least 20 at the top 30 rated shows in every key demographic category. In fact, what was the only broadcast or on the island to increase its viewership between Q2 and Q3 this year.
<unk> delivered its two broadcast competitors combined.
In adults 25 to 54 on a total day basis.
Last quarter, we announced that <unk> start journalists radio host and political analyst joined the <unk> family. This quarter trade launched his daily afternoon show and weekly Primetime show, both of which have been major successes both for both the ratings and advertising standpoint.
Turning to our U S cable channels, our performance was solid and our channels continue to be leaders in their respective categories.
All of our measured channels continue to be ranked among the top 15 rated Spanish cable channels with three in the top 10 Monday to Friday.
And <unk> was the number one rated Spanish cable channel in Prime time Monday to Friday based on coverage ratings.
While cord cutting trends continue to impact our cable networks. We are mitigating these losses with new launches and expanded carriage agreements three of our channels will be launched it on Youtube Youtube TV later this year or early next we should provide a new platform for growth.
We are also optimistic unsecured launched them other virtual mvpds platforms, which have lagged and their inclusion of Spanish language programming.
Turning to Colombia, and our best and it kind of as we know.
The economy is improving a COVID-19 cases are declining importantly, vaccines are becoming more widely distributed and the country is beginning to see more normalized business and advertising activity.
<unk> seen an uptick in ratings, which should translate into improved market share and we are optimistic that the remainder of the year, we'll see a stronger overall advertising market.
In closing we have continued our solid momentum into the second half of the year <unk> has an exciting future and with an incredibly compelling content pipeline for next year, we are well positioned as the clear market leader.
We are transforming the business and building on the strong performance, we have delivered through a difficult market environment. We are confident that over time, our continued execution and enhanced investigate upon tier will unlock value and minimize the dislocation in our current market value.
Thank you everyone I'll now turn the call over to Craig.
Thank you Alan and good morning, everyone.
We are excited to have continued our strong performance into the second half of the year. Our results were particularly impressive as we face comps over our industry leading results in the third quarter of 2020 as we noted on the prior year's third quarter earnings call. We achieved significant revenue growth primarily as a result of our strong Puerto Rico advertising market that was bolstered by Covid.
Related stimulus as well as Wap as dominant performance.
Net revenues for the third quarter were $50 8 million, an increase of 37% as compared to $37 2 million for the same period in 2020, excluding PON Tiger our net revenues increased EBIT in comparison to our strong results in the prior year period, which benefited from political advertising revenue.
Subscriber revenue increased $13 4 million or 70%, primarily due to the inclusion of <unk> as well as contractual rate increases and new launches of our cable networks offset in part by decline in U S cable subscribers.
Excluding pantoja subscriber revenue increased driven by growth in our retransmission fees.
Advertising revenue decreased 400000, or 2% due to political advertising revenue in the prior year period, excluding political advertising revenue increased 6%.
Net revenues for the nine months period were $138 8 million, an increase of 33% as compared to $104 3 million for the same period in 2020.
Subscriber revenue increased $26 4 million or 45%, primarily due to the inclusion of <unk> as well as contractual rate increases and new launches of our cable networks offset in part by decline in U S cable subscribers.
Advertising revenue increased $8 6 million or 21%, primarily due to growth in the Puerto Rico television advertising market offset in part by political advertising revenue in the prior year period.
Turning to expenses cost of revenues for the three months period increased $5 million or 46% and for the nine month period increased $8 1 million or 23%, primarily due to the inclusion of upon tier.
SG&A expenses for the three months period increased $20 3 million and for the nine month period increased $35 2 million, primarily due to the inclusion of pantoja.
In the quarter marketing expenses were elevated due in part to the promotion of the season two of our hit series of Wiggle, there, let's see August and the marketing of one theatrically released film.
Going forward marketing spend will be tied to the launch of content up on tire so marketing cost may vary from quarter to quarter.
The increases in both periods were also due to higher stock based compensation and to cost reductions implemented in the prior year period as a result of the pandemic, including the cancellation or postponement of certain.
Programming and sporting events voluntary salary reductions and employee retention.
Adjusted EBITDA was $5 3 million for the third quarter as compared to $16 7 million in the prior year period. Adjusted EBITDA was $33 3 million for the nine month period as compared to $41 5 million for the same period in 2020. The decreases were due to the inclusion of upon tier which is in growth and investment mode.
<unk>.
Turning to the balance sheet as of September 30, we had approximately $253 million in debt and $55 million of cash our revolver is currently undrawn.
Our gross and net leverage ratios were approximately $4 six and three six times, respectively, which includes <unk> operating results since the acquisition.
Capital expenditures were approximately 300000 in the quarter, bringing capex to $3 2 million for the year.
We also funded $2 9 million into canal Uno in the quarter, bringing our total year to date funding to $4 5 million.
Our capital allocation priorities as we progress through the remainder of the year and into 2022 are investing in our business and funding pawn tires growth, particularly through the investment in the production of original content.
We are pleased with our third quarter performance and are on track to finish the year strongly <unk> future is promising and together with the ongoing rebound in Puerto Rico, we look forward to continuing to create value for our shareholders. We'll now open the call to your questions.
At this time, if you would like to ask a question. Please press Star then the number one on your telephone keypad. That's star then the number one our first question comes from the line of Steven Quay Hall with Wells Fargo Wells Fargo.
Thanks, Good morning, Craig and Allen.
Maybe you can start by framing some of those investments that you've talked about for Penn tied, especially as we think about moving into 2022.
Any ideas on what content spend might look like or subscriber acquisition cost that you want to lean into and we've seen some of your peers take up distribution partnerships with telcos and cable companies. So also just curious how those might factor into Europe anti strategy.
Good morning, Steve.
Well as you heard as you heard from me.
Intent, which is consistent with our intent all along has been to.
Increased investment in programming, we're growing from seven original series. This year to 22 next year and we expect that to deliver a significant return on investment it's important too.
To know to remember that our cost of production are significantly lower than the cost that Netflix or Disney or Hulu havent in their production. We are spending a tiny fraction on a per hour basis of what they spend so we get a lot more bang for the Buck with our production and so although our cost of alcohol into increase vis vis historical.
There's still going to be I think at relatively low levels in comparison to our peers.
And.
Hey, Brad the question was on <unk> I am sorry.
Yes.
We're in active conversations with a variety of variety of big telcos and other potential bulk distributors and we've gotten very good response, they see the opportunity they see our unique appeal with Hispanic market and.
And we feel very optimistic about the opportunities to strike a deal there.
Great and then just on Puerto Rico that AD market and you've talked about seems is as strong as it's been in the last many years do.
Do you sense any weakening caused by supply chain, that's been a trend supposed to look out to Q4. So I'm just curious any comments there, yes, I mean, we've been listening to some of the other calls we've heard that sort of as a theme.
We are seeing that to a small extent, but our fourth quarter, we feel very optimistic about well see how December goes we were hearing that some of the some of the big retailers are having some issues on supply chain and have cut back on some of their advertising spend as a result auto has cut back on its advertising.
Notwithstanding that we're still seeing pretty strong levels of advertising across the board across the board.
Great and then any color on the improvement in.
Domestic cable sub declines that you saw in the quarter was the particularly weighted.
Ally or cable or the Mvpds I guess not so much since you were just launching on those but.
Any sense of what improved yes, I would say there's been no real notable changes in how it is.
The distribution of losses and gains among the Monday amongst the Mvpds, we're still seeing gains with certain mvpds 14 pretty material losses with others and that trend has continued overall, although the cadence has improved somewhat.
Yeah.
Great and then last one for me there's been some reports of industry consolidation just wondering how you think about industry consolidation in any opportunity that might offer you.
Well clearly, Steve we don't comment on rumors but to the extent that great opportunities are out there. We obviously will we will consider those but we feel very good about our ability to operate this business independently because we we arent we arent our own swim lane, we are in a different niche and we feel great about our leadership position within our space.
Great. Thank you.
Okay.
Yes.
Thank you I would like to turn it back over to management.
Well Thats. It then I will wish everybody a happy weekend and I'll talk to you soon thank you.
Thank you. This concludes today's conference you may now disconnect.
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