Hemisphere Media Group, Inc.
Q4 2020 Earnings Call Transcript

Published: 2 Mar 2021

[Operator:]

Good day, ladies and gentlemen and welcome to the Hemisphere Media Group, Incorporate 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 1

[Danielle O'Brien:]

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, Hemisphere's outside Investor Relations firm.

[Alan Sokol:]

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 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 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 were gradually loosened. As a result of improving consumer behavior, the overall TV ad market grew by a remarkable 44% excluding political versus 2019.

[Craig Fischer:]

Thank you, Alan, and good morning everyone. We are 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 were $151.2 million, an increase of 1%, as compared to $149.4 million for the full year 2019. The increases in both periods were 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 of the year. The increase in both periods were driven by record advertising at WAPA and continued growth at our cable networks, as well as political advertising revenue of $2.7 million and $4.3 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-month 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 US and Latin American cable networks and the full year was also impacted by unfavorable foreign currency movements. Other revenue for the fourth quarter and full year decreased $1.7 million and $900,000 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 were $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 were $109.5 million, an increase of 9% as compared to $100.1 million in 2019. These amounts included a $2.8 million impairment charge related to goodwill and intangibles related to the staff acquisition and $900,000 of content write-downs. Without these charges operating expenses increased 8% in the quarter and 6% for the full year. The increases were primarily due to higher news costs 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.

[Operator:]

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

[Steven Cahall:]

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, yes, how much was delivery versus the pricing impact?

[Alan Sokol:]

It was really a combination of both Steve. The -- we -- 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 or our results would have even been better. We could not accommodate all of the advertising demand on air without having excessive amount of commercial clutter. But there was also some solid pricing growth as a result of the high demand for inventory.

[Steven Cahall:]

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 the US cable networks? And then I know you got a couple of retrans deals done in Puerto Rico. So I was just wondering if you could give us an outlook for 2021 either on total company affiliate or for retrans growth?

[Alan Sokol:]

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 dollar growth for next year -- dollar revenue growth for us for next year. In terms of velocity of subscriber losses, we're optimistic that the decreased velocity of losses will continue into the first quarter and 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 in real-time how the distributors are doing other than what we've seen on a 60-day delay.

[Steven Cahall:]

And maybe last one for me which is a bit off the wall. There's a white hot SPAC market out there. You all clearly understand the SPAC 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?

[Craig Fischer:]

Yes. Our capital allocation policy continues to prioritize disciplined strategic M&A. We have 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.

[Steven Cahall:]

Great. Thank you.

[Operator:]

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

[Curry Baker:]

Hey. Good morning guys. Thanks for the questions. Maybe can we start with Pantaya? Obviously you guys saw a nice growth there in 2020. Can you maybe talk to what you guys see as the TAM or the opportunity there over the next one, two, three years? Do you have any funding commitments there? Or any expected funding commitments there this year? And can you speak to, whether that business is breakeven profitable? Any color there would be great.

[Alan Sokol:]

Good morning, Curry. It's Alan. We're big fans and believers in Pantaya. And in contrast to some of the big general market services that have launched or about to launch, Pantaya has been around for three years now. So we have really -- we have a lot of data and a strong track record and a strong track 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 we're big believers that with 60 million Hispanics in the US 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 a substantial growth going forward.

[Craig Fischer:]

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

[Curry Baker:]

Okay. Can you guys comment on just the profitability? Or where you guys are at?

[Alan Sokol:]

We have not commented specifically on the profitability, but we believe that Pantaya is worthy of additional investment to drive growth. And so we're more focused right now on the growth opportunity than on profitability. I think that Pantaya could be profitable, if we wanted it to be profitable today. But I think the question is you continue to invest to drive further growth. And I think that that is our perspective right now.

[Curry Baker:]

Okay. I know you guys 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?

[Alan Sokol:]

Listen, we don't comment on individual deals and renewals and our terms are typically staggered. But there's -- to the extent that there are already significant renewals, we will certainly disclose them and announce them to you guys. But right now we feel very good about where we sit in terms of our existing deals and any upcoming renewals.

[Curry Baker:]

Okay. I think, that's all I have guys. Thanks guys.

[Alan Sokol:]

Thank you.

[Operator:]

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

[Alan Sokol:]

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

[Operator:]

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