Hemisphere Media Group Inc (HMTV) 2014 Q1 法說會逐字稿

Good day ladies and gentlemen and welcome to the Hemisphere Media Group Earnings Q1 2014 Conference Call. My name is [Morris], and I will be your operator for today. At this time, all participant are in a listen-only mode. We will conduct a question-and-answer session toward the end of this conference.

(Operator Instructions)

As a reminder, this call is being recorded for replay purposes. I would now like to turn the call over to Craig Fischer, Chief Financial Officer. Please proceed.

Thank you Morris and good morning everyone. I would like to welcome everybody to today's conference call. Joining me is Alan Sokol, Chief Executive Officer of Hemisphere Media Group.

A replay of the call will be available beginning at approximately 2 pm eastern time by dialing 888-286-810 or from outside of the United States by dialing 617-801-6888. The conference ID for the replay is 79186200. A recording of this call may also be accessed to our website.

Before we begin our discussion, I would like to say a few words about forward-looking statements. Today's announcement and our comments may content certain statements about hemisphere that are forward-looking statements within the meaning of the US Private Securities Litigation Reform Act of 1995. These statements are based on the current expectation of the management of the company and are subject to uncertainty and changes in circumstance which may cause actual results to differ materially from those expressed or implied by these forward-looking statements.

In addition these statements are based on a number of assumptions that are subject to change. Please 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.

If one or more of these factors materialize or if any underlying assumptions proved incorrect, the company's actual results performance or achievements may vary materially from any future results, performance or achievements expressed or implied by these forward-looking statements. Forward-looking statements included here are made as of the date hereof and the company undertakes no obligation to update publicly such statements to reflect subsequent events or circumstances.

During today's call in addition to discussion 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 and non-GAAP information is included in our earnings press release which is issued earlier today. Management believes that this non-GAAP information is important to investors understanding of our business.

I'll now turn the call over to Alan Sokol.

Thank you Craig. Good morning everyone and thank for joining us.

We enjoyed a solid and successful first quarter of 2014. WAPA TV is now on it's sixth consecutive year of rating leadership in Puerto Rico. In fact, during the first quarter WAPA experienced significant year-over-year ratings growth and expanded its ratings lead over it's competitors Univision and Telemundo. In the key ad sales demographics of adults 18 to 49 WAPA's full day ratings increased 14% year-over-year while it's primetime ratings increased 17%.

Although the economic environment of Puerto Rico remain choppy, we are encouraged by recent positive developments including this successful bond issuance and the governor's pledge the balance the budget as well as increased investment in the island by both US and foreign entities. For example Lufthansa recently announced plans to build an aircraft maintenance hub in Puerto Rico, this comes on the yields of announced expansion by CooperVision, Johnson & Johnson, (E&Y) and others.

Investment by John Paulson an other American investors has been more publicize with Paulson recently predicting that Puerto Rico will become the Singapore or the Caribbean. We have not seen any real surprise in the Puerto Rico advertising market as a result of WAPA's dominant ratings position and huge audience deliveries, WAPA continues to drive strong advertising rates revenue performance.

While the upfront has not yet concluded, we are pleased with the results today including a number of significant wins in our upfront sales efforts. With seven figures commitment from two major multinationals that did not participate in WAPA's 2013 upfront.

WAPA continues to be the market leader in programming and production. Last year we launch two new shows both of which have performed extremely well and we expect to be able to monetize those strong ratings this year. We recently entered to an agreement with the NBA for package of games for WAPA our sports channel. We will be also be launching a new daytime talk series in the second quarter which will further strengthen WAPA's afternoon schedule and provide WAPA America another daily hour of compelling original programming.

Both WAPA America and Cinelatino continue their market leading performance in Q1. Cinelatino was the number two Nielsen rated Hispanic channel in households, men 18 to 49 and adults 18 to 49 during Q1. Our successful ratings performance bodes well as we prepare to introduce advertising later this year.

We are hopeful to finalize our Nielsen agreement shortly and commence selling WAPA America as a Nielsen rated channel. We are confident that WAPA America ratings performance will accelerate advertising growth. As Craig will shortly discuss in more detail, we delivered 7% net revenue growth in Q1 pro forma for Cinelatino's revenues be included in our 2013 results.

We are pleased with the solid growth specially in light of Puerto Rico's continued economic struggles. Adjusted EBITDA also grew by 7% pro forma for the inclusion of the operating results in Cinelatino and corporate overhead in the first quarter of 2013. EBITDA gross would have been higher but for the incremental production cost of WAPA's two new daily shows launched last year. These cost will normalize over the course of the year.

On April 1 we closed on our acquisition of Pasiones, Centroamerica TV and Television Dominican. We have been hard at work integrating these channels into our business, we are very encouraged by the terrific response since acquisition from distributors, advertisers and program suppliers. We have already had a number of extremely encouraging discussion with distributors and are confident in our acquisition thesis that we will be able to increase distribution of these channels.

And with that I'll turn the call back over to Craig to discuss the national performance. Thank you.

Thank you Alan. The operating results presented reflect the operating results of the businesses acquired in the transaction since April 4, 2013. All results presented prior to this date reflect the financial results of WAPA.

The three cable network which is acquired on April 1, 2014 after the quarter close are not reflected in the operating results presented today. Net revenues for the three months ended March 31, 2014 were $21 million an increase of 55% compared to net revenues of $13.5 million for the same period in 2013. This increase is primarily result of the inclusion of the net revenues of Cinelatino since the consummation of the transaction 2013 as well as growth in net revenues at WAPA and WAPA America.

Pro forma to the acquisition of Cinelatino as of January 1, 2013, net revenues for the three months ended March 31, 2014 increased by $1.4 million or 7%. This increase was driven by growth and net advertising revenues at both WAPA and WAPA America and growth in (ad admission) and subscriber fees across all of our networks.

Operating expenses were 17.3 million for the three months ended March 31, 2014, an increase of 27% as compared to the same period in 2013. This increase in operating expenses was due to the inclusion of Cinelatino operating expenses, corporate overhead and amortization of intangibles identified in connection with the transaction and stock based compensation. None of which were included in the prior year's first quarter. These expenses were partially offset by lower transaction cost incurred in the current quarter.

Additionally operating expenses increased at a higher production cost at WAPA in the current quarter due to large part to the incurrence of a full quarter of cost for the two daily series on WAPA and WAPA America that was launched during the first and second quarters of 2013. And were not fully reflected in the prior years first quarter.

One of these shows was the replacement for SuperXclusivo which was canceled at the start of 2013 with the replacement show launching in mid February 2013. Net income was $0.2 million for the three months ended March 31, 2014 an increase of $0.8 million as compared to the same period in 2013.

Adjusted EBITDA increased $3.8 million or 90% to $8 million for the three months ended March 31, 2014. The increase in the quarter was due to the inclusion of Cinelatino operating results in the current quarter offset in part by the incurrence of corporate overhead which we do not have in the year ago quarter. Pro forma for the inclusion of the operating results of Cinelatino and corporate overhead in the three months period ended March 31, 2013, Adjusted EBITDA increased 7%.

As noted earlier, Adjusted EBITDA was adversely affected in the current quarter largely by the increase in production cost. The impact of this cost on Adjusted EBITDA was inline with our expectations.

Turning to the balance sheet, as of March 31, 2014, we had a $172.1 million in debt and after giving effect to the $102 million held in the (escrow) for the acquisition which closed on April 1, 2014, we had $73.9 million of cash. Our leverage ratio is calculated under our credit agreement with approximately 4.3 times, we expect the acquisition will lower our leverage ratio by nearly a full turn.

That concludes our prepared remarks for this afternoon. Operator, will you please instruct our guest how to ask questions. Thank you.

Thank you.

(Operator Instructions)

And your first question comes from the line of John Tinker with Maxim. Please proceed.

Hi, thank you. Could you just -- I did notice it in the release but are you still going with your guidance of the $49 million to $51 million EBITDA this year?

We are not affirming that our policy have not update guidance throughout the course of the year. And we'll let you know of a change if there's a material change to the guidance we previously gave.

I have another, John, there's no material change to the guidance.

Got it, got it. The integration of world media now you actually own it, are there any pleasant or less pleasant surprises as you get your hand around the assets?

I think John we're happy with what we've got. And we're very encouraged by the conversations we've been having and the response to the transaction.

And can you give any sense to the general subscriber number trend?

I would say that the subscriber growth has been consistent with our historical number. The numbers are positive.

There's an intertwine comment by the CEO Randy Falco of Univision on that call a few days ago when he was basically complaining that now the Comcast with Time Warner will have I think -- they'll be 19 of the top 20 Hispanic markets. He said it's ours but they're not carrying Univision sports channel given that obviously Telemundo, they now have a more of an interest in sports.

And this is a suggestion as to how powerful the cable guys are. As you start to market your package, now you have five channels, are you finding it as a more positive or less positive response?

Well, we view it as a positive and that was part of the rationale for our acquisition. Having five channels put this in a unique position vis-a-vis the distribution world. You know, other than perhaps Univision, there's nobody out there that has a package of five cable channels that we believe that are must have and that covers a swat of audience as our channels cover. And consolidations back with our life and we think that having a larger portfolio quality channel puts us in a much stronger negotiating position.

Great. Thank you.

Thank you. You have no further questions at this time. Again ladies and gentlemen, if you wish to ask a question, please press star then one on your telephone.

And there are no further questions at this time.

Ladies and gentlemen, this conclude the presentation. You may now disconnect.