Hemisphere Media Group Inc (HMTV) 2014 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Q2 2014 Hemisphere Media Group Earnings Conference Call. My name is [Migen], and I will be your operator for today.

At this time, all participant are in listen-only mode. We will conduct a question-and-answer session toward the end of this conference. (Operator Instructions) As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the call over to Mr. Craig Fischer, chief financial officer. Please proceed, Sir.

Thank you and good morning to 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 p.m. Eastern Time by dialing 888-286-8010 or from outside of the United States by dialing 617-801-6888. The conference I.D. for the replay is 72610933. A recording of this call may also be accessed through 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 U.S. 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 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 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 prove 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 to non-GAAP information is included in our earnings press release, which was issued earlier today. Management believes that this non-GAAP information is important to investors understanding of our business.

I will now turn the call over to Alan Sokol.

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

Hemisphere delivered solid financial results in the second quarter with 27% revenue growth and 26% adjusted EBITDA growth including the results of the acquired cable networks, which closed on April 1st. We remain on-track to achieve our full-year adjusted EBITDA guidance of $49 million to $51 million. We recently successfully completed our refinancing, providing us with approximately $124 million to pursue meaningful strategic acquisitions. Even with the additional debt, our projected year-end net leverage ratio will be approximately 2 times based upon our full-year adjusted EBITDA guidance.

We are very pleased thus far with the performance of our newly acquired networks, Pasiones, Centroamerica T.V. and T.V. Dominican. They are delivering on our financial expectations and we've had very encouraging reactions from distributors. We are in advanced discussions on a number of distribution fronts and we are confident that we will be announcing several important new [carriage] deals in the coming quarters.

The response we have received validates our view that these channels are valuable audiences that distributors are confident in our ability to drive performance at these channels. We've already begun to implement our strategy of upgrading programming these networks. Just as an example, we have secured live rights to the top matches of the El Salvador Professional Soccer League, which will significantly improve the quality of our sports offering on Centroamerica T.V.

We continue to work on upgrade the programming across all the acquired channels. We have also recently entered the programming licenses, both short and long-term, which provides for broad media rights that will advance our over the top options as well as allow us to control programming costs and locking our content for many years.

Both our newly acquired and existing cable networks perform well in the quarter including delivering meaningful organic subscriber growth in the U.S. and Latin America. Although the overall U.S. pay T.V. universe was subject to modest contraction in the second quarter, our subscriber bases continue to grow, reflecting both the growth in Hispanic population and the underpenetration of the Hispanic program packages.

I want to specifically note that we have just executed an agreement with Nielsen to commence audience ratings for WAPA America effective August 1st. We are confident that WAPA America will be able to grow national advertising as a result of becoming a Nielsen-rated channel. Additionally, we remain on-track to convert Cinelatino to an advertising-supported model later this year.

With respect to WAPA Puerto Rico, we had another terrific quarter of ratings performance. As we did in the first quarter, we experienced significant year-over-year ratings growth expanding our lead over our competitors -- Univision and Telemundo. In the key ad sales demographic of adults 18 to 49, WAPA's full-day and primetime ratings both increased 14% year-over-year. WAPA's dominance is evident in the most recent Nielsen ranker of the top-rated programs in Puerto Rico among adults 18 to 49, which WAPA holds 21 of the top 25 slots.

The Puerto Rico economy remains challenging. New concerns regarding government debt restructuring this quarter added to the uncertainty surrounding the economy. Because of our powerful position in the market, WAPA is a must-buy for all major advertisers, which gives us the benefit of being somewhat insulated from the broader economic forces.

Notwithstanding the World Cup, WAPA's share of T.V. advertising in the second quarter actually grew year-over-year, attesting to WAPA's dominant rating stature in the market. Nonetheless, WAPA was impacted by an approximate 4% decline in the T.V. ad market in the second quarter as well as by advertising budgets that were dedicated to World Cup.

Although we continue to face economic headwinds, Puerto Rico remains a uniquely powerful broadcast television market, not subject to the challenge the fragmentation and audience erosion facing U.S. broadcasters.

We plan to continue to identify new opportunities to leverage our dominant position, to drive new revenue streams, and create additional asset value. We believe that the macro environment will get better, and at that time, we will be ideally positioned to capture our highest share of growth in the market.

With that, I'll turn the call over to Craig to discuss financial performance. Thank you.

Thank you, Alan.

The operating results presented reflect the inclusion of the operating results of the acquired cable networks from April 1, 2014 and the inclusion of the operating results of Cinelatino since April 4, 2013.

Net revenues for the 3 months ended June 30, 2014 were $29.1 million, an increase of 27% compared to net revenues of $22.9 million for the same period in 2013. Net revenue for the 6 months ended June 30, 2014 were $50 million, an increase of 37% compared to net revenues of $36.4 million for the same period in 2013. These increases are primarily a result of the inclusion of the acquired cable networks in the current quarter and the inclusion of Cinelatino for the first 2 quarters of this year as well as growth and retransmission of subscriber fees, which now account for 50% of our net revenues.

Operating expenses were $22.4 million for the 3 months ended June 30, 2014, a decrease of 7% from operating expenses of $24.2 million for the same period in 2013. The decrease was primarily due to a one-time $3.8 million charge in connection with the termination of a related party agreement in the prior year's quarter and lower stock compensation expense and transaction-related fees. This was offset in part by the inclusion of the acquired cable networks and amortization expense related to intangibles identified in the cable network's acquisition.

For the 6 months ended June 30, 2014, operating expenses were $39.7 million, an increase of 5% from operating expenses of $37.8 million in the year-ago period. The increase was primarily due to the inclusion of the acquired cable networks, the inclusion of Cinelatino corporate overhead, and public company charges, which were not included in the prior year's first calendar quarter and an increase in amortization expense of intangibles identified in connected with our acquisitions. This was offset in part by the same one-time $3.8 million charge in the prior year's period and lower stock compensation expense and transaction-related fees.

Net income was $5.3 million for the 3 months ended June 30, 2014, an increase of $7.7 million as compared to the same period in 2013. Net income was $5.6 million for the 6 months ended June 30, 2014, an increase of $8.5 million as compared to the same period in 2013.

Adjusted EBITDA increased $2.7 million or 26% to $13.2 million for the 3 months ended June 30, 2014. Adjusted EBITDA increased $6.5 million or 44% to $21.2 million for the 6 months ended June 30, 2014. These increases were due to the inclusion of the acquired cable networks and Cinelatino as well as growth in subscriber and retransmission fees, which are high-margin dollars. This was offset in part by full 6 months of corporate overhead and public company cost and growth in cost as we have expanded our infrastructure, particularly sales, marketing, and finance functions to support the expansion of our business.

Turning to the balance sheet, as of June 30, 2014, we had $173.3 million in debt and $74.9 million of cash. As we have previously announced on July 31, 2014, we closed an amendment to our term loan, which increased the principal to loan to $225 million and yield a net proceeds of approximately $49 million. Pro forma for the refinancing, we have approximately $124 million to pursue strategic acquisitions, which we expect will delever the company.

Additionally, in connection with the amendment we repriced the loan significantly lowering our interest rates. The interest rate on the new loan is LIBOR plus 400 basis points on a LIBOR floor of 1% or all-in 5%. This represents a 125 basis point reduction from our prior interest rate of 6.25%. And as Alan noted, we expect our net leverage ratio for the year will be approximately 2 times.

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

(Operator Instructions) And your first question comes from the line of John Tinker with Maxim.

Thank you. Could you just talk a little more about the impact to the World Cup in Puerto Rico and the decline of the market? It's been quite interesting because I think Univision had incremental growth because of the World Cup. But [Entrevision] basically did very well with the World Cup, but then the rest of their advertising was cannibalized. So as you also start to move out WAPA USA into the states and sell advertising and Cinelatino switches over, can you discuss how you see the market?

Sure. I think that's a few questions, John. Let me try to handle one at a time.

Okay.

The market in the second quarter -- the ad market declined about 4%, which was slightly weaker than we had anticipated and I think largely a result of the uncertainty regarding restructuring of government debt and the general overhang on the weak economy in Puerto Rico.

World Cup did suck some money out of the market and it was to a great extent -- a cannibalization as you referred to with, but there were some incremental dollars that we believe we would have captured in the absence of World Cup.

On the terms of the U.S., look, we're very optimistic about the opportunity for U.S.-Hispanic cable advertising. We think that a big part of our theses and, in fact, the way the market has grown, it corroborates that. The advertising share for U.S.-Hispanic cable networks is far below the audience share that those networks had, and that that gap will narrow over time just as it had in every other category cable and television, and so we feel very good as the viewing share to cable continues to grow as our audiences continue to grow, and as we have more networks to sell against and to cross-sell and provide package with, we're really well-positioned to take advantage of growth in U.S. Hispanic cable advertising and become an alternative to the broadcasters in Hispanic and the U.S.

And the timing of the Cinelatino switching over?

We're still looking before the end of the year.

Okay.

As we said before, we have not baked in any revenue with Cinelatino for 2014.

Okay. And secondly and sort of a more general question, there's a lot of talk that Univision is implied with quite high multiples. Is that helping or hurting you as you look at other acquisitions?

Why -- I don't think it really affect these numbers of acquisitions. I don't think -- we're not looking at any acquisitions, the size and stature of Univision, so I think it's a little apples and oranges.

Obviously, it's helpful. We believe it's helpful to us and validates our view of the value and growth opportunity in Hispanic. And there is not many companies out there that are of our size not that we're a huge company, but other than Univision and Telemundo, there are really no other companies in the Hispanic space of our size and we're a natural consolidator and acquirer of smaller guys that are out there.

Thanks.

And at this time, we have no further questions.

Well, nobody has any further questions. We will wrap up the call, and I appreciate everybody getting on the phone and being with us today. Thank you.

Ladies and gentlemen, thank you for joining today's conference. This concludes the presentation. You may now disconnect and have a great day.