Spanish Broadcasting System, Inc. (the “Company” or “SBS”) (OTC: SBSAA) today reported financial results for the three months ended March 31, 2024.
Financial Highlights
The results of operations of our television segment in the current and prior year periods have been classified as discontinued operations in the Financial Highlights and Unaudited Condensed Consolidated Statements of Operations and are no longer included as part of continuing operations or Adjusted OIBDA.
Discussion and Results
“Our first quarter results demonstrate the initial benefits of our organizational realignment and our concerted efforts to drive improved operating performance,” stated SBS Chairman and CEO Raúl Alarcón.
“During the first quarter, core radio revenues increased 4% which, when combined with our renewed focus on operational discipline at each and every one of our business units, has led to a significant improvement in station operating income and Adjusted OIBDA.”
“As recently pre-announced, our consolidated Adjusted OIBDA, including our television unit (delineated as discontinued operations) grew approximately 100% in the first quarter, as compared to last year.”
“In addition, I confidently expect that our second quarter and, correspondingly, our First Half 2024 results will likewise approximate or exceed triple-digit growth in consolidated Adjusted OIBDA, including television, as compared to last year.”
“These performance metrics mark our first steps in reigniting accelerated growth in 2024 and beyond.”
“With the advent of the Presidential-year political ad cycle, the additive results from our Orlando and Tampa markets, as well as the ongoing rollout of our DAVid Initiative (more on that digital strategy at a later date), we’re targeting an expedited return to the Company’s pre-COVID financial performance thresholds during 2024.”
“Our connection to the nationwide Latino family, as measured by our consistent Nielsen ratings results among dramatically diverse audiences, has never been stronger. Forty years later, Latinos still turn to SBS for our innovative content, targeted station formats, unmatched on-air talent, exciting live concerts, entertaining and engaging contests and Local community promotions, which they can access both over-the-air and streamed on our LaMusica mobile app and other online platforms.”
“Our original audio, digital and experiential brands and content offerings are well positioned within the Hispanic ecosystem, insuring our continued ability to attract and document our key audience demographics and the patronage of corporate America’s leading brands, in addition to the local advertisers that flourish among the many communities we serve.”
WE CREATE FANS WHO CREATE LOYALTY FOR OUR CUSTOMERS.
“Moving forward, we will focus relentlessly on fortifying our operations while aggressively growing our aggregate multi-platform audience, as will be evidenced by our upcoming debut format serving Houston, the nation’s third-largest Hispanic market and fourth largest market overall.”
“We will continue to serve the nation’s growing Latino communities, while simultaneously driving superior operational performance, for the benefit of all Company stakeholders.”
Three Months Ended Results
For the three months ended March 31, 2024, our operating results were impacted by our special events which had lower ticket sales and event expenses. Our operating expenses were impacted by an overall decrease of expenses throughout our markets and expense categories.
Our net revenue from continuing operations totaled $32.3 million compared to $34.5 million for the same prior year period, resulting in a decrease of $2.2 million or 6%. The decrease was primarily the result of lower special events revenue and decreases in national and digital sales, partially offset by increases in local, network and barter sales.
Our operating expenses decreased $2.8 million or 10% primarily due to decreases in special events expenses, compensation & benefits and allowance for expected credit losses, partially offset by increases in barter expenses and music license fees.
Our station operating income, a non-GAAP measure, totaled $7.4 million compared to $6.8 million for the same prior year period representing an increase of 9%. The increase was primarily due to decreases in special events expenses, compensation & benefits and allowance for expected credit losses, partially offset by decreases in special event revenue and national and digital sales.
Corporate expenses decreased $0.9 million or 28% due to decreases in compensation & benefits, travel & entertainment and outside services.
Adjusted OIBDA, a non-GAAP measure, totaled $5.0 million compared to $3.4 million in the same prior year period, representing an increase of $1.6 million or 46%. The increase in Adjusted OIBDA was primarily due to a decrease in operating and corporate expenses partially offset by a decrease in net revenue.
Discontinued Operations
On February 9, 2023, we adopted the provisions of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 205-20-45, Discontinued Operations, and Topic 360-10-45-9, Long-Lived Assets Classified as Held for Sale. Under ASC 205 & 360, discontinued businesses or assets held for sale are removed from the results of continuing operations. We determined that the pending sale of our television segment and related real estate assets met the criteria in accordance with ASC 205 & 360.
For the three months ended March 31, 2024 and 2023, our television segment and its related real estate assets that are pending to be sold were classified as held for sale and their operations as discontinued operations. The results of operations of our television segment in the current and prior year periods have been classified as discontinued operations in the financial highlights and unaudited condensed consolidated statements of operations.
Sale of Television Assets (Assets Held for Sale & Discontinued Operations)
On February 9, 2023, the Company entered into various asset and real property purchase agreements (together the “Purchase Agreements”) to sell substantially all its television and certain real estate assets (together the “Purchased Assets”) which comprise the Company’s television operations known as MegaTV, serving the United States of America and Puerto Rico, to Voz Media, Inc. (“Voz Media”) for $64 million. Pursuant to the Purchase Agreements, the Purchased Assets include: licenses, permits and authorizations issued by the FCC; programming content, equipment, leases and contracts used in or related to the operation of MegaTV; and certain real properties located in Miami, Florida and Puerto Rico as part of the transaction.
On September 20, 2023, the Company terminated the Purchase Agreements to sell substantially all its television and certain real estate assets to Voz Media, Inc. (“Voz Media”) for $64.0 million because Voz Media did not cure its material breach to timely close on the transaction when notified by the Company. On October 10, 2023, the Company filed a lawsuit related to the contemplated sale of its Mega TV television network and other related assets to Voz Media, Inc. The Company settled with Voz Media, Inc. and recovered monetary damages against the plaintiffs during the three months ended March 31, 2024.
The Company continues to pursue the sale of these television and real estate assets. The Company expects the assets to be sold within one year.
In accordance with FASB ASC Topic 360-10-45-9, Long-Lived Assets Classified as Held for Sale, management determined that the ongoing plans to sell its television and certain real estate assets meet the held for sale criteria as of the balance sheet date of these financial statements.
The table below represents a summary of the assets and liabilities classified as held for sale as of March 31, 2024 and 2023 on the Company’s Unaudited Condensed Consolidated Balance Sheet (in thousands).
During the three months ended March 31, 2024 and 2023, the Company made capital expenditures of less than $0.1 million and $0.1 million, respectively. Capital expenditures incurred during the three months ended March 31, 2024 and 2023 are included in assets held for sale for the three months ended March 31, 2024 and 2023, listed above.
Once assets are classified as held for sale, management is required to evaluate if under ASC Topic 205-20-45, Discontinued Operations, the disposal of a component of an entity shall be reported in discontinued operations. Management determined that the disposal represents a strategic shift that will have a major effect on operations and financial results, at the balance sheet date, and that the results of the television segment shall be reported as discontinued operations. The operational and financial results related to the held for sale assets of the television segment, which include the real estate assets and production facility located in Miami, Florida, are classified as discontinued operations in the current and prior year periods in the Unaudited Condensed Consolidated Statements of Operations.
Acquisition of FM Radio Station
On April 3, 2023, Spanish Broadcasting System SouthWest, Inc. and SBS Houston Licensing, Inc., subsidiaries of the Company (collectively, “SBS SouthWest”), entered into an asset purchase agreement (the “Purchase Agreement”) to acquire KROI(FM), a FM radio broadcast station (the “Radio Station”) serving the Houston, Texas radio market, from Radio One Licenses, LLC and Radio One of Texas II, LLC (collectively, “Radio One”). Pursuant to the Purchase Agreement, Radio One, has agreed to convey certain assets, including licenses, permits and authorizations issued by the FCC, tangible personal property and certain leases used in or related to the operation of the Radio Station to SBS SouthWest.
The purchase price is equal to $7.5 million plus or minus certain customary prorations and adjustments. On April 5, 2023, pursuant to the Purchase Agreement and the related escrow agreement, SBS SouthWest deposited approximately $0.4 million into an escrow account. On November 15, 2023, SBS Southwest and Sugarland Station Trust, LLC, (the trustee charged with the management and sale of KROI on behalf of Radio One) entered into an amendment to the Purchase Agreement (the “2023 Amendment”) providing the Company the right to delay the closing until a date that is no later than the first to occur of: (a) the date that is five business days prior to the last day that the FCC Consent is in effect, and (b) July 1, 2024. As part of the 2023 Amendment, the Company agreed to release its deposit in escrow of $0.4 million and made a payment of $1.5 million in 2023. Under the 2023 Amendment the Company also made $1.0 million payments on January 16th, March 29th, and April 30th of 2024 to the seller. On May 30, 2024, the parties to the 2023 Amendment entered into an amendment to the Purchase Agreement and 2023 Amendment (the “2024 Amendment) providing the Company the right to delay the closing until a date that is no later than the first to occur of: (a) the date that is five business days prior to the last day that the FCC Consent is in effect, and (b) November 27, 2024. As part of the 2024 Amendment, the Company made a $0.3 million payment on May 31, 2024 and agreed to make payments on June 28th, July 31st, September 30th and October 31st of 2024 amounting to $1.2 million, and the remaining balance of $1.1 million by the first to occur of the closing and November 27, 2024. Payments made to the seller are applicable to the purchase price and are classified as prepaid expenses and other current assets on the Company’s March 31, 2024 on the Company’s Unaudited Condensed Consolidated Balance Sheet.
The Purchase Agreement contains customary representations, warranties, covenants and closing conditions, including FCC regulatory approval, and the transaction is expected to close during the fourth quarter of 2024.
