HEMISPHERE MEDIA GROUP, INC. The following discussion and analysis summarizes our financial condition and
operating performance and should be read in conjunction with our historical
consolidated financial statements and notes thereto included above. Unless the
context indicates otherwise, the terms the "Company," "Hemisphere," "we," "our"
or "us" are used to refer to
Significant components of management's discussion and analysis of results of operations and financial condition include:
º •
º Overview. The overview section provides a summary of our business,
operational divisions and business trends, outlook and strategy.
º •
º Consolidated Results of Operations. The consolidated results of
operations section provides an analysis of our results on a
consolidated basis for the year ended December 31, 2019 compared to
the year ended December 31, 2018 .
º •
º Liquidity and Capital Resources. The liquidity and capital resources
section provides a discussion of our cash flows for the year ended
December 31, 2019 compared to the year ended December 31, 2018 .
OVERVIEW
Our Company
We are a leading
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Headquartered in Miami, Florida , our portfolio consists of the following:
º •
º Cinelatino: the leading Spanish-language cable movie network with over
20 million subscribers across the U.S. , Latin America and Canada .
Cinelatino is programmed with a lineup featuring the best contemporary
films and original television series from Mexico , Latin America , and
the United States . Driven by the strength of its programming and
distribution, Cinelatino is the #2-Nielsen rated Spanish-language
cable television network in the U.S. overall, based on coverage
ratings.
º •
º WAPA: the leading broadcast television network and television content
producer in Puerto Rico . WAPA has been the #1-rated broadcast
television network in Puerto Rico since the start of Nielsen audience
measurement ten years ago. WAPA is Puerto Rico's news leader and the
largest local producer of news and entertainment programming,
producing over 65 hours in the aggregate each week. Additionally, we
operate WAPA.TV, a leading news and entertainment website in Puerto
Rico , featuring content produced by WAPA.
º •
º WAPA Deportes: Through its multicast signal, WAPA distributes WAPA
Deportes, a leading sports television network in Puerto Rico ,
featuring MLB, NBA and professional sporting events from Puerto Rico .
º •
º WAPA America: a cable television network serving primarily Puerto
Ricans and other Caribbean Hispanics living in the U.S. WAPA America's
programming features news and entertainment programming produced by
WAPA. WAPA America is distributed in the U.S. to approximately
4.1 million subscribers, excluding digital basic subscribers.
º •
º Pasiones: a cable television network dedicated to showcasing the most
popular telenovelas and serialized dramas, distributed in the U.S. and
Latin America . Pasiones features top-rated telenovelas from Latin
America , Turkey , India , and South Korea (dubbed into Spanish), and is
currently the highest rated cable television network devoted to
telenovelas. Pasiones has over 21 million subscribers across the U.S.
and Latin America .
º •
º Centroamerica TV: a cable television network targeting Central
Americans living in the U.S. , the third largest U.S. Hispanic group
and the fastest growing segment of the U.S. Hispanic population.
Centroamerica TV features the most popular news and entertainment from
Central America , as well as soccer programming from the top
professional soccer leagues in the region. Centroamerica TV is
distributed in the U.S. to approximately 4 million subscribers.
º •
º Television Dominicana: a cable television network targeting Dominicans
living in the U.S. , the fourth largest U.S. Hispanic group. Television
Dominicana airs the most popular news and entertainment programs from
the Dominican Republic , as well as the Dominican Republic professional
baseball league, featuring current and former players from MLB.
Television Dominicana is distributed in the U.S. to approximately
2.4 million subscribers.
º •
º Canal 1: the #3-rated broadcast television network in Colombia . We own
a 40% interest in Canal 1 in partnership with leading producers of
news and entertainment content in Colombia . The partnership was
awarded a 10-year renewable broadcast television concession in 2016.
The partnership began operating Canal 1 on May 1, 2017 and launched a
new programming lineup on August 14, 2017 . In July 2019 , the Colombian
government enacted legislation resulting in the extension of the
concession license for an additional ten years for no additional
consideration. The concession is now due to expire on April 30, 2037
and is renewable for an additional 20-year period.
º •
º Pantaya: is the first-ever premium streaming destination for
world-class movies and series in Spanish offering the largest
selection of current and classic, commercial-free blockbusters and
critically acclaimed titles from Latin America and the U.S. including
content from our library,
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Pantelion's U.S. theatrical titles, Lionsgate's movie library, and
Grupo Televisa's theatrical releases in Mexico , as well as, original
productions, comedy specials and concerts. We own a 25% interest in
Pantaya in partnership with Lionsgate, which service launched in
August 2017 .
º •
º Snap Media: a distributor of content to broadcast and cable television
networks and OTT, SVOD and AVOD platforms in Latin America . On
November 26, 2018 , we acquired a 75% interest in Snap Media, and in
connection with the acquisition, Snap Media entered into a joint
venture with MarVista, an independent entertainment studio and a
shareholder of Snap Media, to produce original movies and series. Snap
Media is responsible for the distribution of content owned and/or
controlled by our Networks, as well as content to be produced by the
production joint venture between Snap Media and MarVista.
º •
º REMEZCLA: a digital media company targeting English speaking and
bilingual U.S. Hispanic millennials through innovative content. On
April 28, 2017 , we acquired a 25.5% interest in REMEZCLA.
Our two primary sources of revenues are advertising revenues and affiliate
fees. All of our Networks derive revenues from advertising. Advertising revenues
are generated from the sale of advertising time, which is typically sold
pursuant to advertising orders with advertisers providing for an agreed upon
advertising commitment and price per spot. Our advertising revenues are tied to
the success of our programming, including the popularity of our programming as
measured by Nielsen. Our advertising is variable in nature and tends to reflect
seasonal patterns of our advertisers' demand, which is generally greatest during
the fourth quarter of each year, driven by the holiday buying season. In
addition,
All of our Networks receive fees paid by distributors, including cable,
satellite and telecommunications service providers. These revenues are generally
based on a per subscriber fee pursuant to multi-year contracts, commonly
referred to as "affiliation agreements," which typically provide for annual rate
increases. The specific affiliate fees we earn vary from period to period,
distributor to distributor and also vary among our Networks, but are generally
based upon the number of each distributor's paying subscribers who receive our
Networks. The terms of certain non-
In 2019, we generated approximately 92% of our net revenues from
WAPA has been the #1-rated broadcast television network in
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broadcast network in the
WAPA America, Cinelatino, Pasiones, Centroamerica TV and Television
Dominicana occupy a valuable and unique position, as they are among the small
group of Hispanic cable networks to have achieved broad distribution in the
Hispanics represent over 18% of the total
Management expects our
Similarly, management expects Cinelatino and Pasiones to benefit from
significant growth in
MVS, one of our stockholders, provides operational, technical and
distribution services to Cinelatino pursuant to several agreements, including an
agreement pursuant to which MVS provides satellite and technical support and
other administrative support services, an agreement that grants MVS the
non-exclusive right to distribute the Cinelatino service to third party
distributors in
Hurricanes Irma and Maria
On
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destroying the tower and the transmission equipment housed on the tower.
Immediately following the storm, we were transmitting WAPA's signal via the
multicast spectrum of another broadcast television network. During 2018, we
entered into a long-term agreement to co-locate our antenna on another broadcast
tower, from which we have been transmitting WAPA's signal as of
The back-to-back hurricanes in
CONSOLIDATED RESULTS OF OPERATIONS
Comparison of Consolidated Operating Results for the Years Ended
Years Ended
December 31, $ Change % Change
Favorable/ Favorable/
2019 2018 (Unfavorable) (Unfavorable)
Net revenues $ 149,387 $ 147,079 2,308 1.6 %
Operating expenses:
Cost of revenues 43,138 42,174 (964 ) (2.3 )%
Selling, general and
administrative 44,761 44,499 (262 ) (0.6 )%
Depreciation and amortization 12,533 16,081 3,548 22.1 %
Other expenses 1,451 1,473 22 1.5 %
Gain from FCC spectrum repack
and other (1,739 ) (1,880 ) (141 ) (7.5 )%
Total operating expenses 100,144 102,347 2,203 2.2 %
Operating income 49,243 44,732 4,511 10.1 %
Other (expense) income:
Interest expense, net (11,953 ) (12,132 ) 179 1.5 %
Loss on equity method
investments (30,271 ) (35,206 ) 4,935 14.0 %
Gain from insurance proceeds
and other, net 1,596 2,080 (484 ) (23.3 )%
Total other expense (40,628 ) (45,258 ) 4,630 10.2 %
Income (loss) before income
taxes 8,615 (526 ) 9,141 NM
Income tax expense (12,086 ) (10,271 ) (1,815 ) (17.7 )%
Net loss (3,471 ) (10,797 ) 7,326 67.9 %
Net loss (income)
attributable to
non-controlling interest 104 (109 ) 213 NM %
Net loss attributable to
Hemisphere Media Group ,
Inc. $ (3,367 ) $ (10,906 ) 7,539 69.1 %
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NM = not meaningful
Net Revenues
Net revenues were
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disruption to our business in
Subscribers(a)
(amounts in thousands)
December 31, December 31,
2019 2018
U.S. Cable Networks:
WAPA America(b) 4,140 4,417
Cinelatino 4,364 4,639
Pasiones 4,626 4,360
Centroamerica TV 3,976 4,276
Television Dominicana 2,345 2,273
Total 19,451 19,965
Latin America Cable Networks:
Cinelatino 16,132 16,769
Pasiones 16,763 15,958
Total 32,895 32,727
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º (a)
º Amounts presented are based on most recent remittances received from our
Distributors as of the respective dates shown above, which are typically
two months prior to the dates shown above.
º (b)
º Excludes digital basic subscribers.
Operating Expenses
Cost of Revenues: Cost of revenues consists primarily of programming and
production costs, programming amortization and distribution costs. For the year
ended
Selling, General and Administrative: Selling, general and administrative
expenses consist principally of promotion, marketing and research, stock-based
compensation, employee costs, occupancy costs and other general administrative
costs. For the year ended
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Depreciation and Amortization: Depreciation and amortization expense
consists of depreciation of fixed assets and amortization of intangibles. For
the year ended
Other Expenses: Other expenses include legal and financial advisory fees,
and other fees incurred in connection with acquisition and corporate finance
activities, including debt and equity financings. For the year ended
Gain from FCC Spectrum Repack and Other: Gain from FCC spectrum repack and
other primarily reflects reimbursements we have received from the FCC for
equipment we have purchased as a result of the FCC mandated spectrum repack, and
gain or loss from the sale of assets. For the year ended
Other expense, net
Interest Expense, net: Interest expense for the year ended
Loss on Equity Method Investments: Loss on equity method investments for
the year ended
Gain from Insurance Proceeds and other, net: Gain from insurance proceeds
and other, net primarily reflects net proceeds received in connection with our
property insurance policies covering equipment damaged during Hurricane Maria.
For the year ended
Income Tax Expense
For the year ended
Net Loss
Net loss for the year ended
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Net Loss (Income) Attributable to Non-controlling Interest
Net loss attributable to non-controlling interest for the year ended
Net Loss Attributable to
Net loss attributable to
LIQUIDITY AND CAPITAL RESOURCES
Sources and Uses of Cash
Our principal sources of cash are cash on hand, and cash flows from
operating activities. As of
On
Management believes cash on hand and cash flow from operations will be sufficient to meet our current contractual financial obligations and to fund anticipated working capital and capital expenditure requirements for existing operations. Our current financial obligations include maturities of debt, operating lease obligations and other commitments from the ordinary course of business that require cash payments to vendors and suppliers.
Cash Flows
2019 2018
Amounts in thousands
Cash provided by (used in):
Operating activities $ 35,619 $ 36,790
Investing activities (33,745 ) (61,625 )
Financing activities (4,201 ) (4,986 )
Net decrease in cash $ (2,327 ) $ (29,821 ) Comparison for the Year Ended
Operating Activities
Cash provided by operating activities is primarily driven by our net income, adjusted for non-cash items and changes in working capital. Non-cash items consist primarily of depreciation of property and
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equipment, amortization of intangibles, programming amortization, amortization of deferred financing costs, stock-based compensation expense, deferred taxes and provision for bad debts.
Net cash provided by operating activities for the year ended
Investing Activities
Net cash used in investing activities for the year ended
Financing Activities
For the year ended
Discussion of Indebtedness
On
On
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consecutive fiscal quarters does not exceed 6.00:1.00. The First Lien Net
Leverage Ratio and the Total Net Leverage Ratio each cap the cash netted against
debt up to a maximum amount of
The Second Amended Term Loan Facility requires the Borrowers to make
amortization payments (in quarterly installments) equal to 1.00% per annum with
respect to the Second Amended Term Loan Facility with any remaining amount due
at final maturity. The Second Amended Term Loan Facility principal payments
commenced on
In addition, pursuant to the terms of the Second Amended Term Loan Facility,
within 90 days after the end of each fiscal year, the Borrowers are required to
make a prepayment of the loan principal in an amount equal to a percentage of
the excess cash flow of the most recently completed fiscal year. Excess cash
flow is generally defined as net income plus depreciation and amortization
expense, less mandatory prepayments of the term loan, income taxes and capital
expenditures, and adjusted for the change in working capital. The percentage of
the excess cash flow used to determine the amount of the prepayment of the loan
declines from 50% to 25%, and again to 0% at lower leverage ratios. Pursuant to
the terms of the Second Amended Term Loan Facility, our net leverage ratio was
2.2x at
As of
Contractual Obligations
Not applicable.
OFF-BALANCE SHEET ARRANGEMENTS
We do not have any off-balance sheet financing arrangements.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our consolidated financial statements are prepared in accordance with GAAP, which requires management to make estimates, judgments and assumptions that affect the amounts reported in the consolidated financial statements included in the Annual Report on Form 10-K and accompanying notes. Management considers an accounting policy to be critical if it is important to our financial condition and results of operations, and if it requires significant judgment and estimates on the part of management in its application. The development and selection of these critical accounting policies have been determined by management and the related disclosures have been reviewed with the Audit
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Committee of our Board of Directors. We consider policies relating to the following matters to be critical accounting policies:
º •
º Revenue recognition
º •
º Valuation of goodwill and intangible assets
º •
º Amortization and impairment of programming rights
º •
º Income taxes
º •
º Equity-based compensation
For an in-depth discussion of each of our significant accounting policies, including our critical accounting policies and further information regarding the estimates and assumptions involved in their application, see Note 1, "Nature of Business and Significant Accounting Policies" of Notes to Consolidated Financial Statements included in this Annual Report.
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