Urban One, Inc.
Q1 2016 Earnings Call Transcript

Published: 5 May 2016

[Operator:]

I've been asked to begin this call with the following Safe Harbor statement. During this conference call, Radio One will be sharing with you certain projections or other forward-looking statements regarding future events or its future performance. Radio One cautions you that certain factors including risks and uncertainties referred to in the 10-Ks, 10-Qs and other reports we periodically files with the Securities and Exchange Commission could cause the Company's actual results to differ materially from those indicated by its projections or forward-looking statements. This call will present information as of May 5, 2016. Please note that Radio One disclaims any duty to update any forward-looking statements made in this presentation. In this call, Radio One may also discuss some non-GAAP financial measures in talking about its performances. These measures will be reconciled to GAAP either during the course of this call or in the Company's press release which may be found on the website at www.radio-one.com. A replay of the conference call will be available from noon Eastern Time today until midnight on May 7, 2016. Callers may access replay by calling 1800-475-6701 in the U.S.. International callers may dial direct 320-365-3844. The replay access code is 392220. Access to live audio and a replay of the conference call will also be available on Radio One's corporate website at www.radio-one.com. The replay will be made available on the website for seven days after the call. No other recordings or copies of this call are authorized or maybe relied upon. I'll now turn the call over to Alfred C. Liggins, Chief Executive Officer of Radio One who is joined by Peter D. Thompson, Chief Financial Officer. Mr. Liggins?

[Alfred Liggins:]

Thank you, operator and welcome everybody to our first quarter results conference call. Press release is out and we're very happy with our performance in Q1. Great revenue trends, even better EBITDA growth, 13% growth in consolidated EBITDA, stabilization of our radio revenues and actually we grew our radio cash flow. I think we grew our cash flow in all of our reportable segments. Although the quarter started off slow in Radio, it accelerated in March and it's continuing into Q2 through improved revenue trends and cost containment. We feel very, very positive about the future. Political revenues were also very strong in Q1 and we're actually really excited about the Hillary Clinton and Donald Trump match-up in the general election as we think our audience becomes pivotal for either candidate's victory. I know it sounds strange, because Donald Trump has actually insulted everybody, but I believe that he has more of an affinity -- African American have more of an affinity towards the Trump than they would a Mitt Romney. And I think that there is going to be a real battle for our audience and the back half of the year, Q4 is when we get the bulk of our political dollars. Peter is going to go into more detail about the amount of our Q1 political dollars but we're really excited. David Kantor and his team are doing a great job turning around our radio division. Our results and the results of Entercom, Beasley and iHeart make us feel so much better about the trajectory of the industry's revenue. Last quarter, we gave TV One guidance of mid-70%s adjusted EBITDA and we're still very comfortable with that and this quarter, we're actually going to guide to overall consolidated adjusted EBITDA for the whole Company of $133 million to $137 million. A number of folks that we talked to in the past worry about the future of radio, are we going to be able to grow the Company's cash flow. We feel strongly about our ability to grow the platform's cash flow to the degree that we're actually putting some full year consolidated EBITDA guidance out there. I'm now going to hand it over to Peter for more numbers detail and then I'll come back and talk more about TV One and also our MGM investment which is actually becoming more real as each month comes to pass. Peter?

[Peter Thompson:]

Thanks, Alfred. So, net revenue was up 3.1% for the quarter ended March 31, 2016 at approximately $109.1 million. Revenue growth was driven by our cable television segment where affiliate revenue was up 12.3% and advertising sales were up 3.5%. Political advertising helped to push our combined Radio and Reach revenue up by 0.1% for the quarter. And a breakout of our revenue by source can be found on page 5 of the press release and a breakout by segment can be found on page 7. Net revenue for the radio division was down 0.5%. Washington DC, Cleveland, Baltimore, Charlotte, Dallas, Detroit and Raleigh clusters showed revenue growth in Q1. However, this growth was offset by declines in other clusters most noticeably in Houston, Atlanta, Philadelphia and Indianapolis. For the first quarter, local advertising revenue was down 4.7% and national was up 4.7% for our radio stations. According to Miller Kaplan, the radio markets in which we operate were up by 0.9% for the quarter. We had sequential improvement in each month of the quarter. And in March, net revenue was up 5.3% and we beat the market. Net political revenue which is all radio, was $1.5 million which was 45% ahead of our previous high watermarks of the first quarter political, so very robust political in Q1. Looking by category, revenue was up 47% in government and public category driven by the political advertising; retail was up 12%; automotive was up 2%; and the services category was up 1%. Financial category was down by 26%; telecom was down 13%; food and beverage down 10%; entertainment down 6%; travel and Transportation down 21%. Radio ratings were significantly up year-over-year, with 12 plus ratings up 14% and in the P 25-54 demo we were up 16% year-over-year in the first quarter. And in the key 25-54 demographic, ratings points were up by 50% in Atlanta, 30% in Baltimore, flat in Washington DC and minus 8% in Houston. For Q2, our cable television advertising revenues is pacing up high single digits against the forecast to be up mid-single digits and our radio advertising business is pacing up low-single digits. We currently expect the positive momentum to drive strong second quarter performance from our operating segments. As we talked about on our fourth quarter call, Houston negatively impacted both Q4 and Q1 radio revenues and it was down double-digits in both of those quarters. Our management is turning that performance around and Houston is currently pacing up for Q2, Q3 and Q4. Net revenue for Reach Media was up by 2.5% for the first quarter. Net revenues for our internet business decreased by 5.6% for the quarter, mainly due to decline in alliance revenue. Advertising revenue and adjusted EBITDA were both up in our digital business for the quarter. We recognized approximately $49.5 million of revenue from our cable television segment during the quarter, compared to approximately $45.7 million for the same period in 2015, an increase of 8.2%. Cable subscribers, as measured by Nielsen, finished the quarter at $56.8 million, up from $56.1 million at the end of December. Operating expenses excluding depreciation, amortization, impairments and stock-based compensation, increased by 1.7% to approximately $80.8 million in Q1. Corporate SG&A expenses increased mainly due to an increase in the CEO's TV One award of $2.2 million which was an increase of $1.9 million versus the first quarter of 2015. Within that $2.2 million non-cash charge was a true-up of $1.5 million. Radio operating expenses were down 6.3% driven by various cost-cutting measures. Reach expenses were flat, operating expenses at Interactive One were down 8.4% year-to-year due to lower traffic acquisition costs and lower programming expenses. TV One expenses were up 4% year-over-year, driven by higher marketing spending and higher content amortization than in prior year. For the first quarter, consolidated station operating income was approximately $39.6 million which is up 10.1% from last year. Consolidated adjusted EBITDA was $30.7 million which is an increase of approximately 13.4% year-to-year. Interest expense was approximately $20.6 million for the first quarter, up from approximately $19.2 million for the same period last year. Company made cash interest payments of approximately $20.6 million in the quarter. Net loss was approximately $3.9 million or $0.08 per share compared to net loss of approximately $18.5 million or $0.39 per share for the same period in 2015. For the first quarter, capital expenditures were approximately $1.2 million compared to $2.9 million in the first quarter of 2015 and the decrease is mainly due to our Dallas facility build-out that occurred in the first quarter of 2015. Q1 cash taxes paid were approximately $105,000. Company repurchased 390,677 shares of Class B common stock during the quarter in an amount of $648,912 and that was in connection with the vesting of certain employee shares. As of March 31, 2016, Radio One had total debt net of cash balances, OID and issuance costs of approximately $952.1 million. And for bank covenant purposes, pro forma LTM bank EBITDA was approximately $128.8 million and net debt was approximately $973 million for total leverage ratio of 7.55 times and the net senior leverage ratio of 4.86 times. Finally, the Company put in place a $25 million revolving credit facility on April 21, securing in certain trade receivables. The facility remains undrawn and is intended for backup liquidity purposes. And with that, I'll hand back to Alfred.

[Alfred Liggins:]

Thank you, Peter. Last quarter, investors were a little spooked on TV One's revenue because it was ad revenue, because it was down due to high ADU because of lower ratings and loss of Martin. Even though, we had planned for the loss of Martin and those ratings drop-offs, however we jigged our strategy in terms of scheduling our library of acquired programing. Ratings have stabilized and in fact, in Q1 even though it brought some challenges against our ad sales rate card, Q1 prime was actually up versus Q4 2015 in three of our four key demos; persons 25 to 54 we were plus 7%, persons 18 to 49, we were at plus 2%; and women 25 to 54 we were plus 4%; plus we were up 6% in households and it was our third best Q1 prime in TV One history. So, I just want to give the people some comfort that, we knew it was coming, maybe we didn't telegraph to the market, what the event was going to feel like, translating through our financials, but we passed on Martin three years ago and decided to plow more money into original programing and we plan that into our budget. And when we gave guidance for TV One last quarter, we took into account that we were going to have ratings fall off from Martin and we still feel comfortable with that TV One guidance. As far as Q2 ratings, it's too early to tell. Q2 is notoriously a tough quarter for Black targeted networks, primarily because it's the NBA playoffs and our audience is glued to the NBA playoffs. But we have a slew of returning and new original programing starting to rollout over the next couple weeks, in addition to our acquisition of the blockbuster drama Empire from FOX which starts May 14 on TV One and we will have exclusively, all summer long, it's actually multi-year deal. It's a seven-year deal but exclusive to TV One for a significant period of time. We'll run a marathon on May 14, another marathon on Memorial Day weekend and then we'll run it all summer long. This was a huge marquee get for TV One that has been super well received by our advertisers and is a great fit for our audience. Empire is the biggest show on TV and its cable home is TV One and this is great as we're just engaging in the upfront. In fact, we announced the acquisition of Empire at our first Upfront Dinner and advertisers just -- they know the show, they're already paying high rates for it on the FOX. We told them, we'll give them a slight discount of what they're paying on FOX. They chuckled, like you probably are right now. The upfront, some of you may ask us about it. It's too early to tell for us. We're engaged, but all of the big guys have got to get done first. CBS just did their earnings and Les Moonves has quoted as saying that he is very, very bullish on this year's upfront and in the ability to drive volume and significant price increases. And I hope he is right and if he is, that's also going to bode well for us, but the smaller network says, you guys probably no go last. And I also mentioned our MGM investment. I can't believe that it actually seems like not that long ago we did it. But that casino was up and out of the ground and they're wrapping glass around it. It's going to open sometime in the fourth quarter. We will make our final $35 million investment, a couple of weeks before it opens in the fourth quarter. It's becoming real. We've vetted down the accounting on it. So we're pretty confident that we're going to start to book dividend income in 2017 against it. So as we get closer to the middle of the year and then investors start to look forward to what our numbers in 2017 are going to be, the projections of what our share of the gaming revenue there will add significantly to the Company's cash flow, in addition to TV One growing again and the stabilization of radio, Reach is doing significantly well again this year and actually, iOne is doing better. They had, I think, the best first quarter in direct ad revenue than they ever had and they're pacing to do the same in second quarter and as we kind of projected, iOne to just be at breakeven, don't lose any money transition here. But I'm real pleased about how they're doing. So we feel really, really confident about the Company's prospects going forward and also, as importantly, the effectiveness of our diversification strategy. We've got a lot of ways to make money. I've said that we're not just in the radio business, the TV business or the digital business or the gaming business, we're in the Black people business. The demographic continues to grow with the disintermediation of distribution systems. It seems to me, our strategy of catering to this audience that advertisers find attractive and we have the most unique and the most complete platform doing that puts us in a really unique position. So operator, with that I'd like to open the line up to questions from the audience.

[Operator:]

[Operator Instructions]. Your first question is from Aaron Watts with Deutsche Bank. Please go ahead.

[Aaron Watts:]

I've got a few. Let me start on the radio side Alfred. Don't often see as big a swing from where you guys have been in terms of performance to what you did in the first quarter and what you're saying about going forward. Can you maybe talk a little bit more about what drove the improvement from the fourth quarter into the first and going forward to the second? I know you talked about your ratings being better and do you think it's all specific to you and kind of changes you guys have made or is the market getting better too?

[Alfred Liggins:]

So one, it's not just a swing from Q4 to Q1. I remember when I came back from vacation last summer in July; while I was on vacation, I didn't have that great a vacation because I was reading my radio pacings and I realized that 2014 wasn't great and by July I realized that 2015 was going to be a disaster as well and so I had to do something. And so we really actually started to focus on what the turnaround was 10 months ago. And it's been an iteration of things. We've been very vocal about -- we drilled down on why our ratings were going down and what the impact of Voltaire was. And again, it wasn't just Voltaire, we did take some competitors in some markets like Indianapolis and Houston and that's real, but then ratings were just going down in a number of other places for no reason. And so, we responded to the competitors in a number of different ways in re-oriented formats. We got our act together in terms of Voltaire and getting that in place, Nielsen has since gotten their act together and put a solution to the problem that Voltaire was fixing in place. I said, I think last quarter and the quarter before that that we saw the ratings improved and we knew that it was just going to take some time for that to cycle through and revenue to start to improve. Some places, ratings were going up and revenue still wasn't improving and so there's been significant management changes across the Company. David Kantor is now running the Radio Group and the Syndication Group. We have been understaffed at the radio division in terms of sellers. One of the things that we found out and we're actually still understaffed, but David is predicting that we should be at full force by the end of Q2. I'm happy that the Radio division is turning around. So were asking me, when do we see the uplift from the ratings? And I predicted that I thought it would happen in Q1. I was wrong by two months because January and February were also awful, but it started to pick up in March and April was actually really strong for us as well. I do think that the markets have improved, but they're not dramatic.

[Aaron Watts:]

Yes, let me jump in for a second. So our pacings improved, obviously, as we went through the quarter, as did the market. So this will help you a bit. January, our market was down 3.3%, February, our market was up 2.6% and in March, our market was up 3%. So markets did strengthen throughout the quarter and we started weaker than the market. We underperformed the market in January, we underperformed in February and then we beat the market in March. So, our momentum increased as did the market.

[Alfred Liggins:]

Yes and I still think that we've got some more upside to go. National is stronger for us than local, so we're underperforming in local. That's due probably to our understaffing in our radio markets. We still believe that we've got some underperforming clusters in terms of ratings and conversion. What you don't know about our radio performance, actually our local digital business at radio, not iOne but the local sellers who sell local digital, that's actually underperforming right now and I'm focused on bringing some folks in to help us fix that. And so I read the earnings reports of an Entercom and they talk about how strong local is and their national is weak and we're the opposite. This says to me that we can be doing a better job on the local front. So it's a combination of a lot of things. When this hit, it was like the storm, it is like everything was going wrong all at the same time for some inexplicable reason. And part of it was Voltaire, part of it was self-inflicted. And they are just in a different intensity level at the Company now, some underperforming managers have been replaced, sellers have been replaced. It's just doing the heavy lifting and it takes time and we're not out of the woods, right, but we gave guidance today for the full year, for the whole Company in a range of $1.33 to $1.37 that even though we know we're not out of the woods, we feel confident that we're going to get at least to there.

[Aaron Watts:]

Okay. Now, that's all really helpful and one quick one, just adding on to radio, as I think about your guidance or your pacing for second quarter up low-single digits, is political kind of meaningful in that lift or--?

[Alfred Liggins:]

Not in Q2. I mean there is a little bit in April. Was it like $400,000 or something like that?

[Peter Thompson:]

Yes, I think we got almost $700,000 on the books for Q2. It's about 1% roughly.

[Alfred Liggins:]

Yes. So, it's not a big number. But political, like I said earlier in my opening remarks, I would rather have Donald Trump against Hillary Clinton than Ted Cruz because that's going to make a fight for our audience.

[Aaron Watts:]

Okay. And maybe one question on the TV side, you mentioned great get on Empire. As we think ahead in terms of margins and what that might have cost you, is it going to have a material impact on how we think about the margins on the TV business or not a material change from what we've been--?

[Alfred Liggins:]

We were fortunate, it is just funny, we get this question because we did one of the conferences out at the NAB and we talked about Empire out there and everybody yelled, we did one-on-ones who'd asked the same question. We were very fortunate, Brad Siegel, who runs TV One, negotiated a very favorable deal for Empire. We kind of set out a lot of the other stuff that was there to acquire, when I said we set out, we made a bid that we thought we could afford and the bigger companies, most notably our primary competitor BET bought everything over the last three years, including Scandal, Tyler Perry's, House of Payne, Tyler Perry's Meet the Browns, Are We There Yet, they bought Martin three years ago and so, by the time Empire rolled around, we didn't have a lot of competition, for at Scandal for BET which we were in the bidding war and they won, didn't actually perform that well for them. Empire is a much bigger show than Scandal is, much, much bigger and it's actually male and female scandals, more female and we got a great deal on it. And we've got reasonable estimates as to what we think it's going to do and I felt very comfortable about the acquisition and we're amortizing it over seven plus years, 7, 7.5 year period of time, so no material impact in the near term on margins and programing amortization expense.

[Aaron Watts:]

And you get each new season that rolls out throughout the length of the deal. Is that the right way to think about it?

[Alfred Liggins:]

I'm not that close to the actual details of which season we get win. So we can get that offline. So our marathon is this season leading up to the Wednesday premiere of the finale for Empire and I think this summer we'll get this last season, I don't know if we get season one and season two or for just getting season two, that's a detail I don't have, but I can get.

[Peter Thompson:]

And just circling back on the margin question, because I wasn't quite sure which way you thought it might impact. If it does anything, it will have a positive impact. If we get near to our estimates, it will have a positive impact on margins, not a negative impact. And I think that's helpful given that we've had some softness in the rates and so I think that's a really nice hedge for us. That makes us feel better about the guidance that we gave and where we're going to come out this year.

[Alfred Liggins:]

The management team presented this as a money-making acquisition and I really drilled down and the big variable in that is, what are the ratings? And so, I really drilled down on what the ratings estimate was going to be and they felt they were going to make money even at a conservative ratings estimate. So that's reason I agree with it.

[Operator:]

Our next question is from Lance Vitanza with CRT Capital. Please go ahead.

[Lance Vitanza:]

So with just a follow-up on a couple of these, with the political not accounting for much in 2Q then, can we say that ex-political revenues are pacing up 1% to 2%, does that seem about right?

[Peter Thompson:]

It's still in that low-single digit. So what I was trying to say earlier is, it's a one point differential with or without political.

[Lance Vitanza:]

Okay. And then on Empire, I mean this is marquee programming and if I'm not mistaken, it's a bit of a departure for TV One. At the risk of over analyzing it, is this kind of the logical response to the cable ecosystem moving toward a la carte programing? And then I guess, if you could talk a little bit about, I know you're not -- maybe with all the terms there, but could you talk a little bit about the nature of the exclusivity? And if not the duration, just really I'm trying to understand like what windows that that refers to. Presumably, I can still go out and get Empire on, I don't know if it's iTunes or Netflix or some other sort of non-linear channels.

[Alfred Liggins:]

Yes. So, two things; I don't think the only way to departure from -- actually it's not a departure because it's a drama. TV One hasn't created any of its own original dramas yet, although we're in the process of doing that and we'll likely have something hitting in 2017. But we certainly have acquired dramas before. And so, this is just unique in that it's so big and it's contemporary and it's music-themed as well and I think it's got nothing to do with the al a carte world, right. I mean, Scandal is a big serialized drama that went up for sale and BET bought it, so we just happen to get Empire. And look, all of these shows are on other platforms, Hulu and Netflix. I mean, we bought the cable window and FOX is going to monetize the rest of it the best way they can, but we're happy with our investment in the cable window. It's not exclusive for all 7.5 years, but it's exclusive for like the first three of four. And when our exclusivity burns off, we're still protected against our direct competitors. Right now, we just have a period, only people in cable. When our exclusivity after three or four years burns off, I think they could sell it to a general market network like Lifetime which doesn't bother us.

[Lance Vitanza:]

And then, Peter, you mentioned on the digital side that the drag was from the alliances. Could you discuss what that refers to exactly and what's going on there?

[Peter Thompson:]

Yes, that was the Monster deal that we talked about for the last couple of quarters and that deal has ended. So it was a diversity deal and we don't have those revenues coming in, so hence we were down there, but up in terms of digital sales. And in terms of dollars, it was about $0.5 million hit for the quarter, we were down about $0.5 million in alliances and we were up about, call it $3.50 million in direct year-to-year.

[Lance Vitanza:]

My last question is just on the gaming side, if there is any update that you can give us on the casino project?

[Alfred Liggins:]

You must have came late because I did a whole blurb on it. Anyway, it's going to open in Q4. We're going to make our final $35 million investment two weeks before it opens, Peter and his finance team have checked the accounting. We're pretty confident that we're going to be able to start booking dividend income in 2017. It's now real. We were already part of the original application, but when we have to give a notification that we plan to take our interest, our ownership interest over 5% and then we'll have to get vetted at some higher level to own more than 5% of the casino. We're going to own 6.6%. And then, we've been pretty transparent as has MGM that the gaming revenue projections are kind of $700 million, $750 million for it, so just call it $700 million and our deal entitles us to 1% of that gaming revenue, net of promotions and stuff like that. So who knows what it's really going to be, but we're using the number of about $7 million of dividend income. The biggest Maryland casino which is just outside Baltimore called Maryland Live in Anne Arundel County which really isn't a resort. It's kind of a shopping center does about $600 million in gaming revenue a year. And this is going to be a top-notch Vegas style resort. They are spending a lot of money on it, big entertainment. It's going to be a great deal for us and as I said earlier, great diversification play and it's going to show up in our numbers next year.

[Operator:]

Question from Roland Williams, Private Investor. Please go ahead.

[Roland Williams:]

Earlier you mentioned being in the Black people business. I want to know how sustainable is that approach and what are you doing to address the faster growing minority groups, i.e. Hispanics?

[Alfred Liggins:]

Look, I think it's highly sustainable. I mean, this country has got 13%-plus African American population. The population trends are growing faster than the general market. You got to be who you are and we've been doing this since 1980 and been expanding on it. We've got enough competitors in the radio and in TV and in digital that do this too. So doubling and tripling down on this, we think gives us a competitive advantage. So I don't see us jumping into the Hispanic market. We wouldn't have any scale to compete against Univision and folks like that. And we got enough people nipping at our heels for our audience. There is more black television shows on now than ever before and iHeart is a significant urban radio competitor. So we're going to continue to do what we do.

[Operator:]

Questions from Andrew Finkelstein with CQS. Please go ahead.

[Andrew Finkelstein:]

A couple questions, first, Alfred or Peter, I noticed the cash balance keeps moving higher, $72 million, $73 million now. And it's going to keep building to the rest of the year, I think, even with the payment for the casino. Any thoughts for what you guys would do with the cash on the balance sheet and free cash flow?

[Peter Thompson:]

Well in the moment, we just plan on keeping it there. I think we said on previous calls, we're looking at potentially selling our towers to increase the cash balance and then I think we're just opportunistic about what we do with that cash, the priority is to reduce our net leverage over time. So we're mindful of our maturity coming up on the term loan at the end of 2018. We obviously keep an eye on how the debt securities are trading in the market, but we have not made any firm decisions as to what we do with the cash balance and we're kind of comfortable cumulative up for now it's a nice position to be in.

[Alfred Liggins:]

Yes. I think last call, and you said, you talked about the term loan maturity, right?

[Peter Thompson:]

Yes.

[Alfred Liggins:]

And look, our debt securities have been moving up in terms of trading levels to the extent that they can continue to move up. We'll make it easier to address that term loan maturity at the end of 2018 and we're focused on that.

[Andrew Finkelstein:]

It's still 1.5 year before that one goes current, right at the 2018. So I sense more urgency though from you guys to maybe do something sooner?

[Alfred Liggins:]

It was a short maturity to begin with. We loved the pricing on the paper and we lived with such an expensive capital structure for so long because we had that restructured note that we felt we need some cheap capital in the capital structure and so we did that deal. But we want to figure out a way to -- we're not willing to pay more to take it out early, but we certainly would like to try to figure out a way to extend the maturity and deal with it. Having lived through the financial crisis, you can get into trouble a lot of ways. You can have a lot of positive cash flow, but if you trip a bank covenant or some kind of covenant, today bank's used to work with you. Today, what they want to do is triple your interest rate and suck the free cash flow out of the Company. People don't really work to try to help you and if you get caught, not being able to -- even if you got value, we had value in TV One. We still had a lot of cash flow, but the markets were closed to us and it was difficult to get off a refinancing and you run into trouble and you can go bankrupt just because you can't refinance at the time even if your assets are worth more than what you owe. I never want to live through that again. So we're focused on what we're going to do with that.

[Peter Thompson:]

Yes which also speaks to why we like having a bunch of cash on the balance sheet, we're not concerned about our maturity, but we just got an eye on it, right. It's the nearest thing, we like the coupon, but we're thoughtful about where opportunities may present themselves.

[Andrew Finkelstein:]

And then that leads into the issue in that or taking that ABL on, you said backup liquidity, but I was just thinking, is there anything else you could do with it? You said bonds are trading up, but the sub-bonds are definitely expensive for you guys. Is there any thought to use a -- that's more cheap financing, I'd imagine.

[Alfred Liggins:]

We're consistently exploring ways to de-lever and to make our capital structure cheaper. We looked at buying back debt at discount, but the reality is, is when the sub-notes were trading at 70. There is a million bonds for sale, right. These notes went from 80 to 70 in a vacuum, kind of like with no trading activities. So we don't even really know how much volume at these levels there really is to be bought. I think our first order of business was to get through the quarter, put up some decent numbers, get a good trajectory gallon and reassess the opportunity. So we're talking to a lot of people about what we should be doing, when we get offers, we're vetting them, but we're very focused on de-levering and growing the cash flow.

[Andrew Finkelstein:]

So, no use of the ABL line now?

[Alfred Liggins:]

No, we're not going to draw down on the ABL to buy subnotes, no.

[Andrew Finkelstein:]

Okay. And then just, Peter, how to think about the programming costs at TV One now? I mean, Martin went away and I'm not sure what exactly was in the line for that before, but I think in the quarter at least for the whole Company, we're looking at $34 million of programming technical, I mean, there is a lot in there. But I don't know went Empire deal, you said it starts in May or June, are we going to see some sort of spike or a step function higher on the programming cost side at least to the income statement. I'm not sure, if also when the cash payments tied to that might come and hit you?

[Peter Thompson:]

I don't think we're on the P&L, as I look at the programming content line at TV One which is obviously where that amortization rolls up. It's actually pretty flat year-to-year in the current forecast. So I don't think you're going to see a step change in the amort. I think the cash at the moment is probably running higher than the amort, but it's not something to be alarmed about. It's ordinary course of business. So I think in terms of the P&L, you don't need to worry that programming is suddenly going to ramp up as a result of Empire or anything else.

[Alfred Liggins:]

And a follow-up answer to an earlier question is, we will have seasons one and two the summer running.

[Andrew Finkelstein:]

And then last one from me. I think corporate was up $2 million or $1.5 million versus last year, $11.4 million. Is that a better run rate for this year or--?

[Peter Thompson:]

No, it's not. And I mentioned in my comments which were obviously not quite clear enough. So that related to this non-cash TV One award. There was a charge in the quarter of $2.2 million, that was specific to that and of that $1.5 million roughly was a true-up. So that's not really a good run rate. I think a decent number for the year is somewhere between $25 million and $26 million of corporate expenses at the adjusted EBITDA level, it that helps you.

[Andrew Finkelstein:]

Okay. Yes, that's great and I guess, just last one on TV One. I mean it seem like advertising spending was pretty solid even with the loss of some of that of Martin or some of the programing and ratings are now turning. I think it was sort of asked earlier, but is the market just picking up for everybody or is it your ratings. I just want to just understand that a little better if I could.

[Alfred Liggins:]

The cable scatter market is definitely strong, it's very strong. Moonves said the same thing. Look, broadcast television ratings have been going down for 30 years and ad dollars have been going up and then cable comes in and cable ratings are down now but maybe people still love television and maybe CPMs are going to be able to continue to rise. Fact of the matter, when ratings are down, advertisers still need a certain level of impressions in gross ratings point to reach the country and so they got to pay more to get them. And either that or they can move to digital video but there has been another thing that Moonves said was, there has been a lot called into the question as to the real effectiveness of a number of digital video and digital media platforms. We all know Google and Facebook are big, but there is a lot of money still go into a bunch of other staff and maybe that others digital video -- those other digital video outlets aren't as effective as good old-fashioned broadcast TV or cable television. So that's his view, he knows more about TV than I'll ever know. So I'm going with what he says.

[Operator:]

Question from Eric Bourassa with Jefferies. Please go ahead.

[Eric Bourassa:]

Just one quick question from me, on the cable affiliate fees side, can you just talk about what drove the 12% revenue increase and kind of how should we think about your revenue trends going forward for the rest of this year?

[Peter Thompson:]

The first thing is that we were lapping the new Comcast deal which I think was a Feb 1 deal last year. So we got a nice bump January to January because we didn't have a new Comcast deal in place until February of last year, so that help drive it. You shouldn't expect it to continue at that rate. And I think probably on the last call, I've said consider a mid-single digit growth for affiliate sales and I think, I'm looking at the current forecast, I still think we feel good about a mid-single digit affiliate sales growth. Obviously, we've got some new subs coming on, some are paying some are not, but the sub count is going to go up and we're going to get mid-single digit affiliate sales revenue growth, we think.

[Eric Bourassa:]

And just one other question, I mean, maybe I missed this, but can you just explain kind of the rationale in the MGM investment?

[Peter Thompson:]

Yes. I mean a diversification play fundamentally. It's in a County that's roughly 70% African American. We obviously cover the market from a radio standpoint. So we were helpful, I think, to MGM as a partner in terms of them having a minority partner as part of their bid process. We liked the economics of it a lot and I think we talked previously about the fact that they agreed to spend $1 million a year with us for five years in advertising. So there is a $5 million ad component to it. And the economics of the deal, the 1% of net gaming revenue that Alfred talked about earlier, we estimate to be about $7 million a year which on a $40 million investment, we like as a straight cash-on-cash return. And then obviously, we have our put rights on the investment itself. So we like it from a diversification standpoint. We like the stability of the cash flow that it's going to get and we like the yield ultimately.

[Operator:]

And there are no further questions in queue.

[Alfred Liggins:]

Thank you very much everybody. And as you know, we're available offline and we appreciate your support.

[Operator:]

Ladies and gentlemen, that does conclude our conference for today. Thank you for your participation and for using AT&T Teleconference services. You may now disconnect.