Urban One, Inc.
Q1 2015 Earnings Call Transcript

Published: 1 May 2015

[Operator:]

Welcome to Radio One First Quarter Conference Call. I've been asked to begin the call with the following Safe Harbor statement. During this conference call, Radio One will share with you certain projections or forward-looking statements regarding future events or its future performance. The company cautions you that certain factors including risks and uncertainties referred to in the 10-Ks, 10-Qs and other reports periodically filed at 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 1, 2015. Please note that Radio One disclaims any duty to update any forward-looking statements made in the presentation. In this call, Radio One may also discuss some non-GAAP financial measures in talking about its performance. If measures will be reconciled to GAAP either during the course of this call or in the company’s press release which can be found on its website at www.radio-one.com. And audio replay of the conference call will also be available on Radio One’s corporate website at www.radio-one.com under Investor Relations section of the web page. 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 will now turn the call over to Alfred C. Liggins, Chief Executive Officer of Radio One, who is joined by Peter D. Thompson, the company’s Chief Financial Officer. Mr. Liggins?

[Alfred Liggins:]

Thank you, operator and welcome everyone to Q1 earnings call. We’ve put out a lot of information as of late we’ve been in the middle of the number of transactions. And so there are lots of great things happening at the company at present. And as many of you know maybe most of you know we completed the long talked about acquisition of Comcast’s 47% stake in TV One giving Radio One full ownership of this fast growing asset to further diversify our revenues and cash flow. This acquisition was done with the refinance of both Radio and TV One’s first lien debt tranches at substantially lower interest rates resulting in the doubling of the company’s free cash flow profile which will allow us to deliver on a consistent basis. The TV One asset continues to make great progress with long-term renewals of our affiliate agreements with Comcast, Charter and now Verizon just this week having all signed a new long-term agreement securing and improving our carriage as well as locking in favorable annual increases in license fees. TV One ratings are also on fire so far in 2015 with total day 25 to 54 ratings plus 15% and prime time 25 to 54 ratings plus 28% year-to-date, while most of our competitive set is down double-digits year-to-date. TV One will also post a mid $60-ish million EBITDA number in 2015 which have the $515 million valuation we bought Comcast out of it, it’s about an 8.5 times purchase multiples which we think is very attractive. While our Radio business continues to see headwinds it is improving sequentially from Q1 to Q2. Peter is going to talk more deeply in about the numbers in each of the divisions next. So before I turn it over to Peter, I also want to acknowledge that we have also made our first $5 million investment in the MGM Casino project in Prince George’s County, Maryland. When we get into Q&A we will talk a little bit more about that deal we have talked about it before. But we think that’s a very, very attractive deal for the company that’s going to continue to diversify our revenue and our cash flow. So with that, Peter?

[Peter Thompson:]

Thanks, Alfred. So net revenue was approximately $105.8 million for the quarter ended March 31, 2015 a decrease of 4.8% year-to-year, adjusting for timing differences with two major events consolidated net revenue increased by approximately $2.7 million or 2.7% driven by advertising and affiliate revenue growth from our cable television segment. A breakdown of revenue by source can be found on Page 5 of the press release. Net revenue for the Radio division was down 6.7% on adjusted for timing difference of a single major event. Charlotte, Cincinnati, Dallas and St. Louis clusters showed revenue growth in Q1 of these gains were offset by declines in our four biggest clusters, Houston, Washington D.C., Atlanta and Baltimore. For the first quarter local revenue was down at 7.9% and national was down 7.2% for our Radio stations. The Radio markets in which we operate were down by 4.5% for the quarter. By category automotive was plus 4%, entertainment was plus 4%, healthcare was plus 6%. But we will hit by reduced cellular spending which was down 35% across four large clients driving our telecommunications category down 22% overall and by grocery stores which was minus 26% and pushed our retail category down 19% year-over-year and that was specific to two large clients. For Q2 our core radio business is pacing down mid-single digits after a soft month in April. Our cable television revenue is pacing up strong double-digits for the second quarter. Net revenue for Reach Media increased 5.9% one adjusted for timing difference of a major event. And the increase was mainly due to strong advertiser demand. Net revenues for our internet business decreased 10.9% for the three months ended March 31, due to a decline primarily in direct revenue. We recognized approximately $45.7 million of revenue from our cable television segment during the three months ended March 31, 2015 compared to approximately $39.7 million for the same period in 2014. The increase was due to higher advertising demand and increase in subscriber rates for certain affiliates. Advertising sales were up 9.9% and affiliate sales were up 21% year-over-year. Cable subscribers as measured by Nielsen finished the quarter at $56.9 compared to $56.6 million at the end of December. Operating expenses excluding depreciation, amortization impairments in stock-based compensation decreased to approximately $79.5 million in first quarter from approximately $85.9 million for the prior year, mainly driven by the timing difference on events. For the first quarter, consolidated station operating income was approximately $36.6 million, up 4% from last year. Adjusted consolidated EBITDA was $26.6 million, an increase of approximately 1.6% year-to-year, or 8.3% on adjusted for the event timing differences. Interest expense was approximately $19.2 million for the first quarter down from approximately $21.9 million from the same period last year. Decrease in interest expense is primarily due to the lower interest rate associated with 9% in the quarter senior subordinated notes due 2020. Company made cash interest payments of approximately $25.8 million in the quarter. Cash interest payments were higher than in prior year due to the timing of the semi annual payments which due on the 2020 notes. Net loss was approximately $18.5 million or $0.39 per share compared to a net loss of approximately $25.2 million or $0.53 per share for the same period in 2014. For the first quarter capital expenditures were approximately $2.9 million compared to $1.7 million in Q1 of 2014 and this increase was mainly due to the relocation of our Dallas market office, so it’s a lumpy quarter. Q1 cash taxes paid were approximately $54,000, and the company received dividends from TV One in the amount of $6.3 million in the first quarter and there were no share repurchases during the quarter. Company’s cash and cash equivalents by segment are as follows, Radio and Internet, approximately $37.6 million, Reach Media approximately $7 million, Cable Television, approximately $16.4 million. In addition to cash and cash equivalents, cable television segment has long-term investments of $593,000. As of March 31, 2015, Radio One has total debt, net of cash balances of approximately $758.7 million. On April 17, company completed the acquisition of Comcast’s 47.5% interest in TV one, and the simultaneous refinancing of Radio One was approximately $368 million of first lien debt together with TV One was approximately $119 million of 10% notes. And the purchase price of $223 million and redemption of existing debt was financed by a $350 million term loan priced that liable plus 450. $350 million senior secured notes priced to 7.38% and a $12 million senior note which is priced to 10.47%. Transaction will be significantly accretive to free cash flow. Ones our borrowings increased by $224 million, the reduction in our overall cost of capital, most of the incremental annual cash interest expense is only approximately $5 million. As a result of the transaction pro forma 2014, free cash flow of $24 million more than doubles to $56 million. The bank covenant purposes pro forma LTM bank EBITDA, was approximately $142.1 million, which includes adjustments for new Comcast carriage agreement and including the add back of noncash launch amortization expenses. And with that, I’ll hand back to Alfred.

[Alfred Liggins:]

Thank you, Peter. Yes, the acquisition of the other half of TV One really kind of completes our strategy of becoming a multi-platform African-American-targeted media company. And our strategy continues to be that – very similar to that of Univision’s. And instead of really kind of debating with advertisers, the merits of television, versus digital, versus radio, versus syndicated radio or events, we aim to deliver at all and we’ve actually started to put more resources behind our in-house branded content studio/agency which we recently announced, called OneX or One eXperience. So we’ve hired and staffed a number of professionals, advertising professionals, creative directors, copywriters, account people to help us service accounts like Walmart, University of Phoenix, J&J, which we go and we actually create campaigns and content ideas that are run across all of our platforms and other platforms if they so desire. We find that advertisers now have the ability to find impressions everywhere with the Internet. And what they really looking for, better ideas to connect to important target market segments. And the African-American market segment continues to grow. And we’ve got a unique strategy in this area. And we think that our MGM investment plays into that because the Prince George’s County marketplace is about 70 something percent black, it’s a closing to suburban Washington DC. So within a stone’s throw from our corporate headquarters, we operate a lot of radio stations in Washington, Baltimore and Richmond and the surrounding areas. So not only those are investment, we think, make a very attractive investment, we’ve got a marketing agreement with them for them to spend significant dollars on our surrounding radio stations throughout the five years, the first five years of our deal with them. Those of you don’t know, we have invested it’s a total $40 million investment, we put in $5 million two weeks ago.

[Peter Thompson:]

Yes, say April 10.

[Alfred Liggins:]

April 10. The other $35 million is right, but not obligation, but yes, because it’s such a great deal, we plan to do it. The other $35 million were go in by mid 2016. We anticipate the Casino opening the earliest July 2016 and if it slips – slips in the first quarter, we’re going to get a percentage of the gaming revenues, which will be reported to the State of Maryland as a cash distribution on an annual basis. State of Maryland believes those gaming revenues are going to be $700 million to $750 million. Our percentage is roughly a point on that. So we got a nice cash on cash return of about 17% on that. And then we’re going to own about 6.6% of the Casino as a residual equity interest that after the end of year three. We’re able to put back to MGM. They don’t have a call on it, we have to put. So we can stay in the deal as long as we want and we believe that it’s start of a great partnership with them and just another effort on our part to use our platform to build value in other areas. So we’re building value in a pretty lucrative and interesting business with a partner who knows what they’re doing, but we’re also getting value from an advertising perspective and it’s a relatively low risk and high return effort. So with that operator, I’d like to open it up to Q&A from those in the line.

[Operator:]

Thank you. [Operator Instructions] Our first question will come from Aaron Watts with Deutsche Bank.

[Aaron Watts:]

Hi, guys. Thanks for taking the questions. I'm going to start on the Radio side, Alfred definitely a little bit of a step back in terms of the broadcast business in the first quarter. Can you maybe talk about month-to-month how it’s felt and I think you said April kind of turned the wrong direction, maybe what you’re feeling not only from the first quarter but as you look ahead now how I refer – how would you can tell how the business feels to you?

[Alfred Liggins:]

Yes, look when we read the – when we get pacings we read of them off of what’s coming out of our system. So early on I think it was in January, pacings were positive and then as the quarter went on they continued to weaken. And so January for us was with minus three, four, February is minus six, seven, March is minus four, five…

[Peter Thompson:]

[Indiscernible] Yes, March is when it really starts to drop off.

[Aaron Watts:]

Yes.

[Peter Thompson:]

March and April really soften. So we were down double-digits in March. And then April is kind of minus 6.5-ish.

[Alfred Liggins:]

And while we’re seeing improvement in Q2, there is still negative mid-single digits. And so yes, I think yes, and I’ve said before some of that is self inflicted well, I don’t know see somewhere we do a competitor in Houston, which was our largest market. So that’s not self inflicted, but that’s a not a market problem. And we’ve made some changes there that are improving our position as we speak self inflicted was Washington in that our ratings are down there. But also last year that market was one of the worst, it was one of the top four worst performing markets in the country in terms of negative revenue growth. But so far the good news is so far this year, through March it’s up almost 3%. So we think things are going to be stabilizing there. But most of the markets that we’re operating in irrespective of how we’re doing there are negative. And people ask why that is. I can – I will say look we’re not in a bad business, we’re in a good business. Audio still very important, radio as you big what is its just that there is much more competition across all – for all traditional mediums to share advertising dollars. And so that money is got to come from somewhere and it comes from the traditional mediums and where that ultimately levels out. We’re not sure, but our job is to do the very best that we can in a tough market and get back to grabbing market share and then figure out other ways to insulate ourselves and diversify ourselves. So I would say again, the Q2 still negative. And I think you are hearing that from other companies are so Cumulus said and I think if you dig into the iHeart numbers there local markets are down too. But they are offsetting it with their other businesses. So traffic in syndication and live events and we’re offsetting it with our cable network.

[Aaron Watts:]

Okay. That’s helpful. Alfred, if I take that a step further, if you look into your crystal ball, do you feel like the industry is a whole can I get back to a flat or growth state or do you think the, so I guess this is the temporary lag in spending with radio or do you see it more as just dollars are shifting out and you are kind of looking at this down level.

[Alfred Liggins:]

I actually do think it will, because I think that you have audio delivery and then you have video delivery. And I think that audio delivery has always been a part of the advertising mix, I don’t see that changing. I saw the iHeart announcement and they are moving to programmatic and by the way, KATZ brought us in and talked about to promote programmatic strategy that they have for the industry, and I think that’s going to be something, that’s helpful. I believe that the difference between a Pandora and Spotify in delivering audio, it is basically comes down into sort of their software systems that allow people to subscribe and stream music and create their own playlist, I believe that’s a function that is duplicatable. We haven’t follow that strategy in individual company, but I think that’s duplicatable by the radio industry and ultimately I don’t see, there is nothing that much more special about their form of audio delivery for ours, we’re streaming all of our radio stations online so if you want to listen to us on your smartphone you can and I believe that we have - we have got the incumbent advantage and that we’ve got most of the audience now we’ve got most of the revenue. And we currently have a favorable cost structure as it comes, when it comes to down to royalties, I don’t believe, I believe its a fair cost structure given the value we bring to the artist and to the record industry and in promoting their music, they continue to say that to rest of the radio brings value. And I think it’s ultimately going to be hard for the business model on the webcasters, to continue to pay out half of their revenues and royalties. But again we give our music away free, we are not charging for it, so if they are charging for in that two revenue streams, why shouldn’t they pay more. And they’re actually having to sell advertising now so its not as if Pandora and all these guys are going to have commercial free services that are going to be wildly different into rest of your radio in order to offset their cost base, they have got to sell ads. And they may start out now with three or four minutes. But trust me there is a time when radio was running six minutes on FM Radio you are running very few units and over time, economic reality set in and you run more units and I think that is happening, and will happen there. So I do think it will equalize and get back to a more normalized flat to modestly growing plus I also believe that at least for us our online strategy is more about display native advertising video content and our radio stations are great drivers of traffic to those websites that we own. And I think a lot of the radio guys are figure out how to utilize there and here our competitive advantage of large and strong local sales forces to find other products to sell to local advertisers.

[Aaron Watts:]

Yes, all right that makes sense. Just shifting over to the television side, the new deals, distribution deals you’ve been striking including I guess the Verizon one just recently. Just remind me, what's kind of the tenure of those deals of a trending longer in length than they used to or on average how many years are we looking at?

[Alfred Liggins:]

We’re different. I’m bound in form of confidentiality to not disclose too much about these deals, but let’s just say ours are longer than normal. And if you were to – and there’s a range of – there is – three of them that are already done. We’re in discussions with everybody else. And I would say there on the short-end of 5-ish years and on the long-end in 10-ish years and I won’t tell you who is who.

[Aaron Watts:]

Okay. And last one for me a little bigger picture. As we hear about and see more and more over the top streaming options. And then also some of the smaller bundle packages that are being put out there now.

[Alfred Liggins:]

Yes.

[Aaron Watts:]

Where does TV One fit in to that world and how do you get paid for that.

[Alfred Liggins:]

So it’s interesting. So TV One is really still a nascent service. We’re 11 years old. I mean we don’t even have dish yet and we got to figure out a strategy of how to get dish. We’re in the middle. We’ve hired a consultant that I’ve worked with for a number of years. He is very good. His specialty is international. And right now, she is developing our international strategy and buyback. She is communicating with distributors in the Caribbean, in Africa, in Canada about how do we expand our brand in those territories. And by the way BET is in all of those territories. So we have that opportunity. We have not approached anybody about sort of Netflix or Hulu or Amazon deals. We haven’t even talked to Amazon or Apple – and we’re on the front end of that process. Although, while we’re continuing to create more original content and think that we’re going to be in a prime position to generate revenue in those areas, and we haven’t thought about it yet, but it came up in our affiliate deals because it obviously over the top is on the top of mind for all other distributors. When learning what that business model can it is and can be for us. But here is what I believe with all of these assets targeted to African-Americans, one of the reasons I think TV One is successful as we use our Radio platform to bought TV and every sense we have owned it, or created it, we bought TV One, almost on an hourly basis everyday. And I think its help to grow our brand and in a market where you are seeing other networks trend down significantly we are trending up. So I said that’s the power of the platform to sell something to sell TV One to Black consumers. I think we have that same ability to sell some over the top service if there was BlackPlanet TV, now we have some restrictions on not being able to run the content on TV One simultaneously with some over the top or online service. But you can do with library content you can do with content that isn’t it the cable network yet. You can do it with content that you have licensed other places just for that service. But if anybody has the ability to market in over the top service to African-Americans I think it’s us. One of the things we’ve learned here is when we tried to do a lot of things at the same time particularly when you have been dealing with a legacy business that is come out of a growth mode, it’s challenging your best to focus. So we have been focused on things that keep us in business for the long-term and create the most immediate long-term value and that was getting the distribution deals done and buying the other half of the TV One, it’s stabilizing Radio and getting iOne to profitability and getting reach back up to substantial profitability. But all these other things that I have mentioned – just mentioned to you that you asked about, those are in our future and those are opportunities and we will focus on them as we are getting pass these other things. Once we get all of our renewals done, it’s like okay, what’s the next opportunity to create value.

[Aaron Watts:]

All right. Great, appreciate the thoughts.

[Alfred Liggins:]

Thank you.

[Operator:]

And our next question will come from David Farber with Credit Suisse. Please go ahead.

[David Farber:]

Hi, guys good morning. How are you?

[Peter Thompson:]

Good and you?

[Alfred Liggins:]

Hi, Davis.

[David Farber:]

Hi, hi, so my questions have already been asked but I just wanted to touch based on some of the improving margins you guys put together for the quarter. Can you just walk us through, Peter or maybe Alfred, sort of what’s driving that and then any thoughts on how that all take shape over the next year or so. And then a couple of follow-ups, thanks.

[Alfred Liggins:]

Sorry one more time, I’m sorry, can you repeat that question?

[David Farber:]

Just wanted to hear what’s driving the improving margin where you guys are on the cost side, because it’s looks like you had some better flow through there and I’m just curious to hear….

[Alfred Liggins:]

Yes.

[David Farber:]

If you had any thoughts on a go-forward? Thanks.

[Alfred Liggins:]

Obviously, we had focused on some of them unfortunately, which is low as sales commissions are high, because the revenue was down. But there is a bunch of other savings initiatives in radio we made some employee changes at fairly senior level, related to DC. We managed to save a pretty good amount of cost with the re-org [ph] in DC. And that’s really the main thing we’re just chipping away on our fronts. I think looking at the market being down 4.5% Q1, we’re anticipating looking to Q2 something kind of similar ratio, we just got to try and control our cost as best we can to stabilize that cash flow.

[Peter D. Thompson:]

Yes, we – and I’ve mentioned this before, I think, no mentioned [indiscernible] in the financing, but we hired PWC to help us, look at this entire platform and figure out how do we increase productivity, where can we create of synergies, lower cost, it also includes where do we invest to grow our revenue. This is the first time that we’ve ever brought in an outside big consulting firm to help us to do something like that. Before it was just me and the senior team sitting in the conference room and saying let’s do this, let’s do that. What we’re hopeful from this exercise is, we learn, all other things that we don’t know that have been used at other companies that maybe similar media companies or even in other industries. That’s what we do for living. We’re cognizant that we don’t know that what we don’t know and so we’re deep in the middle of that now and we hope to that’s going to result in some additional insight.

[Alfred Liggins:]

Yes. The other area where we were trying to reduce costs in our interactive in digital business, because, I think, it’s fair to say, we set that up in anticipation of revenue coming in faster and higher. And so we’re haven’t relook at that in the context of growth been somewhat less than we would hope. So we’re taking out, there’s been some attrition there, that we’ll probably not replace. And so that’s actually helpful on the cost side there.

[David Farber:]

Yes.

[Alfred Liggins:]

I’m sorry, what's that David, I was telling to I didn’t quite get it [indiscernible].

[David Farber:]

No problem. Okay, that makes sense. And then congrats on the Verizon deal. Any update on AT&T or DIRECTV and then just also wanted to hear about the MGM investment. Do you have a sense for, when that will open and that’s it from me. Thanks.

[Alfred Liggins:]

We have been in deep negotiations with AT&,T, for a number of months now, I think we’re nearing to end of that process, they just had some change at the top in their programming group, which I’m hoping doesn’t slow us down. But I mean that just recently happened, but we were down to like the last point or two. And we’re feeling very optimistic about that, in particular we’re feeling very optimistic about it. It doesn’t come up until the middle of 2016, so we didn’t – we didn’t go an early on it. And DIRECTV we’re kind of – we’re kind of assuming that AT&T and DIRECTV is going to happen. And so, then in our DIRECTV deal ends up at - ends up end of this year so if we end up doing the new deal with AT&T. Then the direct deal doesn’t matter, but as we saw what Comcast Time Warner anything could happen. Because the Comcast Time Warner deal and raveling was new news I think we are – we thinking right now, whether or not we should engage with Direct now. I don’t even know if they would engage and say because they are probably assuming their deals going to happen. So there is two sides of that coin, but look I feel confident that the network has a unique position, it’s certainly from a price value standpoint our rating versus what we cost, versus the other competitors in particularly Viacom networks is really attractive. And I think that we’re positioned well in the marketplace politically as well given that where the home of the NAACP Image Awards in the efficient network of NAACP we have the only black new show, daily new show done out of Washington D.C, Capitol Hill were minority owned, diversity is always a big issue in this industry. So the only reason somebody could have for, not want to renew us is that, they feel that, you’re just standalone and – I don’t care about what’s your rating are, I can just live without your one channel and we are not feeling like anybody is targeting us to pick on, they see the value in the network and it’s got a real audience, that’s growing and so I think I have been saying it, I think we are going be okay and I got to tell you, two years ago as we are going into this I felt good about these things. But I didn’t have any real empirical data. Now after having significant and deep conversations with everybody I feel lot better about it, how about this Verizon, they just signed up, they are not merging with anybody, so they got – they got no reason other than they see the value of the network to continue to carry it. So I think in MGM timing, it suppose to open the middle of 2016 – July 2016 I think it slips a little bit, but I think it gets still done between July and the end of the year.

[Peter Thompson:]

Next question?

[Operator:]

And our next question will come from Chris Paciello with Penn Capital.

[Peter Thompson:]

Hi, Chris.

[Chris Paciello:]

Hi guys, how you doing?

[Peter Thompson:]

Good and you?

[Chris Paciello:]

Good, good, I know you guys have been very busy but you also on a television station in Indianapolis. And you are just at the NAB conference so, have you guys started the process of start to look into imagine it’s not a strategic asset for you. But if you start to look into the process of what you could do regarding the spectrum auction next year?

[Peter Thompson:]

Yes, we have it’s complicated issue you all know, we haven’t engaged a lawyer to help us, we haven’t figured out what the strategy, excuse me, is first to participate in it. But given the numbers that people has rolling around actually that low power television station we bought and we bought a group of Radio stations in Indianapolis. So we never – we never went out and buy just to buy it, right, that station was run with the radio station so we bought it off. Originally it was a music video channel, that we never made money on we’ve always lost money. A year ago and some change we switched to a Telemundo affiliate and it’s got full cable carriage so we are actually breaking even now. So we are breaking even now on it, and we hope to make some money on it. But the fact of matter is given the numbers that have been thrown around it could be extraordinarily attractive to us to sell the spectrum in the auction. And quite frankly, we already have the cable carriage. And the cable system is owned by Comcast – in Bright House and Comcast owns Telemundo. So I’m assuming there is still going to want to carry their network on cable that they are already carrying. So you could actually give up the spectrum and still stay in the Telemundo business in Indianapolis. So I don’t want to get too far out of from my skies because I’ve never been that lucky that somebody is going to come and give us some double-digit millions of numbers for this television asset, which by the way. We haven’t been able to sell for seven years, because we would have sold it for $2 million. We were asked when the downturn was – do you have any assets you can sell. We sell radio stations, that weren’t strategic, I don’t want make any money. We would have sold this for sure, we couldn’t find a buyer. So the answer is we’re going to figure out who is the best representative for us to help us figure out the way to participate in the auction. And I hope it is a robust and as big as the FCC saying it is and we would absolutely plan to participate.

[Chris Paciello:]

Great, that’s all I had.

[Peter Thompson:]

Thank you.

[Operator:]

And our next question will come from Lance Vitanza with CRT Capital.

[Peter Thompson:]

Hey, Lance.

[Lance Vitanza:]

Hey, regarding that TV station I guess sometimes is better to be lucky than good.

[Peter Thompson:]

You know what I just like I’ve been want to be lucky all my life. Yes, so…

[Lance Vitanza:]

I wanted to ask you about programatic buying. Then I joined the call late, but I think you mentioned something about that with Katz, and I know it was a theme on the iHeart call yesterday, and rightly or wrongly there is perception out there that says programatic buying equal race-to-the-bottom in terms of pricing.

[Peter Thompson:]

Yes.

[Lance Vitanza:]

I guess I mean what's your take on in, its not something that we’ve shown a lot of time talking I’d be curious to get your thoughts.

[Peter Thompson:]

I think in digital that’s certainly been the case. I saw Bressler’s comments about they want to creat unique value building opportunities around traffic patterns and weather patterns. And quite frankly, when Katz explained it to us the idea that an advertiser and ad agency that has a business that does well when the weather is bad, preloads an order months and events it says every times it rains or snows or whatever that this particular set of radio or audio ads trigger as in these markets around these parameters. I think its actually very interesting. I don’t know and not about I mean programatics never happened in – haven’t happened in radio. And I think television so I don’t know enough about how do you do it and not just have it be to race-to-the-bottom to the lowest CPM. But I’m optimistic that some smart people can figure out how to do it. But even if it is a race-to-the-bottom, the industry is going – certain part of the industry inventory is going to move there anyway. And right now, we do what we call internet business and its business that’s preemptible its low cost, you can take it if you want it, not, its low cost they pay on time and we all take a bit of that. And to the extent you could automate that process, that probably increases productivity and takes cost out the system and you can have your sellers focused on the more high value clients of that you are getting better rates and doing bigger campaigns for. So I tend to try to figure out what's actually going to happen or what's happening in the industries. And just go there and see how you can best play your hand in that evolving situation. And I think programatic is going to, it’s absolutely common, right. So we just got to figure out, how to play the best 10 out of it. And I think what the iHeart guys are saying is right, okay, figure out what are the value points as to what local radio brands. And why you shouldn’t just care about CPM if you all. By the way, radio already has a low cost compared to other ad mediums. So I think with that – I think that has something to do with it. Just an example of that we have internally that I think is to remain, so Dallas, Texas is a market that’s not doing great right now, its negative. Yes, negative 4.2% year-to-date in March. But our stations are up like 21% there, in our competitor stations are up our direct competitor and in a market that’s negative. And neither of our ratings have appreciated dramatically over the last four years. But because we’ve been beating each others head in for so long, we were both pulling out together collectively less than the African-American percentage of the marketplace. So we were price killing each other. So I think what’s actually happened is, we both reached the basement and now the buyers are figuring out, I mean, you can actually pay more for these guys still be way under, and it’s improving our business. So I say that to the point where, radio maybe already, so attractively priced, that even programmatic, doesn’t run it to such a untellable price level. It’s not like, this is an over price medium to begin with.

[Alfred Liggins:]

And I think the other side of that, coin is if we make radio easier to buy and easier to measure and figure out, on ROI which have traditional complaints, then you end up in fishing in a bigger pool and competing against for more digital dollars.

[Lance Vitanza:]

That’s a great point.

[Peter D. Thompson:]

And that is your traditional complaint, I was on the phone it was me just yesterday taking about a big client and they brought it up. The client wants to move more towards digital because it’s measurable and they got ROI. How do you we – we all know the power of radio, how do we make radio more measurable, more targeted, we’re actually measurable on ROI. We’re a bit ahead of – we’ve handled the one issue and that’s diary versus electronic medium. So I think with the electronic – with the PPM, it’s kind of hard for people to argue that, this isn’t the real, true audience of radio. So now how do we measure its effectiveness?

[Lance Vitanza:]

Okay, great. Thanks, I appreciate that.

[Peter D. Thompson:]

Thanks.

[Operator:]

And our next question comes from Tiffany Gouch with Sweet Entertainment. Please go ahead. And Tiffany your line is open. One more time Tiffany with Sweet Entertainment, your line is open. And we’ll move on to Davis. Davis, please go ahead.

[Davis Hebert:]

All right, thanks for taking the question.

[Alfred Liggins:]

Yes.

[Davis Hebert:]

So, one the things out of NAB we heard was that local direct [indiscernible], has been positive for some of your peers, in the first quarter and in the second quarter, while the agency business continue to be pretty difficult, just curious of seeing those kind of trends. And then for Peter, just wondering if you could talk about the glide path of lower leverage of 2015 and 2016, how you see that playing out? Thanks.

[Peter D. Thompson:]

Sure, so on the glide path the low leverage the free flow improvement that we talked about, comes from couple of things, obviously no dividend leakage going out which was kind of $25 million roughly last year. And then the growth in TV Ones’ EBITDA driven by the new affiliation agreements, and the fact that won’t have recurring launch amortizations. So Alfred mentioned a kind of mid-60’s EBITDA number and we’re going to participate in a pretty much 100% of that, 99.6% of that is [indiscernible] is a management equity pool. So you can see how that gone from $24 million to $56 million of cash flow and it was projected to go higher than that. We’ll pretty quickly start to ramp up cash. The other thing Alfred mentioned we hired PWC consulting to come in and help us on the cost side. And we have an internal run rate target. EBITDA, which I think will accelerate the deleveraging process. So in the very short term, i.e., within 12 months we want to be back on the seven times levered and then within two years, we want to be on the six times. I think where would we be comfortable, it would be nice to have five and or even less and the management projections we have over the next five years get us to that positions. So really we have to just execute on the strategy and the assets we have and I think you’ll see over the next two to three years the leverage profile should change dramatically. In terms of the national, local obviously if there is market by market, I'm just turning to my page here, it’s really – it’s really mix, so if I'm looking at my local business for Q1, I would say the majority of the markets were down somewhat, but so DC was down 15%, Houston was down 5.9% local, Atlanta down 14%, Baltimore down 16%, but then markets like Charlotte was plus 21%, Cincinnati was plus 8%, Dallas was plus 9.8% and Alfred referenced that, and then it go St. Louis plus 26%, so we got some markets that performed really well for us locally. And then we got some challenges and some headwinds in others and it’s kind of similar when I look at the national business, so Atlanta Q1 national was plus 3%, Charlotte plus 3%, Phile plus 10%, Richmond 30% - plus 35%, St. Louis plus 30%. So there is some good gross stories, but you know as we talked about we got challenges in DC, we are considering that’s a turn around situation. And our national business in was down 36% for the quarter, which really hurt us. Which also speaks the fact that I think if you isolate DC and you look at - take on markets as about against the minus 4.5%, we actually outperformed that, if you look at every market apart from DC, we would have been outperformed in Q1 and then that national number in DC really hurt us in Q1.

[Davis Hebert:]

Thank you, very much.

[Operator:]

And we’ll go back to line of [indiscernible]. Please, go ahead.

[Unidentified Analyst:]

Hello, can you hear me?

[Operator:]

We can.

[Alfred Liggins:]

Yes, we can.

[Unidentified Analyst:]

Okay, awesome. Thank you. I’ve noticed a great amount of growth in your business. I actually started as a user of BlackPlanet and a listener to the radio stations in my hometown, Hartford, Connecticut. And I was just wondering if you are looking into markets by markets like Boston, and LA for example, and Oakland or San Francisco as a possibility for growth in the radio arena.

[Alfred Liggins:]

Yes. We were in LA. We were in Boston. And we sold out a both of those markets.

[Unidentified Analyst:]

Okay.

[Alfred Liggins:]

Yes, primarily the African-American populations as a percentage are fairly small. LA is like 7%, it maybe 6% in some change now. Boston was less than that. So the value of our – but their big markets are top 10 markets, right. So the value of a radio station there kind of far out strips, how much money we can make with its serving African-Americans.

[Unidentified Analyst:]

Okay.

[Alfred Liggins:]

Yes, and so those were two other markets that we sold to reduce debt, because of the stations we’re work more dead than alive to us.

[Unidentified Analyst:]

Right.

[Alfred Liggins:]

And so the likelihood that we would be returning to those markets to operate as well.

[Unidentified Analyst:]

Okay, awesome. I see what you are doing on the number also in the NAACP Image awards and I’m just really excited about the gross prospects small – small growth at a time that’s just really what I’m interested in being a part of it.

[Alfred Liggins:]

All Right. Thank you very much. We appreciate your support of all of our products including the BlackPlanet, listening to our radio stations.

[Unidentified Analyst:]

Thanks.

[Alfred Liggins:]

Okay.

[Operator:]

[Operator Instructions] And currently we have no questions in queue.

[Alfred Liggins:]

All right, thank you, operator. Thank you, everybody. And I say this at the end of every call. Peter and I are always available post conference call to ask any questions that you might have. We’ve actually had some investors talk about coming to visit. And you are welcome to corporate anytime. All right, thank you very much. Talk to you next quarter.

[Operator:]

And that does conclude the conference for today. Thanks for your participation and for using AT&T Executive Teleconference. You may now disconnect.