Urban One, Inc.
Q3 2013 Earnings Call Transcript

Published: 10 Nov 2013

[Operator:]

Ladies and gentlemen, thank you for standing by and welcome to the Radio One Third Quarter Conference Call. I have been asked to begin the call with the following Safe Harbor statement. During this call, Radio One may share with you certain projections or 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 and the 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 November 7, 2013. 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. A replay of the conference call will be available from 12pm Eastern Time today until midnight November 10th 2013. Callers may access the replay by calling 800-475-6701 international callers may dial direct 320-365-3844, the replay access code is 305381, access to live audio and the 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 will now turn the call over to Alfred C. Liggins, Chief Executive Officer of Radio One, who is joined by Peter D. Thompson, Company’s Chief Financial Officer. Mr. Liggins please go ahead.

[Alfred Liggins:]

Thank you very much operator, welcome everybody to our third quarter results conference call and as you can see from the press release we are pleased with the quarter that we posted, we’ve had strong performances from each of the divisions, really proud of the management team at Radio, at GV One, at Interactive One, at Reach Media. We've been able to grow in each of those segments, we've also reduced our leverage significantly continued to reduce our leverage all year long on. I think the last conference call, we talked about a target getting below 7 times, by year end that we thought that we could achieve that, and that's where we sit now into Q3, our Q4 pacings for Radio, which include Reach Media, we think are pacing and looking to come in about flat and that would be a significant achievement going against huge political comps, last year we did about $9 million in political which was $3 million more than our high watermark before which was 6 million which was in 2008 and that was the Barack Obama - Hillary showdown, so we’re not just going against political comps, we're against abnormally high political comps and for us to be pacing at the rate that we are now against those is a pretty good prospect and again we're proud of the management team. I'm going to turn it over to Peter, who's going to go into more detail and then we'll open it up for Q&A.

[Peter Thompson:]

Thanks Alfred, net revenue is approximately a $118.4 million for the quarter ended September 30, 2013, an increase of 7.7%, the radio division including Reach Media, produced net revenues of $76.2 million, an increase of 3.4% year-to-year. We recognized approximately $37.8 million of net revenue in the cable television segment in the third quarter, an increase of 13.7% over Q3 2012. Affiliate revenue was up 8.5% against the prior year, advertising revenue TV One was up 20% versus prior year, the Internet division had net revenues of $6.1 million which was up 37.6% year-to-year driven primarily by a customer agreement with GlobalGrind. All revenue categories to the internet division posted growth for the quarter. Our radio growth was driven by solid performances in our largest clusters, Houston, Atlanta, Washington and Baltimore. Also Charlotte, St. Louis, Columbus and Dallas clusters posted revenue growth year-over-year. While Cleveland, Richmond, Philadelphia, Indianapolis, Detroit, Raleigh and Cincinnati clusters posted net revenue declines over last year. Local revenue was down 2.4% for the quarter and national was up 12.9%. Top five advertising categories, were retail, which is 14% of the total and was up 8% year-to-year. Telecoms at 13% of the total, that's up 20% year-over-year, financial at 11% and the total was up 9% year-to-year. Food and beverage at 11% of the total was down 24% year-to-year and entertainment at 11% of the total was down 11% year-to-year. Also with our sixth largest category representing approximately 10% of the radio revenue and was up at 1% year-to-year. Cable subscribers, as measured by Nielsen, finished the quarter at 58.4 million compared to 57.2 million at the end of September last year. TV One currently has 50.7 million billable subscribers. Operating expenses excluding depreciation and amortization, impairments and stock-based compensation increased to approximately $83.3 million in Q3. The increase is primarily the result of an increase in program and technical expenses relating to the higher content amortization as TV One continues to expand its content in programming. On a cash basis, we spent $12.8 million on content assets at TV One during the quarter of which $8.8 million was on original program. As for the third quarter consolidated station operating income was approximately $44.8 million up 9.7% from last year. Adjusted consolidated EBITDA was $35.1 million, an increase of approximately 12.5% year-over-year. Interest expense was approximately $22.3 million for the third quarter. The Company made cash interest payments of approximately $20.9 million in the quarter. In the third quarter there were $3.7 million non-cash impairment charges recorded to reduce the carrying value of Boston and Cleveland Radio broadcasting licenses. Net loss was approximately $13.2 million or $0.28 per share compared to net income of approximately $13.1 million or $0.26 per share for the same period in 2012. The third quarter capital expenditures were approximately $1.3 million compared to $2.8 million in the third quarter 2012. Cash taxes paid were approximately $221,000. The company received dividends from TV One in the amount of $6.2 million in Q3. As of September 30, 2013 Radio One have total debt net of cash balances of approximately $767.9 million. For bank covenant purposes, total net debt was approximately $673.3 million and our LTM bank EBITDA was approximately $97.5 million, giving a total leverage ratio of approximately 6.91 times and a senior leverage ratio of approximately 3.55 times. Company’s cash and cash equivalents by segment are as follows. Radio One Internet approximately $24.8 million, Reach Media approximately $4.8 million, Cable Television approximately $18.7 million. In addition to cash and cash equivalents, Cable Television segment also has short-term investments of approximately $3.2 million and long-term investments of approximately $72,000. During the third quarter, the Company repurchased 1,100 shares of Class A common stock in the amount of $2,655 and 512,300 shares of Class B common stock in the amount of $1,209,108. And with that, I’ll hand it back to Alfred.

[Alfred Liggins:]

Thank you very much. A few highlights. I One, our online division which actually has a decent sized revenue business for us probably, call it $25 million, will actually as we have said before, our goal was to get it to breakeven and then figure out where to go from there, where the promised land is where we could make the most money and it looks like 2013 is going to be that year and they’ll breakeven and they may even make a lot of money. So that’s the big deal for us and got strong revenue growth, strong traffic growth and enter new revenue streams in particular our studios business where we were actually going out acting, facilitating, as the technology background and or the sales force for a number of other publishers. TV One, great rating story, strong cash flow growth for this year. Third quarter was the highest rated quarter in TV One history field. A number of new original programming premiers, so we are very proud about that and as we go into 2014, we are even ending up our original programming strategy even more. We recently announced two big things and we think bode well for the network. One we launched the first daily African-American focus news in information show News One now, in the mornings. So the first morning show up and start focus for African-Americans on news. And that’s launched November 4th. And it is essentially a three hour radio show that has an hour of it also simulcast on TV One at 9 am. We think that it fills a void that is not currently being status but we also think it makes the network more than just an entertainment network and more of a utility for the African-American community, and things like that bode well for reasons for cable operators to think that you matter to your target audience, something else that would help TV One continue to matter to its target audiences. It’s also part of our News One now which is our new show. Strategy as we formed, a multi-year media partnership with the NAACP starting in 2014 where the centerpiece of it is that we will be the official home of the NAACP Image Awards, next year 2014 will be the 45th annual Image Awards is the first time that this prestigious show has been on a cable network and it is historically been on broadcast, television. Last year it did about 3 million viewers on NBC; this is on NBC for the last couple of years, before that it was on Fox. We’re very excited about that partnership; TV One is the official network of the NAACP. We think it as a significant statement as we into 2014. Reach Media, big turnaround Reach Media lost a lot of money in 2012 and then this year it will make more than a little money. Many of the analysts out there I think kind of underestimated what Reach Media was going ultimately do and it continues to track well. And our radio division is having another good year and a flat advertising environment. Even though I think the trends continued to improve, radio is a traditional medium and in the traditional are flat to moderate growers and we continue to grab share and find ways to grow our EBITDA. And we have been starting to be much more successful in our cross platform initiatives where we're combining all of our platforms and into what we call one solution which we go to market is reaching 82% of African Americans and we have been able to score some significant wins. Most notably is our partnership with Wal-Mart, a multi-year partnership. We're one of three media partnerships they have us Univision and Facebook. So we think that's good company to keep. So with that operator I would like to turn it over the callers for questions.

[Operator:]

(Operator Instructions). And first we'll go to Lance Vitanza with the CRT Capital Group. Please go ahead.

[Lance Vitanza:]

I just have two, the first on TV One. If I'm reading the release right, looks like $41 million of EBITDA for the nine months ended September 2013. That suggests that you will be at around -- you will be in the mid-50s I suppose for the full year. Is that the right way to be thinking about that?

[Alfred Liggins:]

Mid 50s now, we'll be close to 5 there will be approximately -- depending on a few things but it will be high 40s, $50 million. We have been clocking it in or cashing it at 50 right now. Some of that also depend on where we -- there is one issue that hasn't been completely settled yet and that's the size of our management with Comcast. So that could swing it one way or another, but it won't swing it by much.

[Lance Vitanza:]

Okay. And then could you talk a little bit about the planned casino investment and how that fits into the overall picture?

[Alfred Liggins:]

Say that one more time?

[Lance Vitanza:]

The casino investment and how that fits into the overall picture?

[Alfred Liggins:]

So that got announced and essentially one there is no deal yet, because MGM doesn't have a license. But the state of Maryland basically decided to issue gaming licenses and they issued five casino licenses and there wasn't any real significant minority participation in any of those license in the state of American also happens to be almost a third African American. And then there is a huge referendum last year for -- and for six casinos license in Prince George's County which happens to be 70% African American and it’s in our backyard, we were based in PG County for 15 years, it’s where the vast majority of audience in the Washington area is and so we view that, we'd like to say we're in black people business and sort of almost anything happening in Prince George's County qualifies is being into black people business. And so when this team up, we knew that there would be conversations a need for some sort of local minority participation and so we reached out to the MGM guys and they're a great company. The CEO, Jim Murren and President, Bill Hornbuckle are great managers, they run an incredible organization, they also run an organizations that happens to be really hyper focused on diversity. And so they were very open to conversations. They have also been a client of ours in Detroit, Michigan where they also own a casino already which is the number one casino in that market and so they were looking to bump folks to potentially be in business with that, bring a diverse -- a local perspective also what we also bring to the table is the ability to help market. And so we structured the deal that we think is low risk and potentially high return for our shareholders and I think it board well for our debt holders. At the end of the day if they get the casino license, if we get the casino license which we’ll know at the end of this year we have the right today, it’s not an obligation but we have the right to invest up to $40 million and it would be staged with a $5 million investment in Q1 of next year and then the other $35 million is due sometime before the casino one and the casino won’t open by legislative degree until no earlier than July 2016. So you’re talking 2.5 years before we would have to make that remainder of the investment and we don’t have an obligation to make the remainder of the other 35 million of our investment but we have the right. We think that we made a pretty good deal for the company from the aspect is that once our investment is complete we will share in a percentage of the gaming revenues so there will be an immediate cash return component to this investment in addition to an equity stake that we think calculates out to a pretty reasonable chance of us getting a significant double digit return higher than what we could invest in anything else right now in the media business. We don’t have any obligations on any of the debt. We’ve got a right to put our interest to MGM and these casino efforts are very much about what are you going to do for the community how much revenue you’re going to bring to the state what kind of minority participation are you going to have in building or are they going to being local minority partners They were an organization that we feel really comfortable being in business with given their history their profile they’re looking to build a $925 million fabulous resort as they do in a great location, National Harbor. And if you without speaking out a scope you want to get any sort of idea of how lucrative these particular projects can be all you got to do is pull some of their filings as we did and look at what their casino and Detroit, Michigan does which if not Washington D.C. by a long shot and these resorts are often times immensely profitable. So that’s we think it’s low risk high return it’s a right not an obligation. So we didn’t bet the farm we can change our minds not that we likely would because we think that we’ve been afforded the great opportunity by the nature of our platform. And also there is a marketing agreement that is associated with it. They have agreed to spend make a significant investment in marketing across our radio and our digital properties to promote their property.

[Lance Vitanza:]

Last follow-up on that, so the $40 million, to the extent you do choose to make that investment that would go in as equity capital I presume, into the venture?

[Alfred Liggins:]

Right.

[Lance Vitanza:]

And the $925 million I think you said $925 million project, can you tell us of that amount, how much the total equity funding component is? Presumably there will be a significant that component as well that is included in that $925 million.

[Alfred Liggins:]

Yes, but the way the deal is structured my understanding is that they’re just going to fund it off of their balance sheet which is because they believe in the project that much so it won’t be project finance. But our deal with them is agnostic to how they finance it and their balance sheet. Essentially we have a put right that’s based on a multiple of EBITDA times the EBITDA and that’s what we get doesn’t matter what their balance sheet looks like.

[Lance Vitanza:]

And given that you have the revenue participation, maybe this doesn't work anyway, but what I was trying to get at was you are putting in $40 million to figure out what kind of equity stake you might have, is its $40 million over $925 million or is it $40 million over some smaller number that represents the equity?

[Alfred Liggins:]

It’s less than 10% equity stake but it’s more than four so…

[Lance Vitanza:]

Okay, so it's meaningful. And you have the revenue in addition to that. Can you tell us anything about that -- is it a couple of percent on the revenue line?

[Alfred Liggins:]

We think it’s a great deal we think that we’re going to get a significant return on it when I say significant return a return for us we kind of look at this as we’re not a control shareholder, we’re not even a significant when I say significant sound like we’re a 40% we’re not -- we're partner but we’re not like an operating partner. We’re more of a strategic partner so we kind of view this as more like a private equity investment and that’s how we kind of determine what we thought we needed to participate and it’s kind of return that this thing is designed to get us.

[Lance Vitanza:]

Did you say you could actually fund these $5 million and then choose not to fund the $35 million? Or are you locked in once you do the $5 million?

[Alfred Liggins:]

We can’t fund the 5 and not fund the rest.

[Peter Thompson:]

And we’ll provide some information, obviously key gating item is will MGM be successful in the bid and they if they -- when we profit with them and we’ll put some more -- you're asking about revenue percentage, it’s premature to get into that but we will put all out there at the appropriate time. So you can take a look at the numbers.

[Alfred Liggins:]

I think shareholder and bond holders will be really happy with the overall deal that we made like I said its low risk, high return, high likelihood of success should they be fortunate enough, we’ll be fortunate enough to win the license, we are not on the hood for any of their debt. Our exit is agnostic to how they finance in the balance sheet they comes with the market proponent. First and foremost we’re marketing company the Africa and America.

[Operator:]

And we have question from line of Davis Hebert with Wells Fargo. Please go ahead.

[Davis Hebert:]

Just along those same lines, would these investments count against your restricted payment capacity or ability to do RP?

[Alfred Liggins:]

Yes. Right now we don’t have -- we have the capacity in our term loan, we don’t have anymore RP capacity in our indenture but somebody is going to ask the question on this call what do you doing to think about refinancing we set on the last call that we were focused on getting our leverage down below seven times and then we were going to start to explore the markets and what are refinancing opportunities look like and now that we look through the quarter we’re going to start to do that so we don’t anticipate actually having the current indenture that we’re leaving with in place for the time we going to make this investment.

[Davis Hebert:]

That was actually my next question, so thank you for that. And then on the pacings, you said flat including Reach. I wonder if you could dig down little bit and just -- what does the station business look like away from the network?

[Alfred Liggins:]

We think the station business are probably end up anywhere down call it 2. We’re hoping our pacing’s improved with the low order marked now but if I had sort of $10,000 let say we’ll be down too and maybe you could be a little better and then we should up and then all net to about flat. And that was after like I said earlier, a huge amount of political share.

[Davis Hebert:]

Right, of course, okay. And then on TV One, how much of the revenue growth is coming from advertising and how much from the subscriber side?

[Alfred Liggins:]

The advertising revenues were up 20% for the quarter and affiliate fees were up 8.5%.

[Davis Hebert:]

Okay. And as you look at potentially buying out Comcast, how do you balance thinking about that transaction versus refinancing the 10% secured notes? And if you do pursue something of that nature would you anticipate TV One being part of the radio global credit group or restricted group?

[Alfred Liggins:]

I think, how we’re thinking about it right this minute, David, is just that whatever we do in terms of a new intension which we just talked about is we would like to plum in some flexibility to deal with the Comcast jump all which shows at the end of 2014. I don’t think we’ve fully 100% committed to whether we should have separate capital stats for TV One and the radio division or whether we should have one capital stat I think we’re leaving towards one capital stat but we’d like some flexibility plumed in to deal with it. That’s about as far as we’ve gone in thinking about it because it’s obviously an uncertain event, we don’t know whether we will actually access, whether the jump we’ll have or not Comcast is being good partner and we’ll have a dialogue with them and then we’ll have outcome.

[Davis Hebert:]

Is that a buy sell agreement where one party, both parties have options in this case.

[Alfred Liggins:]

It’s like a sealed bid so if we agree the process is going to actually happen and we’ve deferred this process full then you put in a sealed bid that says you want to buy or you want to sell and then depended on the metrics who wants to buy and who wants sell. One party buys and one party sells for network is essentially, can we put to for auction if both parties want to sell. So, there are number of permutations depending on who wants to sell.

[Operator:]

(Operator Instructions) At this point no additional questions coming in.

[Alfred Liggins:]

Thank you operator and thank you everyone. And as always we’re available offline for further conversations.

[Operator:]

Ladies and gentlemen, that does conclude your conference for today. Thank you for your participation. You may now disconnect.