Urban One, Inc.
Q4 2013 Earnings Call Transcript

Published: 21 Feb 2014

[Operator:]

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. The Company cautions you that certain factors including risks and uncertainties referred to in the 10-K, 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 February 20, 2014. 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. Its measures will be reconciled to GAAP either during the course of this call or in the Company’s press release which can be found at its website at www.radio-one.com. An audio replay of the conference will also be available on Radio One’s corporate website at www.radio-one.com under the investor relations section of the webpage. A 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 very much operator and welcome everybody to our fourth quarter conference call also our yearend results. You’ve gotten the press release, so you know that we feel good about our Q4 core radio business performance, ex-political we were plus 5%. We also recently completed a refi of our 12.5% notes, and took those out and replaced them with 9 quarter notes, saving us a substantial amount of interest going forward. We’re very happy with where we ended up the year with Interactive One, making a positive EBITDA performance for 2013 of approximately $300,000, TV One finished in line with guidance at roughly $49 million, and we’re off to a pretty good start in Q1 with TV One with ratings up about 7% quarter-over-quarter. And Peter is going to go into the details next and then we’ll open it up for Q&A.

[Peter Thompson:]

Thanks Alfred. Net revenue was approximately $111.6 million for the quarter ended December 31, 2013 an increase of 5.4% year-to-year, excluding the political consolidated net revenue was up 10.6% year-to-year. The Radio division includes Reach Media produced net revenues of approximately $67 million, a decrease of 2.2% year-to-year due to top political comparisons. Excluding political Radio division net revenue included in Reach Media was up 5%. We recognized approximately $38 million net revenue from the cable television segment in the fourth quarter, an increase of 13.5% over Q4 2012. Affiliate revenue was up 10.1% versus prior year, and advertising revenue was up 12.9% versus prior year, the internet division had net revenues of $8 million which was up 54.6% year-to-year due to growth in advertising and studio services. Our Radio growth was driven by solid performances in Houston, Atlanta, Baltimore and Dallas, our Charlotte Trust has also posted revenue growth year-over-year. Local revenue is down 5.2% and national was down 2.6% due to the record political revenues that we received in 2012 and that we were competing against. Cable subscribers as measured by Neilson finished the quarter at 57.3 million, compared to 57.3 million at the end of December last year, so flat. And TV One currently has 50.8 million billable subscribers. Operating expenses excluding depreciation, amortization, impairments and stock based compensation increased to approximately $84.9 million in Q4. TV One incurred higher selling and general and administrative expenses was partly related to 1.2 million increase to the inter-company management fee payable to Radio One and also higher marketing and promotional expenses to advertise and promote a new TV One show. And this was partly offset by a decrease in programming and technical expenses primarily related to lower content amortization incurred by TV One for Q4 versus the prior year. The fourth quarter consolidated station operating income was approximately $39.1 million, up 9.9% from last year. Adjusted consolidated EBITDA was $26.7 million, an increase of approximately 10.1% year-to-year. Interest expense was approximately $22.4 million for the fourth quarter. The company made cash interest payments of approximately $21.0 million in the quarter. Net loss was approximately $16.4 million or $0.35 per share compared to a net loss of approximately $17.2 million or $0.34 per share for the same period in 2012. For the fourth quarter capital expenditures were approximately $2 million compared to $2.9 million in fourth quarter 2012. Q4 cash taxes paid were approximately $53,000. The Company received dividends from TV One in the amount of $4.1 million in the fourth quarter. As of December 31, 2013 Radio One had total debt net of cash balances of approximately $759 million. For bank covenant purposes, our total net debt was approximately $668.5 million and our LTM bank EBITDA was approximately $102.2 million, giving a total leverage ratio of approximately 6.54 times and a senior leverage ratio of approximately 3.34 times. Company’s cash and cash equivalents by segment are as follows. Radio and internet approximately $27.6 million, Reach Media approximately $5.9 million, Cable Television approximately $23.2 million. In addition to cash and cash equivalents, the Cable Television segment also has short-term investments of approximately $2.3 million and long-term investments of approximately $107,000. Core radio pacings for Q1 are approximately 3% and this despite the recent series of winter storms that closed many businesses across the Midwest, the South and the East Coast and adversely impacted revenue. And as Alfred mentioned during the first quarter we successfully refinanced 12.5% notes with $335 million in new senior subordinated notes with coupon of 9.25%. The new notes have a six year maturity and will save the company approximately $10.6 million per year in cash interest expense. And with that, I’ll hand it back to Alfred.

[Alfred Liggins:]

Thank you very much. And so now a lot of people have asked us what’s next and we're essentially hyper focused on executing continuing to bring down our leverage and we are in the middle of a renewal cycle on TV One, so we’ve got a number of contracts that come up for renegotiation and renewal in 2014 most notably Comcast, Time Warner, Charter and Cox as you’ve probably read in the press it’s a big M&A transaction going on between Time Warner and Comcast right now. So we’ll be negotiating right in the middle of that particular transaction. So once we know where we come out on our renewals then we’ll focus on whether or not it make sense if it’s prudent for us to buyout the other half of TV One. And so that’s the focus at this point in time, operations first, renewals and then a buyout decision. So we’re really happy about the progress we continue to make in bringing down our leverage. We feel good about our ability to grow our radio cash flow. Again, in 2014, and TV One is off to a great start and actually this weekend on TV One is a momentous occasion because we’ll be airing the 45th Annual NAACP Image Awards live from Pasadena, California, so the first time it does [indiscernible] awards have been on cable television they've historically been on broadcast. We expect to bring a whole new slate of viewers to TV One and we’ll also promote a number of our new shows coming up in Q2 out of the Image Awards and have good advertiser response to it as well. So with that operator I want to open it up for Q&A.

[Operator:]

[Operator Instructions]. At this timing our first question will come from the line of Lance Vitanza from CRT Capital Group. Please go ahead.

[Lance Vitanza:]

Thanks for taking the questions. Two really come to mind the first on TV One, revenue nice performance of 13%, EBITDA only up slightly. I heard the comment regarding the increased promotional sub in the release. But is there any more detail you can provide there in terms of the magnitude of that spend and the extent to which you expect it will be recurring just based on the slate of content that remains in development?

[Peter Thompson:]

Sure. Let me take that, so there were a few things in there, in the SG&A line in TV One, you will see it’s up approximately $6 million year-over-year about $4 million of that relates to marketing and promotion. And we’re promoting about approximately 30 hours of new premiers in the quarter which was One Christmas, Unsung, Fatal Attraction and Life After. So that was responsible for about 4 million of that uptick. And that was pretty heavy spent. We have not been spending that amount quarterly. So I think that was an unusually heavy quarter, is how I would characterize that. The other things that were in there, there was a true-up of the Radio One management fee. It was about 1.2 million. So for many years now TV One has been paying a management fee of $0.5 million to Radio One for management and we discussed and we negotiated that with Comcast. That’s now been taken up to 1.7 million. So I think it reflects, amongst other things the fact that Alfred is running the network on a day-to-day basis. So it’s 1.2 million adjustment there in the fourth quarter and then there was some additional because they had such a good year, the bonus pool and sales comp pools was roughly $1 million higher year-over-year. So it’s a combination of those three things, Lance that pushed it up in the quarter.

[Lance Vitanza:]

Perfect. Okay. And then my other question would just be, is there any update on the MGM partnership from last time we spoke?

[Alfred Liggins:]

Yes I mean, I guess, we’re getting -- yes, we're down to the short strokes again at paper, I mean. We’re really close, right. Now that we have our some debt refinanced. We've got the restricted payments capacity to actually make the initial $5 million investment. I think they’re negotiating with the county on permits and stuffs like that. And last conversation I had, they’re looking to break ground sometime later this year. I think there is a good deal of excitement around what the project is going to mean to the local economy. And as I've reiterated before, we think that we made a special deal given that we’ve got a unique and a unique audience, and we’re based in Maryland, and I think it’s going to be really good for all stakeholders, not just our equity holders but one of the things I mentioned while we’re on the road doing the bond deal is that I think it’s good for bondholders. The project has a high degree of likelihood of being successful. And quite frankly, even if it’s half as successful as MGM thinks it is still going to be a good deal for us. And that’s going to be good for bondholders because that means that there is value inside the company that increases their collateral position.

[Lance Vitanza:]

Change in the thinking as to when the project will open up?

[Alfred Liggins:]

No, legislation says that it can’t open up before July 2016. So I’m sure if I’m MGM, I’d like to open it up at 12

[Lance Vitanza:]

Okay. My last question, just on the core radio business, we’ve heard about the weather impact from a host of broadcasters, radio and TV alike. I’m wondering if you think you could take an estimate as to how much of an impact that’s been. Your core revenue pacing, I think you said it was up 3%. Is it possible to say it would’ve been up 4% were it not for the weather? Or up 5% or --?

[Alfred Liggins:]

Yes, I mean it’s that we haven't tried to drill down and quantify that, that’s difficult. You’ve got multiple things that happen not only where we close as a company in a number of markets but then your advertisers are closed and so you just, I don’t know.

[Peter Thompson:]

I mean the only think I can say is I think we put out an 8-K when we were doing the high yield offer and then at that point we were pacing plus 7. So obviously we’ve seen 4 points of slippage and that coincided with the period of time, during which all of this adverse weather has hit and our offices are being closed. Now, I am not saying that all of that is due to weather, we just don’t know. But it's been a pre-weather. Its plus 7 now, it’s plus 3 that is as good as danger as we have.

[Alfred Liggins:]

Yes, but we haven’t drilled down on it to figure out exactly what we thought would have been just pacings fluctuate week to week in any event. But actually our plus 3 is probably not that far off from where we were forecasting. It’s off where we were forecasting internally but it’s not drastically far off. Plus 7 was above where we were forecasting, is a real pacing number right out of the system. So we were kind of forecasting plus 4.5, plus 4.2 and we’re now pacing plus 3.

[Operator:]

And our next question will come from the line of David Hebert from Wells Fargo Securities. Please go ahead.

[Davis Hebert:]

Wanted to first ask around the refi, can you provide an estimate of your cash interest expense for 2014 based on the new capital structure?

[Alfred Liggins:]

Sure, so I think with roughly 10.6 million of savings we’re looking at a total consolidated cash interest expense of about $72.6 million, obviously about 11.9 of that is a TV One piece on the 119 million at 10% and then 60.7 million is the calculation for Radio firstly in new notes, so yes, about 10.6 million down year-over-year.

[Davis Hebert:]

And then have you started conversations about refinancing the bank debt now that you’ve addressed the bonds?

[Alfred Liggins:]

No, we’re going to wait and see what happens with Comcast and whether or not we’re going to buy out the other half of TV One if we decide to remain partners collectively than we’ll refi out the bank, get a cheaper rate. But if we’re going to buy the other half we’re going to factor that into a global firstly refi of our term loan and the TV One term loan.

[Davis Hebert:]

The timing of that would be yearend, correct?

[Alfred Liggins:]

I mean I would say yes in general but if we agree a deal with Comcast before that we probably would want to wait to September when they call premium on the term loan goes down from 8 million to 4 million. But that’s -- that will be here before you know it, right?

[Davis Hebert:]

Right. So does that imply that you would look at incremental bank debts to finance a potential buyout of TV One as well as potentially equity proceeds or is it a little too early to tell?

[Alfred Liggins:]

We will utilize incremental bank debts, we’ve got room under the covenants [scoop] to 4.5 times, if there is a hole beyond what we can fit to our covenants, then we’re absolutely willing to look at equity.

[Davis Hebert:]

Okay. That’s helpful. And then as you think about these renewals this year, I mean do you have any thoughts around TV One cash flow? Or is it just too many moving parts at this point?

[Alfred Liggins:]

Well the renewals don’t affect this year’s TV One cash flow; we expect EBITDA to grow close to 10% again this year. So from 49 take-off, 53.5, 54 and by the way that is on the heels of increased programming spend going into renewals, we want to make sure that we are telling a good story about our percentage of original programming of new things we come, cable operators aren’t big fans of paying license fees for re-runs that are everywhere and I get that and also original programming really kind of drives your brand and drives your growth. So we decided to invest additionally into programming. And we thought that 10 plus percentage EBITDA increase was reasonable to give back to the marketplace as well. But that’s not necessarily what we think the historic growth rate will be going forward. We think that there is the ability to continue to grow the cash flow at stronger rates as we have done in the past.

[Davis Hebert:]

And you mentioned original programming; do you have any statistics around how many hours you had at last year and how many you are planning this year?

[Alfred Liggins:]

Yes, we’ve got those exact numbers, we can give them to you offline, its top of my head it’s in the 130 hour range, but don’t quote me on that, I’ll get you an exact number from the CFO. But it’s roughly about 40% of our programming in 2014. I think its high 30s, 38%, 39%, 40% is original, which is a pretty strong statement.

[Davis Hebert:]

And then last question from me, just curious how you might be thinking about Reach Media and Internet this year? I mean they both took very nice leaps in 2013, I mean should we expect a continued progress on both those segments?

[Alfred Liggins:]

Absolutely, Reach is off to a great start in January and February, in fact it’s going to beat their budget; March is too early to tell. We expect Reach Media’s cash flow to double over the next 18 months. And the Internet is funny, I don’t like promising -- what I historically used to like to say is that we’re going to make at least $1, well we made $300,000 last year, the team there has got a budget and a game plan to make substantially more than that in 2014. And we’re hopeful that they’re going to get there. We’re probably not ready to go out on a limb and give a forecast for it yet, because when I say that Internet is funny, it’s so last minute that you can have wild swings in forecasting. But yes, they believe that they’re going to make some real money this year.

[Peter Thompson:]

And Davis just on to add a bit of color around Alfred’s comments, Reach will we believe strongly increase its cash flow but a lot of that is going to come in 2015, we pre-negotiated extended some employment agreements which is going to give us a substantial saving in 2015. So I wouldn’t look for a huge growth in Reach Media in 2014 I think it will be more modest and then we’ll accelerate in 2015. But we are expecting good solid EBTIDA growth from Reach in 2014 accelerating into 2015.

[Alfred Liggins:]

[Multiple Speakers] 18 month timeframe.

[Operator:]

And our next question will come from the line of Aaron Watts from Deutsche Bank. Please go ahead.

[Aaron Watts:]

Hey guys, just a couple of big picture questions from me. Alfred first [indiscernible] Cumulus are really pushing this country platform Nash with the national branding talk about radio maybe moving into TV, publishing all with this branding. Have you given any thought to that? I mean you already have kind of the cable network in place and you obviously have a strong brand with your radio stations. Any kind of thoughts on what they’re doing and how that could translate to you?

[Alfred Liggins:]

I think we already are doing what they want to do. They’ve got a country brand called Nash, we’ve got an urban brand called One, we own a cable network that does $50 million of EBITDA, we have a big online business, it’s just starting to make a little money but it’s a $28 million business. And I think that will expand off of it. I find it really interesting to see Clear Channel rebrand as a media and entertainment company and then Cumulus has got their strategy while this has been our strategy for the last 10 years and I think it’s paying off and I think that the good thing for us also we happen to be a multicultural target wheel house that is growing substantially faster than the rest of the population. So I think there is going to be many opportunities for us. So I like to tell people that we have a lot of places that we can make money. In addition to the thing I’m most excited and most bullish about these days is our ability to continue to grow our radio business. And what I view is going to be a flat industry. Although I do think that the industry will have some upside this year because of political, the other thing about our radio platform is that we’ve got like really great exposure for political advertising. We are all over Ohio, Cleveland, Columbus, Cincinnati where we’re strong in two big North Carolina markets Riley, Charlotte. So, swing states Pennsylvania is usually half a contestant. So I think we’re in really, really, really good space. I mean we’ve reduced our leverage over the last two years couple of terms. That says a lot.

[Aaron Watts:]

Okay, that’s helpful. And then I guess secondly curious your thoughts on digital radio, obviously a couple of your peers are pushing pretty hard their digital product. And wonder what you think about that and how that impacts kind of traditional terrestrial radio listenership and what it can mean for advertising as well?

[Alfred Liggins:]

Yes. I think in digital like -- I think of digital similarly like I thought about satellite. It’s more competition, more mine share and its new services like Pandora and Spotify and I guess Apple’s got a streaming service and [indiscernible], it’s got a streaming service. This is just more competition for the audio audience and it contributes to why our view is if you think of radio as a flat business and run your company that way, you don’t give upon necessarily growing your EBITDA, but you just run your company knowing that the industry is going to be crowded, then I think you got a -- we have a pretty good shot of being successful. I do believe that there isn’t any reason why the radio guys, traditional radio guys shouldn’t be able to participate in that renaissance -- of the digital renaissance if you will. We’ve got most of the revenue now. We’ve got most of the talent on air talent, all of us have access to the same music that the record companies produce. It’s not like Pandora actually makes the music, they did it from the same places that we do. So if the differential is that they got a 100 engineers that are creating a unique user experience, it would seem to me that that’s something that the radio guys can tap into, either you hire your own engineers like Clear Channel is doing or you partner with somebody who has got a whole cadre of engineers, like we did. We have a streaming site called BlackPlanet Radio, and we use a platform called Songza, which has been touted as a very good application. I think it's backed by one of the big tech companies like Amazon or somebody; don’t quote me on Amazon, but it’s somebody of that magnitude, but we decided not try to create that internally, but we tapped into somebody else. I think it’s going to get dicey, though with all of these people essentially trying to do the same thing, right; distribute music to the consumer. And so from my perspective we as radio operators have to think of ourselves, not just in the music distribution business, but the consumer business and I think our digital strategy needs to be as much about how people listen to our radio stations, but as much about how they interact with our websites and what kind of content we deliver to them there. And I'm talking about video content, textual content, because there is 250 people who listen to the radio every day and you can send them to a website and you can do all kinds of things with them to the extent that the radio industry starts to think like that, then I think that we have an opportunity to participate in the digital Renaissance.

[Operator:]

Our next question comes from the line of Patrick Fitzgerald from Baird, please go ahead.

[Patrick Fitzgerald:]

Congrats on the refi. So, did you say 51.8 million paid subs now?

[Peter Thompson:]

It’s 50.8.

[Patrick Fitzgerald:]

50.8. Could you remind us what that was last year, and just kind of how you think about where that number can go in the future at TV One?

[Alfred Liggins:]

Yes, look, I think there's upside on subs in the future, I know there is upside on sub fees in the future. And so there is a tradeoff though, right? You want more subs, then you probably got to be less aggressive on fees that you ask for and so I kind of -- because it’s a mix of things that are going to get you home, I kind of like not to set a sub target. But I like to think about if we come to our renewals in a mediocre fashion, I think TV One's got the ability to go from $50 million to $70 million of EBITDA over the next three or four years. If we come through it in an above average fashion then I think the network has the ability to get to $100 million of EBITDA. And that’s going to be a mix of getting increased subs, getting some reasonable rate increase. If we don’t do better on ratings, then we will be on the lower end of that EBITDA number. If we do better in ratings, we will be on the higher end, and we are also pretty confident that we can increase our ratings.

[Patrick Fitzgerald:]

Okay. What's advertising up at TV One in the fourth quarter?

[Peter Thompson:]

It was up 12.9% in the fourth quarter for TV one.

[Patrick Fitzgerald:]

Okay. And then you gave ratings pacings at TV One, 7% is -- did you give an advertising pacing?

[Alfred Liggins:]

No, we did not.

[Patrick Fitzgerald:]

Okay. But fair to say you're monetizing that?

[Alfred Liggins:]

Yes, well actually, there is a lack, right because, so much of it in the upfront, but right now we’re close to our budget for Q1 and we got a nice advertising revenue jump, budgeted for TV One in 2014.

[Peter Thompson:]

And just going back to your first question, at the same period at the end of 2012 we had internal subs was 50.5 of which 49.6 we’re paying. So, billable subs is 50.5.

[Patrick Fitzgerald:]

Okay. And then how should we think about radio expenses in 2014?

[Peter Thompson:]

Low single digit increase I think is probably where it comes out overall. So the cost of living increases on wages. We’ve got some increased costs over there associated with our research and our Arbitron contract. But other than that, we’re fairly tightly buttoned down, we’ve got competitive situation in Houston. We've got to spend some marketing dollars there. We don’t think there is going to be a big jump in expense.

[Alfred Liggins:]

Yes, we told the market we’re on the road doing a high yield deal that we feel pretty confident that between Reach and Radio we’ll grow, because that’s how we look at our Radio business out because it is really a radio business. The radio network businesses really starting to merge and overlap with the national spot business. So between those two platforms we think that we can grow our EBITDA $5 million, at least $5 million of share.

[Operator:]

And now our next question will come from the line of Ben Brogadir from GMP. Please go ahead.

[Ben Brogadir:]

Just wondering how you guys are viewing the current M&A landscape. I know you guys mentioned the Time Warner/Comcast pending transaction. But in terms of the consolidation in this space, how do you guys view Radio One? And what’s your appetite in terms of the current M&A environment?

[Alfred Liggins:]

We’re focused on Radio M&A where we can get the highest investor turn and that’s probably doing something that’s in market. And other than that, we’re kind of not all that interested. We did not bid on the assets in New York that Emmis just brought. And a lot of people thought we would be a likely candidate for that since they were urban assets. We like our pool of assets that’s right now. I think we can grow what we have and we think that if we buy the other half of TV One that’s as good a M&A opportunity as anything we would see in Radio unless it was an in-market opportunity that fit with our existing positions.

[Ben Brogadir:]

Appreciate that. And then last one from me, just going back to the thought process behind your partnership with MGM and entering the casino business. What do you guys see as the bigger opportunity there?

[Alfred Liggins:]

I don’t know. Beyond the fact that we have a deal with them from a marketing standpoint, they’re going to spend a significant amount of money on an annual basis with us over a five-year period of time for our Washington based assets to support that casino. And we’re getting to know the MGM people. And who knows what else comes to life. They spend a lot of time focused in China. They are very selective about what they do in the States. Maryland was a big opportunity. There is not a lot of other states that don’t have gambling so I wouldn’t say that there is a plethora of new opportunities. We don’t add much value in China. And so I think that we’re just kind of focused on what’s going in Maryland at this point in time.

[Ben Brogadir:]

Understood. And then I'll try to sneak one more in. Do you guys have your current cash balance just as of yesterday or today, just given the refinancing and pro forma?

[Peter Thompson:]

I do but it’s not going to help you much. We’re sitting on about $116 million of cash that’s come that’s not yet gone out on the tender. So I think we’re in about $130 million of cash. I can pull up an exact number for you but that’s probably not really what you are looking for. You follow me?

[Operator:]

All right, you have no questions. (Operator Instructions). And we have no further questions in queue, you may continue.

[Alfred Liggins:]

Well, thank you folks and I say this at the end of every call we are always open to offline conversations, if you missed something or think of anything later feel free to call at the office and touch base with Peter or myself. And we’ll see you in the next quarter.

[Operator:]

And ladies and gentlemen, that does conclude our conference for today. We thank you for your participation and for using AT&T executive teleconference service. You may now disconnect.