Urban One Inc (UONE) 2008 Q4 法說會逐字稿

Welcome to the Radio One fourth-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. 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 the projections or forward-looking statements.

This call will present information as of February 19, 2009. Please note that Radio One disclaims any duty to update any forward-looking statements made in the presentation.

In this call Radio One will 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 the website at www.radio-one.com.

An audio replay of the conference call will also be available on Radio One's corporate website at www.radio-one.com on the investor relations section of the website. 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 may be 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. Please go ahead.

Thank you very much, operator. Welcome to our fourth quarter and end-of-year conference call, everyone. Also joining Peter and I are Barry Mayo, our President of Radio; Linda Vilardo, our Chief Administrative Officer; Mike Plantamura, our General Counsel; Deborah Cowan, our Vice President of Finance; and [Chris Simpson], our Associate General Counsel. I'm going to turn it over to Peter to jump into the numbers.

Thanks, Alfred. On a consolidated basis, net revenue for the quarter was $74.3 million, down 0.6% year-to-year. Our core Radio Division, excluding Reach Media, produced net revenues of $60.2 million, down 7.1% from the same period last year. Reach Media had net revenues of $10.2 million in the quarter, which was down 7.0% year0to-year.

Pro forma for the acquisition of Community Connect Inc., Q4 consolidated net revenues were down by 5.8%.

We continue to outperform the radio markets in which we operate, which were down by 14.2%. Local revenues declined 13.2% against an 18% decline for our markets. National revenues were up by 0.1% against our markets being down 7.2%.

Our strong performance in national was helped by political advertising of $3.1 million for the quarter, which compares with $0.3 million in Q4 2007.

Our four largest markets performed as follows. Houston was down 3.5%; Washington was down 15.7%; Atlanta was down 20%; and Baltimore down 4.6%. We had some strong performances in other markets, notably Philadelphia, which was up 9.4%; Indianapolis was up 5.3%; St. Louis was up 11.3%.

For the full year, our core radio net revenue, excluding Reach Media, was down by 4.4%, which we believe compares favorably with our competitors, as the markets in which we operate were down by 8.8%; and we made a slight gain in market share.

Our number of spots was up by 3% for the quarter compared to the prior year. However, the average unit price fell by 15%. Both of those numbers were influenced by the political advertising in the quarter.

Looking by advertising category, auto continued its decline; it was down 47% year-to-year. As did retail, which was down 13%; entertainment, down 12%; healthcare down 22%; telecom was down 7%. This was partially offset by government public, which was up 85%; financial was up 5%; travel and tourism was up 56%.

The numbers that we are seeing in Q1 2009 indicate to us that the advertising market continues to worsen. Currently, our first-quarter radio revenue is pacing down 30% in local, 37% in national, and 31% on a combined basis.

Looking ahead into Q2, the radio pacing is down approximately 50% year-to-year. While we the Q2 number to improve, we can't say with any certainty whether Q2 will be better or worse than Q1.

Turning to expenses, our core radio operating expenses declined by 13%, excluding corporate, and declined by 16% for radio including corporate. In addition to savings from the headcount reductions that we made in Q3, the Company also benefited from $2 million in reduced employee bonus costs.

For the fourth quarter, station operating income was $31.1 million, which was an increase of 6.6% on a same-station basis from 2007. Adjusted consolidated EBITDA was $26.5 million, which is an increase of 19.8% over 2007.

During Q4, our Interactive One division lost $1.1 million of the adjusted EBITDA level on revenues of $4.7 million, which was a significant improvement over Q4 2007 when it lost $2.9 million. We have now used approximately $21.1 million of our $30 million investment carveout, and we anticipate the division reaching breakeven later this year.

Our interest expense continues to fall, which is a result of debt paydown, lower interest rates, and the retirement of part of our 8 7/8 bond issue. Our Q4 interest expense of $13.1 million was $4.6 million less than in Q4 last year and down by 18% for the full year.

Moving down the P&L, as part of our quarterly impairment review, we recorded impairment charges to our intangible assets of $85.3 million, bringing the total for the year to $423.2 million. This reflects the combined effects of slowing revenue growth, a riskier economic and credit environment, and the lower multiples that we are seeing in the radio industry.

During the quarter, we retired $145 million of our 8 7/8 notes, resulting in a gain of $67.3 million, bringing our full-year total to $196 million of bonds retired at an average price of 61.6% to par. As a result of the large non-cash impairment charge, our net loss for the quarter was $7.6 million or $0.09 per share.

For the quarter, CapEx was approximately $1.1 million, a reduction of $3.5 million year-to-year. As of December 31, 2008, we had debt net of cash balances of approximately $652.9 million, which compares to $791 million for 2007.

Our total leverage ratio for bank covenant purposes was approximately 6.14 times against a limit of 7.25. Our interest cover was approximately 1.92 times against a limit of 1.75; and our senior leverage ratio was 3.38 times against a limit of 4 times.

TV One continued to perform well, with Q4 revenues up 69% year-to-year at $20.5 million for the quarter; and EBITDA was up by $8.6 million for the quarter, a positive $1 million.

I hope this is helpful in providing some additional detail on the numbers contained in the press release. I would like to hand over to Barry Mayo who will provide some information on our current performance.

Thank you, Peter. Fourth quarter saw our station group do a decent job of outperforming their markets. As Peter mentioned, we outperformed our markets as a group in total revenue by 5.4%.

Five markets that were the biggest contributors to this outperformance were Atlanta, outperforming their market by 5.1%; Baltimore, outperforming their market by 13%; Houston, 5.4%; Indianapolis, 15.8%; and our Philadelphia cluster outperformed their market by 19%.

Peter also mentioned that political advertising helped lead the national results in the fourth quarter. That $3.1 million in political that we garnered represented about half of the total political dollars for all of 2008.

Our clusters ended up that outperformance of our national markets by 720 basis points.

Our local markets declined by 18%; but our clusters outperformed them by 480 basis points.

You may recall that during the Q3 earnings call I mentioned that we had instituted a sales program focused on getting more incremental revenue from advertisers that we were already doing business with. Those focused efforts paid off in Q4. Our clusters in Atlanta, Baltimore, Houston, Indianapolis, and Philadelphia all led our group in outperforming their respective markets locally.

We also markedly increased sales commissions in Q4 for new business, doubling them in most markets. That also contributed to our local performance in the fourth quarter and we have continued that plan into Q1 of 2009. We will be rolling out new commission plans for Q2 that are focused on rewarding sellers for new business success in targeted advertiser segments.

I think Peter mentioned that the automotive category, which was formerly the top advertising category in Radio One and in our business, was no longer in the top five, being down 47% in the fourth quarter. Top categories for Radio One in the fourth quarter were retail at 18%; entertainment and telco, which both represented 13% of our rev; government and political and the financial and food and beverage categories both represented 10% of our business.

Our Q1 pacings have continued to soften more than anyone had foreseen just before the New Year. You heard most of last year that business was being booked later and later. We have now seen many advertisers who previously placed annual buys now booking quarterly. Some of them are only placing buys on a monthly basis, and at the last minute at best. All contributing to the dismal Q1 and Q2 pacings that both our industry and our Company are currently experiencing.

One of the primary areas of focus for Radio One this year will be in the interactive arena. We will be maximizing the synergies and competencies of our digital company, Interactive One, while increasing our sales efforts with the hiring of a VP of interactive sales for radio. We will also be hiring sales managers for all of our top clusters whose sole focus will be to maximize revenues in the digital space.

Thanks, Barry. Look, we are really proud of where we ended up a very tough 2008. I didn't know that 2009 was going to be tougher, which is unfortunate; but I guess you play the cards in the hand that you are dealt.

But through market share gains, expense cuts, and balance sheet management in 2008, we ended up with our core EBITDA down just about 10%. In fact, our EBITDA was up in the fourth quarter, as Peter said. And our total leverage ratio of just 6.14 against a covenant of 7.25, that is a serious improvement from where the Company was over two years ago, when debt was about 800 and -- actually no, in 2006, debt was 900 and -- what is the number, Debbie? I think it was like $926 million, $930 million. It was a big number on 2006.

We had a meeting a week ago and we were just going over it. So to go from $930 million to $675 million in that time frame, I'm really proud of the management team that is here. And quite frankly, it has put us in a position where we feel pretty confident that we are going to be able to weather this storm.

Our diversity initiatives have continued to do well. Peter talked about TV One's revenue pacings, and it's beyond breakeven now and will start to contribute this year in terms of cash flow.

And Interactive One, which is a little over a year old, was supposed to lose about $8 million, a little north of $8 million in its first full year of 2008, and lost a couple million dollars less than that, at about $6 million. So we are pretty happy with the progress that we make there.

However, looking forward into 2009, we face the most challenging economy this country has seen since the Great Depression. All advertising mediums are being hurt tremendously. They are under tremendous pressure.

The cable network segment and the online segment where we have diversified into are the least affected of the advertising mediums. Thanks to this diversification strategy, we are better positioned to weather the storm than any of our other peer companies. However, this doesn't make the environment any easier for us.

In 2009, our focus will continue to be, in order, bank covenant and balance sheet management; market share gains; expense management; share buybacks; and positioning ourselves to take out our financial investors in TV One during the first quarter of 2010.

Q1 and Q2 pacings are currently dismal, as Barry said. However, this Company and its management team have continuously made lemons into lemonade, and I have complete confidence that we will continue to do what it takes to succeed in the face of this economic tsunami.

This is going to be our last quarterly conference call, and we will be moving to an annual conference call. The reasons for this stem from the lack of analysts that now cover -- or actually don't cover -- our sector any longer. And we just need to completely focus our energies on the operations of this Company.

So at this point in time -- as usual, we are always available off-line to have any conversations with any investors or analysts that would like to talk to us. And now we would like to move to questions, operator.

(Operator Instructions) Bishop Cheen, Wachovia.

Hi, Alfred. Hi, Peter. Thanks for taking the call. Alfred, you know, there's less of us, but that's better (multiple speakers).

There's you and Marci, Bishop, and we love you guys. We've got one from each part of the capitalist structure.

Let me tell you, the only thing worse than being a guy in radio is being a guy in banking.

Look, I finally feel for you guys.

Yes, you should. All right, so let me focus on a couple of technicals here, because it really does drive your covenant compliance. And you have done a great job, as you said you would do, in staying way ahead of the law and leaving less cushion in your covenants.

I just want to make sure I have the right math. In Q4, the allowable addback from your Internet expense, how much was that addback to meet the covenants compliance?

It was approximately $3 million.

Yes, I had implied $2.8 million; so it is something like $3.0 million? Right?

Yes.

But when I look in what you reported, I really couldn't get that math. Because I had just added back the Internet expenses -- the Internet division's expenses in Q4 and it came out to over $5 million.

Is that because it had publishing in there? Because you report it as Internet/publishing.

The answer is, when we purchased Community Connect, we ended up shifting its technology expenses into Interactive One, which runs the whole technology platform for all of that division. So it is not easy to follow from the published numbers, but there is a cost transference.

Got it.

Which firms up more the carveout in a different way from what you would expect from the face of the numbers.

Okay, that is very helpful. Let me just go on to a bonus question then. On the arbitrage you have been doing on your debt buyback, you use the word discount. But that implies something like $0.616 on the dollar, right? The discount is off of 100?

Yes.

Okay, and then that also implies, if I have the covenant right, you have a carveout in the credit facility. I know you have a carveout for the stock; but you also have a separate carveout I believe in the credit facility specifically for the 8 7/8.

That's correct, 160.

All right. So in essence, and I am rounding here, you've got technically capacity for something like $29 million more to be spent on the 8 7/8 buybacks. Not face; but if you spend $29.9 million, then you will scrape the capacity of your $150 million.

That logic is correct, Bishop. The only thing is we bought about 10 million using cash rather than the bank facilities. So that number --

Ah. So the numbers have an extra --?

Yes, it is about $40 million.

You have about $40 million (multiple speakers) capacity.

But we --

Then the last insidious question, that carveout, that does not extend to the 6 3/8?

That's correct.

It does not. And on the 8 7/8, there is probably I guess approximately $100 million of par value bonds out there. And we only have $40 million of capacity. So that math dictates what the maximum upper limit that we could pay to take that issue out. So we are kind of hamstrung on that right now, because we did buy the other bonds out at significantly higher levels.

I don't want to say significantly higher levels, but over time we bought some back in the 80s, and we bought some in the 60s and a lot is 50. So that equated to kind of mid-60s. But the fact of the matter is we do have only a small bucket of dollars left to take out the remaining 100. So we are stuck in a corner as to what we can pay in, and we have to stick to our knitting on that, because (multiple speakers)

Again, your capacity -- I missed something here. The reason your capacity is diminished from the theoretical $40 million is because of another covenant, a restricted payments covenant?

No, we have $40 million left as a carveout for bond left.

For the 8 7/8.

For the 8 7/8. And then we have no more ability to buy back bonds under our credit facility. All banks across America seem unwilling -- except for in case if you have got a mortgage now, thanks to the federal government -- unwilling to negotiate terms that are not necessarily draconian to the borrower.

When I say draconian, if we end up having to go back to our banks for an amendment, we believe that they are going to extract some significant pound of flesh from us, either in pricing or diminished capacity on our revolver, restrictions in our covenants, etc., etc.

So even a minor -- quite frankly, we actually posed the question. Hey, if we pay you a bunch of money will you let us use our revolver to buy back some of the 6 3/8? And we will pay you for it. We will pay you handsomely for it. And they gave us a resounding no. So.

No comment, but I hear you.

Yes. So the point I'm trying to make is we have $40 million left, so we got -- we are stuck at a certain price level; otherwise those bonds just don't get taken out in the near term.

I hear you. Okay. This is all very useful to me. Let me pass the baton and I thank you for the color.

Marci Ryvicker, Wachovia.

Good morning.

The second of the duo. How are you?

We will miss you, we will really miss you. I am sure you will miss us too.

I am still going to read all of your notes. They are really good. I read the CVS one this morning. And I appreciate you hanging in there.

Why, thank you. I had two questions. The first, just a point of clarification. In one sentence, your core radio is down 7%; but then the press release said your station group is down 8.8%. So what is in the core radio besides the stations?

Syndication; special -- certain events that we do. So there is a delta between the pure radio performance that you would see in [miller cap] and the dollars that we actually bring in.

And there are some other revenue streams that we have in the Company that aren't exactly radio advertising dollars. That aren't gigantic and not really -- but sort of advisory management fees, things of that nature.

Okay. Well, still the minus 8.8% was significantly better than what CBS said yesterday.

Yes, there's a couple hundred basis point pickup that we get on our core radio group from things that we do outside of our radio stations just selling advertising. That is syndicated product to other stations; some advisory fees; a number of different things where we generate revenue.

Then with revenue pacing down so significantly in both the first and the second quarter, how are you thinking about expenses, both operating and CapEx?

Just some of the calls that I have been getting -- and I do get a couple calls now and then -- about radio in general, it has been considered a high fixed cost business.

Yes.

So in the costs that you have been cutting, where are they? And what room do you have to do further cuts?

You know what? I mean, I don't really want to go into exactly where they are. Taking out costs in a Company that is as small, close-knit, has been around as long as ours, you know, founders, is a painful process that we are not proud of having to do.

And we never really added -- you have followed the Company for a while, so we have historically run the highest margins in the business. So we have always been very cost-conscious. But where we have invested, we did because we thought it was going to bring us revenue.

It's disappointing to now peel back some of those things because unfortunately, due to the economy, there is this advertise -- it's not like you have to go convince advertisers to give you the money instead of somebody else the money, whether it is television or radio. They are just not spending it.

So where we took it out is kind of irrelevant. We took it out in places where it didn't affect our ability to meet the demand that exists in the marketplace today.

Are there other things that we could still do? We're looking at those now. I guess there are going to have to be.

The Radio One legend of Cathy Hughes, which is actually a true story, was that during -- the Company was founded in 1980 when they bought their first AM station and she went right into 20% prime lending rates during that recession. And she ended up doing the morning show because she couldn't afford to have anybody else do the talk show. It's a true story.

So I guess in Armageddon, I will be on the air. You know what I mean?

So I don't know what else we are going to have to do. But another thing -- another Cathy Hughes-ism is like you don't -- it's not enough to do your best; you have got to do what's necessary. So we will see what is going to be necessary in 2009.

If you had told me when we were doing our budgets in October that Q1 and Q2 were going to be down 20-plus-%, I would have told you you were crazy. In fact, somebody did tell me it was, and I told them they were crazy.

So I mean that is what I can tell you right now. I have talked to all the radio guys and everybody's just like astounded. But I think the whole country is astounded at the economic situation that we are in. So you know what I know.

Okay. Do you have any idea or can you tell us what you are thinking about capital expenditures?

I have told our engineering department, MIS department unless we are going off the air or can't send out bills, then we are not buying it. So what is it going to be? I don't have it off the top of my head, but it will be less than last year.

Okay.

But that is really the mantra. Unless it is in between us staying on the air or going off the air, then we technically don't need it this year. And unless it has something to do with us not being able to conduct our business from an MIS standpoint, then we are not spending it.

So no enhancements. No ease of use. I'm not interested in making anybody's job easier in 2009, which is generally the pitch for most software, because it really never ever eliminates actual hard bodies. So that is how we are viewing CapEx.

And we don't have any studio buildouts left, right? We're done. We had one or two studio buildouts in 2008 that contributed to our CapEx. Cleveland has got a little, but it's a small one and it's kind of a studio redo.

Thank you very much.

Thank you so much as well.

Bob Kricheff, Credit Suisse.

Just one quick question for you. You had made a reference in the MD&A about a change to the capital structure at TV One. Was that anything meaningful? Or was there any meaningful change there that might either affect the leverage or how you might be able to structure the buy-in on that next year?

No, there was nothing fundamental. It was just part of the HLBV calculation that we did. So no, there has been no structural change to that.

Okay, so there is no meaningful capital structure change.

No, it is just an accounting issue rather than a structural.

Okay, great. Thank you.

[Michael Levin], a private investor.

Hello, everybody. My question concerns something in the last 10-Q, it's actually be in the last couple, around QCP Capital Partners.

Yes.

Is the private equity investment. Can you elaborate on who they are, and some of the terms of that investment, and maybe what the current situation is?

It was a -- QCP was a venture fund that essentially was created by JPMorgan Chase, Lowry Mays, and Mel Karmazin -- back in 2000 I think it was -- in order to spur minority ownership. They got the industry to all invest in it and back a gentleman by the name of Reg Hollinger, who was the GP in it, and along with JPMorgan Chase. Reg is a very smart guy, good guy. We got to know him; we invested in it.

A number of years ago, Reg's fund was coming -- we knew it was coming to an end; and so we contemplated actually -- and there was going to be no industry backing this go around -- backing Reg in a media and telecom fund to do stuff that could potentially be incubated for us down the line. Stuff that didn't necessarily fit our core strategy right on.

And we felt that because we had been in the venture capital business -- this Company was built with venture capital, and TV One was a venture capital deal -- we had a sort of a reputation and imprimatur of making investors money, that we could add to the fundraising process.

But long story short, we probably invested -- what was it, $400,000?

Just over.

Just over $400,000 to get the second fund up and rolling. But then as the economy really started to turn bad, we started to focus on just our core businesses. We backed away from it.

It was a loan for startup costs that we had made to the second to QCP; and we wrote it off in Q4. And that is that.

Okay, so I see in the Q or the previous Q that there was a maximum commitment of I think $2 million. But our exposure was a little more than a $400,000 loan which we made and now have --?

Written off, yes. We are no longer pursuing that opportunity.

Okay, so that will not be in the next Q when it appears?

That's correct.

So it sounds like it was more of a sort of supporting the community and maybe also a strategic play.

It had nothing to do with supporting the community. It was completely a strategic play.

Okay, so -- and it just didn't work out. All right. I may come back with another question, but let me let some others ask questions if they are in the queue.

John Kilm, Chicago Fundamentals Investment Partners.

I was wondering if you could kind of prioritize uses of cash on hand and free cash flow to be generated between -- I think you have some term loan and more payments, buying back bonds, and repurchasing the equity in TV One?

Prioritize? I mean, you know, I already prioritized sort of things for 2009. Everything that has to do with bank covenant and balance sheet management gets first priority. So that would be -- bond buybacks would be in there; but you have heard my explanation of what our sort of limitations are on that.

And then when that is done, then it will be done. I'd say next use of cash, other -- and also repayment of debt goes into balance sheet and covenant management as well. And then the next priority is going to be stock buybacks. So the balance sheet right now has priority over everything.

Okay. Are you guys in any discussions with your bank group right now?

Nope.

All right, thank you.

Bishop Cheen, Wachovia.

Thanks for taking the follow-up. I just went to go to the Internet division. So when I just do the straight math as reported -- and it might be different -- it doesn't look like it's turning a cash flow profit at this point. Is that a proper assumption?

Given the tough headwinds for all ad media, although Internet is supposed to be better, can you give us some color on whether you think your Internet is going to be cash flow positive in '09? If you have higher expectations near-term for it than your core old media businesses of radio, Reach, and Giant? That kind of thing.

I think Peter mentioned earlier -- and I mentioned it as well -- that it absolutely does lose money. It was supposed to -- budgeted to lose a little north of $8 million, and we ended up losing $2 million less than that in 2008. It is budgeted to lose money again this year.

However, it is budgeted to break even this year. I can't tell you with certainty today that that is going to happen, because I just don't have any visibility on the economy.

What I can tell you is that both Interactive One and TV One are faring considerably better versus their budget than the Radio division. So the idea that Internet is going to do better and cable television is going to do better than traditional media -- and when I say traditional media I mean radio, magazine, and newspaper, and outdoor, and broadcast TV -- it is true; and we are seeing it in our numbers as well.

Okay. That is a quarter-by-quarter thing that we will have to check in with you.

Yes.

On now.

You will have to call us.

Yes, we do. Excuse to keep in touch. Okay, that is helpful. Thank you.

[Matt Sulu], [Callisters] Capital Management.

Thank you and congratulations on a relatively good quarter compared to your peers. My question is, are there any more commitments in terms of funding TV One for this year?

Commitments and needs are two different things. Contractually, there is still a balance left on the TV One commitment for all investors of a little north of $20 million; and we are 60%, 65% of that. However, the company doesn't need the cash. It is sitting on a bunch of cash right now.

So yes, there is an obligation; but the fact of the matter is that the company, TV One, doesn't need it. So that obligation has been there and we have just worked it out with the investors to keep extending it out.

So this is a watershed year for TV One because we got the call on the financial investors, which happens in the fourth quarter of this year and then probably would close in Q1 of 2010. So we are going to have to figure out true-up, figure out all the sort of remaining financial obligations and how that is handled.

Got you. That is good. That is not so bad. Are you guys -- are there -- I know I think in past quarters you have talked about just kind of finding -- you have made great traction in terms of carriage agreements and things like that. Is there any more likely or realistic carriage pickups you will pick up this year?

I mean, whatever digital growth there is from the cable industry, whatever growth there is from the cable industry and DirecTV and Verizon and AT&T's platforms will be our growth. But the two big operators, distributors that were missing are EchoStar and Cablevision. And they are notoriously hard. I don't suspect that we will get those guys in the near term. Something extraordinary would have to happen for us to get those.

So now really the growth for TV One comes in how do we get hit programming, improve our ratings, and sell more advertising at higher rates?

Some of the other cable guys have reported, and they were probably up net-net between fees and ads, but ads were down. Are you seeing the same thing?

No. But we are a new network. I mean, we're only five years old, so our ads were --

Still growing?

Yes, still growing.

Excellent, okay. Thank you, fellas.

Thank you and there's no further questions in queue.

Well, thank you, everybody, for your support, and your participation in this call. Again, we are no less accessible to the investor/analyst community; just you are going to need to sort of do it with individual calls; and we welcome them.

So thank you again, and operator, that's it.

Thank you. Ladies and gentlemen that doesn't conclude your conference for today. Thank you very much for your participation and for using the AT&T executive teleconference. You may now disconnect.