Urban One Inc (UONE) 2009 Q4 法說會逐字稿

(audio in progress) 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 12.30 p.m. Eastern Time March 31, 2010, until 11.59 p.m. April 2, 2010. Callers may access the replay by dialing 800-475-6701. International callers may dial 320-365-3844. The replay access code is 143791.

Access to live audio and a replay of the conference call will also be available on Radio One's corporate website, again 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 may be relied upon.

With that being said, I will now turn the call over to Alfred C. Liggins, Chief Executive Officer of Radio One, who is joined by Peter D. Thompson, Chief Financial Officer. Mr. Liggins, please go ahead.

Thank you, operator, and welcome, everyone, to our fourth-quarter and year-end 2009 conference call. Also joining us today is Barry Mayo, who is President of our Radio Division.

We have obviously put out our earnings and our press release. I think the theme for the radio industry is that the worst is over and business is improving. We saw that sequentially throughout the year and in Q4. As we get into 2010 we are seeing substantial improvement across the industry and we are included in that bucket of improvement, if you will, led by national and our larger markets.

Also, we will talk a little bit about, during the question-and-answer period, TV One, which is now a 50 million sub television cable network. It's doing extraordinarily well.

And also REACH Media, which has made or is in the process of making a big transition from a guaranteed revenue stream from our relationship with Citadel, Citadel's network radio operation, to one where we split the sales efforts half from our own sales team at REACH Media and the other half just on a commission basis with Citadel. But the headline there is no longer are we in a guarantee situation with them, but on a commission base.

But that transition is going well and we anticipate that REACH Media will continue to be a substantial revenue and cash flow generator with us. Now that we are getting towards the second quarter of 2010, we are feeling more and more comfortable with that transition.

So with that I will turn it over to the Chief Financial Officer, Peter Thompson, and he will take you through the numbers.

Thank you, Alfred. On a consolidated basis net revenue for the quarter was $67.3 million, which was down 8.9% year-to-year. Our core radio division excluding REACH Media produced net revenues of $55.4 million, down 7.9% in the same period last year. REACH Media had net revenues of $9.8 million in the quarter, which was down 3.9% year-to-year primarily due to the negotiated reduction of $2 million on the guarantee payment from Citadel.

The interactive division had net revenues of $4 million, down 4.5% year-to-year.

Q4 showed the smallest sequential decline for all of 2009 and excluding political, our radio revenues were down by 4.2%. We continue to outperform the radio markets in which we operate, which were down by 9.4%. Our local revenues declined 7.3% against a 12% decline in the markets, and our national revenues declined by 8.4% against a decline of the same 8.4% in the markets in which we operate.

Our four largest markets performed as follows. Houston was down 0.4%, Atlanta was down 6%, Baltimore was down 10%, and Washington down 13.1%. Both Baltimore and Washington are working through the effects of their changeover to PPM. We had some comparably strong performances in other markets, notably Dallas, which was up 13.9%; Philadelphia, which was flat; St. Louis, which was up 2.1%; and Detroit, which was up 1.8%.

The numbers we are seeing in Q1 2010 indicate to us that the advertising market is strengthening considerably. Currently our first-quarter radio station revenue is pacing up 7%, however this will be tempered by the fact that our largest event, the One Love Gospel Cruise, is moving from Q1 in 2009 to Q2 in 2010. So expect to net out at around a plus 3% for our core radio division revenues excluding REACH media.

The number of spots for Q4 was up by 3% compared to prior year; however, the average unit price fell by 11%. Looking by advertising category, auto for Q4 was up by 22% year-to-year as was healthcare, which was up 9%. Financial was flat. Retail was down 11%. Entertainment down 6.5%. Telecom was down 11%. Obviously the big drop-off was government and public, which was down 36%. Food and beverage was down 4%.

During the fourth quarter we ceased physical production of Giant Magazine, though the brand will still exist online. Full-year losses there were $1.4 million which were moved into discontinued operations.

Turning to expenses, our core radio operating expenses declined by 5.7% excluding corporate and increased by 4.2% for our radio with corporate. While our underlying savings from employee layoffs, salary cuts, vacation benefits, and discretionary spending cuts, these are outweighed by the fact that we recorded certain annual bonuses in the fourth quarter totaling $2.7 million as opposed to a bonus reversal of $1 million that we made in the fourth quarter of the previous year. So you see a swing of $3.7 million driving an adverse Q4 comparison for corporate expenses.

For the fourth quarter, station operating income was $26.3 million, a decrease of 16.2% on a same-station basis from 2008. Adjusted consolidated EBITDA was $17.9 million, a decrease of 33.4% versus 2008.

Our interest expense has continued to fall, which is a result of debt paydowns, lower interest rates, and the retirement of part of our 8 7/8% bond issue. Our Q4 interest expense of $9.4 million was $3.8 million less than in Q4 last year and down by $21.3 million or 36% for the full year. Cash interest paid during the fourth quarter was approximately $4.6 million, and for the full year was $36.6 million.

Moving down the P&L, as part of our quarterly impairment review we recorded impairment charges to our intangible assets of approximately $17 million, bringing our total for the year to $65.9 million. This reflects the combined effects of slower revenue growth, a riskier economy and credit environment, and the lower multiples that we are currently seeing in the radio industry.

As a result of our non-cash impairment charge, our net loss for the quarter was $14.9 million or $0.28 per share. Sorry, minus $0.28 per share.

Cash income taxes paid during the fourth quarter was approximately $900,000 and for the full year approximately $3.6 million, which principally relates to federal taxes paid by REACH Media. With our 53.5% ownership stake, we are unable to use any of our approximately $452 million of gross federal NOLs to shelter REACH Media's taxable profits.

The fourth-quarter CapEx was approximately $1.2 million and approximately $5.4 million for the full year. As of December 31, 2009, we had debt net of cash balances of approximately $633.6 million. Our total leverage ratio for bank covenant purposes was approximately 7.20 times against a limit of 7.25 times, our interest cover was approximately 2.36 times against a minimum of 1.75 times, and our senior leverage ratio was 3.88 times against a limit of 4 times.

I hope this has been helpful and provides some additional detail on the numbers. I would like to hand over now to Barry Mayo, who will provide some additional information on our current radio performance.

Thank you, Peter. Before I speak about our current pacings in Q1, let me give you just a little bit more color on Q4 performance.

As Peter mentioned, the outperformance in total revenue in our markets in Q4 was driven by a nice performance in three basic markets. That is Dallas, Detroit, and Houston. Now this has come largely as a result of an operational realignment last year that we have made at the regional vice president level that has actually started to pay off nicely in the fourth quarter.

As a group, we had our strongest performance in the fourth quarter in the local arena. Cincinnati, Dallas, Detroit, Houston, and St. Louis all posted out performance against their markets in a range from 12.2% out performance in the case of Houston to our Dallas cluster, which actually outperformed the Dallas market by 28.1%.

Alfred mentioned that looking ahead to the first quarter that we are pacing in the mid-single digits. Now that overall increase is being driven by a very strong national performance. National is pretty much on fire right now.

So far in 2010 we have got five clusters which are outperforming their markets, starting with Charlotte, which is in the process of a nice turnaround. Our other clusters which are performing very well against their markets in Q1 are Columbus, Dallas, which continues on a very nice growth curve, Indianapolis, and St. Louis, which is another one of those markets in Radio One that has benefited from that management change in 2009.

Finally, as Alfred also referenced in his remarks, we have got a new focus on our digital business and the rebranding of all 53 of our websites was completed in the fourth quarter. Additionally, we have hired a general manager for digital radio. These factors have all contributed to a very strong jumpstart in our digital revenue in the first quarter with our group actually already exceeding their budgeted goals.

That is it for me.

Thank you very much, Barry. With that, operator, we will open it up to questions from the callers.

(Operator Instructions) Bishop Sheen, Wells Fargo.

Thank you. It seems like just a year ago we were talking. Look, I think it's great about the Q1 pacings and it's also great that in Q4 you outperformed your markets by 160 basis points, but I got to start with the balance sheet if you don't mind. So I just need to be on the same page with you guys.

In the amendment, which is done, and I know that has got to be a relief, did anything change -- it doesn't sound like anything changed in the actual ratios, but for the covenant definition?

Correct.

Okay. So the step downs and all that are still on the same schedule?

Correct.

All right. So just refresh my memory. The way we do the math, I thought we used to add back Internet expense up to -- on a trailing-year basis up to $30 million.

Yes, the first part of the sentence is right, Bishop, but the $30 million cap is no longer correct. We are using a different basket under the credit agreement, so Interactive One is still fully carved out on an LTM basis.

Okay. Right, so the add back -- it looks to me like the add back would be less than $30 million under this new --.

Yes, correct. Yes.

Okay. So more like nine or -- $8 million or $9 million?

Yes, that sounds right. Yes.

Right, and cash is not netted out for the covenant ratio?

Correct.

Okay, that takes care of that. So let me go to the collateral package. In the past, TV One has not been part of the collateral package. Did that change?

Nothing changed. What is part of the collateral package is there is a pledge on their shares in the holding company which then holds the shares of TV One, and that remains unchanged. So there is no direct pledge of the shares of TV One but there is an indirect pledge through the holding company shares.

Okay. And then to just one last question. On auto when you were talking about it was up 22%, were you referring to Q4 or (multiple speakers) Q1?

Q4.

All right. Can you give us a little color on how auto is doing in Q1?

I can't specifically, Bishop, but I think we can imply from where we are pacing that it's continuing to bounce back some more. I don't have those numbers in front of me for Q1.

Okay. All right, all this is very helpful. I will pass it on. Thank you, guys.

Jim Boyle, Gilford Securities.

Good morning. Barry, looking at your month-to-month radio station pacings in Q1, how did they perform?

On a relative basis, January was not hot for us, was not good for us. While some others in the industry saw a positive growth in January, we did not but February was strong for us and March even stronger.

So if national is on fire in Q1, is Q2 also on fire?

Q2 is going to be better than Q1 and -- this is Alfred. It's hard to call now because you have this phenomena that we experienced two years ago where the pacings were -- because people were booking later, pacings were showing down dramatically going early into the quarter and then they got better.

Now it's the opposite because people are booking earlier that pacings are showing way up and then they are coming in. So we need this phenomena to kind of normalize before we get a really good handle on pacings. But I think we have enough information now to say that Q2 definitely is going to be better than Q1.

I think just organically it's going to be better for sure. And then for us we had our cruise in Q1 last year; it moved to Q2, so we are going to be booking --

The benefit of that.

Yes, we will see the benefit in Q2.

So business is getting better. I think that there is -- I polled a number of the group head operators about what they thought 2010 was going to look like for the industry. There were some guys on the low who were up plus three and then there was [David Field], who was saying it was going to be up double digits.

You know what? My personal opinion is I don't know where it's going to end up, but I think the world is moving closer to where David was. And I think political is going to be exceptionally strong for radio in October/November.

And to put that in context, the national piece of that is pacing with a plus, over plus 20%. So just to put my comments about national in perspective for you.

Pacing plus 20% in what time period?

Well, you were asking about Q2.

Okay, just wanted to double check. Kind of along those lines, either Barry or Alfred, is business yet being placed earlier in 2010 than 2009 and are the average buys bigger and are they longer flights in 2009?

I don't have details on are the average buys bigger, are longer flights, but that was the point I was just trying to illustrate to you that business is definitely being booked earlier, which is why it's hard to read the pacings right now.

There was an article I think in Inside Radio yesterday, RBR talking about that phenomenon of the gap between forecasts and payout that is happening for everybody. Pacings are way ahead of where the forecasts are. I think what we are going to see in Q2 is a convergence, as Alfred just said, of the pacings coming down slightly and the forecasts coming up.

Okay. And would you say, Barry, has demand picked up sufficiently to encourage any rate card discipline in your markets or will that more likely be a 2011 event?

No, that absolutely is happening disproportionately in the larger markets to the smaller markets. We are absolutely dealing with high demand in a number of our markets and working hard in my conversations with my regional vice presidents to avoid actual sellout conditions in a few of their markets because demand is absolutely getting better. But, again, disproportionately to the larger markets than the smaller markets.

Markets 21 through 50 continue to lag a little bit in growth, but they are growing nevertheless.

Okay. And Peter, not to leave you out of the mix, what is the EBITDA situation at TV One?

We haven't released that number yet but it's positive and that -- I am sorry, this is not Peter.

And I said that without removing my lips.

We haven't released that information. It's positive EBITDA. At some point this year we probably will release that information, but we are not doing it right now.

Okay, thank you.

Jim Gorman, Stifel Nicolaus.

Good morning, gentlemen. Let me just qualify a few of the things that were said. I am a little confused on how you define adjusted EBITDA in the press release and the pro forma LTM covenant EBITDA. Do you care to sort of reconcile that for the full year ended 12/31/09?

We don't do that on the call and we -- I have given clarification on previous calls about the items but we don't specifically reconcile the two. We do for our bank group obviously; they need that.

If you want to take it off-line, I can step you through because I have done that on previous calls. I can step you through the line items that reconcile between the two, but it's complex and there is a lot of it.

All right, maybe I will call you later. But along those lines I am just a little confused between the third quarter and the fourth quarter. In the third quarter you had a lot of cost savings in programming, technical expenses; they are higher in Q4. SG&A is higher in Q4 and you explained the corporate expense was higher due to bonuses and reversal of bonuses.

Is there any reason why your programming and technical expense and SG&A was higher?

Well, as a general comment on Q4, if you think back a year we knew where the markets were headed. They were headed down and we had already started our cost savings program, which really kicked in probably the middle of 2008 but by the fourth quarter of 2008 was in full swing. And we were chopping costs out there.

So you are comping against a much tougher quarter from a cost base than you were in Q3. Q3 we hadn't worked through a lot of the cost savings in 2008. So it's really a factor of the fact we took the hatchet to costs in a big way in Q4 2008.

All right. On the bonuses, could you describe them? Were those ordinary sort of bonuses for performance? And is that -- should we expect the corporate expense to be $8.5 million or $4.5 million per quarter going forward?

No, you see what happened there is in a normal year, if there is such a thing, we would accrue those bonuses quarterly. So if it was, say, $2.7 million, you would have a quarter of that being accrued equally over the course of a year.

As we were -- we did not do that in 2009 and we weren't sure up till the last minute whether we were going to book any bonus accruals or not. In the previous year we reversed those accruals and a lot of management didn't receive any bonus in 2008.

Given where we felt Q4 was coming out and what we could see looking forward, we put a bonus accrual in in Q4. And that is why you have got that strange bump. So you have got the full-year's bonus charge going in in the fourth quarter versus the previous year we took out $1 million in reversals.

All right. But a more normalized expense would be about $4.5 million, not $8.5 million? If indeed you had accrued them throughout each quarter during the year and you didn't have the reversal, the cash.

Yes, I would say it's closer to kind of $5 million, between $5 million and $6 million a quarter would be about a number. Certainly not the $8 million.

Between $5 million and $6 million in the quarter, you said?

Yes, I mean you have got to back out -- so take your eight-point-something and back out three-quarters of $2.7 million. You see what I am saying? The $2.7 million went in in a quarter and only one quarter of that should have really gone in.

I see, so it's about $0.9 million. Okay. You said one other thing about the pacing of revenues in the first quarter and you said at one point that you thought the ad revenues were up 7% but that you are only going to record 3% gain because of Gospel. I didn't fully understand that. Some revenues are being pushed into the second quarter, is that it?

Yes, the point was that our biggest event is a gospel cruise. We charter a vessel; we sell sponsorships, tickets, and so on. It's between $2.5 million to $3 million of revenue.

And in 2008 that was a Q1 event. Sorry, in 2009 that was Q1 event, March, and this year it's going to be an April event. It slipped by a month.

I see, so that is being pushed into the second quarter.

Yes, so you have got to strip that revenue out and that is what is -- when you see the Q1 numbers, that will be the net effect. And then you get the pickup. As Alfred said, you will get a bump in Q2 so it's just the timing difference on that.

All right. But given the strength of the advertising market, do you expect to have significant positive cash flow growth in Q1 and Q2?

That is a good question. I think the honest answer to that is probably not as strong as you would think from the pure top-line numbers because we cut costs so deeply and we have to -- some of those costs were one-time in nature. For example, the vacation benefit. We made a change to the employees' vacation benefits and we get that benefit only once. So that won't continue.

We have got built-in contractual escalators with Arbitron and others. So I don't think -- normally if you get a dollar's incremental revenue you might expect $0.85, $0.86 to come to the bottom line. I don't think you will see that conversion due to the super cost cutting that we have been doing.

Yes, in 2010, even though revenue is rebounding, there are some things that we did on the cost line that we are going to have to restore. Like people across the Company took salary cuts in order for us to not bust our credit agreement covenant. So at some point in time during the year as things get better, we are going to restore those back to where the levels had been.

We are hopeful though that we are starting to accrue bonuses again, etc. And then you just have stuff that is one-time in nature like the vacation accrual that we took last year. And then you are just going to have your marketing and then your standard cost of doing business that escalate like Arbitron and rent, etc.

So our top line should be relatively strong this year, but our EBITDA won't be -- the growth won't be as strong because of those factors.

Okay, I understand. But if you -- normally it would be $1 to $0.85 for incremental growth. Given you have to add some of these expenses back, people salaries, do you think it would be $0.65 for every dollar?

We are not going to -- we are not going to give you -- we are not prepared to give you that kind of detail so you can triangulate back to what the cash flow number is.

All right, okay. Thank you.

Evan Stein, EOS Partners.

My question is really for Alfred and it's really more strategic. I think it was -- I forget which call, maybe a year ago, before that you had discussed, as you have done, which was diversifying from being a radio company to being more of a media company.

Now that radio fortunately is stabilizing and TV One continues to grow, could you just comment on how you might be able to consolidate TV One on to the balance sheet if that is what you want? Or if not sort of strategically how you see TV One interacting with the public company given the fact that it only shows up as a balance sheet item as opposed to income [stream]?

Actually, it's a little more than a balance sheet item these days because we took dividends from TV One into our EBITDA in Q4. So TV One is actually starting to contribute to the public company and helping us navigate our way through the downturn and the -- sluggishness is probably too benign award, but the downturn in the traditional media business.

It's -- I don't believe it's a secret that there are a series of puts and calls in the TV One agreement where essentially us and Comcast have the right to take out financial investors and other partners in TV One. Ultimately, the TV One deal is designed for us to get open over 51% and consolidate that.

And so we are acutely aware of all of those puts and calls, put and call windows. We are acutely aware of the step downs in our credit agreement. We have a plan in place to deal with all of these things and we are -- we will, as we have in the past, manage each of these events as they come and resolve them.

So TV One has contributed to the public company. I think it will continue to do so on a larger level going forward. Probably at some point in time, given the way that the deal is structured, it will be consolidated into the public company.

And let me just clarify, Evan, when Alfred referred to dividends counted towards EBITDA, he is correct for the bank. For our bank covenants the dividends that we receive, so long as they represent net income, which they do, we get to count that for our bank.

That is not how we treat it in the EBITDA, so the EBITDA numbers that we discuss here, you are right, those dividends are treated as a return of capital and a reduction of investment. So it's a balance sheet entry.

Okay, great. The only other question I had was in regards to the Internet/publications. You had mentioned you ceased publication of Giant Magazine, which was a $1 million loss. But any comment on -- that division still had a pretty substantial loss this quarter. Revenues were okay, but the expenses are still at a run rate where you are losing a lot of money.

It's actually -- it masks the overall company by throwing in whatever, $4 million, or $5 million, $6 million of negative EBITDA, and it basically gives -- if you wanted to look at it that way, no value to -- obviously it's got a value. But my question is at what point do you think you can get towards breakeven? Or what are you doing or how do you feel about how long you want to invest and take these losses before you say, hey, we are going to slow down a little bit here?

Actually, we are pretty happy with our trajectory. I think we were run rate -- not run rate. We actually had breakeven quarter in Q4 of last year but we decided to invest more money to retool the whole sales operation at [I One].

But this is a cash basis. I don't think it splits to what we have reported but for 2000 -- in 2008 we lost $9 million or $10 million, in 2009 call it we lost $5 million or $6 million. We are going to lose probably $3 million of cash this year and then we will be cash flow positive going forward.

So we are very happy with the trajectory and we are on target to build that business.

Okay, and then the last one. Just on REACH Media, you mentioned the transition you were feeling more and more comfortable. Given that national is on fire and that is pretty much all national, could you just comment --

Yes, the ABC side of REACH Media is doing -- is doing well. The way that deal is working now is that REACH's own sales team sells all of the inventory that is actually inside of the Tom Joyner Morning Show. ABC continues to sell the inventory that is outside of the Tom Joyner Show.

National is stronger. I think network is showing a strong performance as well. So fact of the matter is the ABC -- excuse me, Citadel guys are posting good revenue numbers for us. Our sales team is doing a good job and that is -- when you lose a $30 million a year guarantee that is a huge risk to your business. We knew that it was a risk and kudos to the folks at REACH Media, [David Canter] and his team, that they got ahead of it.

We are going to make that turn and that business is going to be substantially the same business that was when we have a $30 million revenue guarantee. Give or take a couple million dollars on the EBITDA line, which in a transition is pretty good.

No, I thought it was good. So is it right -- could I add $2 million back to the quarter number of like $9.8 million to get a true-up?

Sorry, say that again. I didn't hear you.

If I added $2 million to the Q4 number to sort of pro forma, given the fact you were --

Well, no, I don't think you can do that because Q1 obviously in going through the transition is going to be weaker in 2010 than it was in 2009.

Okay, great. Thanks very much.

Operator, we are going to take one more question.

Marci Ryvicker, Wells Fargo Securities.

Thanks, I have two rather easy questions. First, your expectations for political this year. And then secondly, any thoughts on when pricing could actually turn positive?

When pricing could actually turn positive?

Yes, your unit rates were down 11% I think, right?

I don't know. We haven't been spending a bunch of time doing that kind of analysis around here and I can't give you an answer.

As far as political as concerned, Marcy -- this is Barry. It's almost impossible for us to get a handle on that number. We can just speak in terms of -- in relative terms.

Because of the Supreme Court decision, I think the only thing that we pretty much know is that it's going to be more than we expected it to be when we did our budgets late last year. But it's still early in the season. The window was just opened in a few of our markets. The window, the political window, is not open in the rest of our markets.

We have started to get some early orders in the Ohio markets, which Ohio being a swing state is generally our biggest political -- our political state. But it's still early in the year to have a handle on political, Marci.

How have you done historically in other political and nonpolitical years as a present of revenue?

I don't have that number right now. I can't tell you that number right now.

Okay, thank you.

Operator, that is it on questions. As usual we are available off-line to talk to investors and analysts as needed.

Thank you very much for participating and we will look forward to talking to you off-line and talking to you en masse in a year. Thank you.

Ladies and gentlemen, that does conclude your conference. You may now disconnect.