Urban One Inc (UONE) 2012 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to Radio One's second quarter 2012 earnings call. I have been asked to begin this call with the following Safe Harbor statement. During this conference call Radio One will be sharing with you certain projections or other forward-looking statements regarding future events or its future performance. Radio One cautions you that certain factors including risks and uncertainties referred to in the10-Ks and 10-Qs and other reports it periodically files with 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 June 30, 2012. 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. These 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 12.30 pm Eastern Time, August 2, 2012 until 11.59 pm, August 5, 2012. Callers may access the replay by calling 1-800-475-6701. International callers may dial direct 320-365-3844. The replay access code is 255002. 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 may be relied upon.

I'll now turn the call over to Alfred Liggins, Chief Executive Officer of Radio One, who is joined by Peter Thompson, Chief Financial Officer. Mr. Liggins.

Thank you, Operator, and welcome to our Q2 results conference call. As we had given guidance earlier, we're really pleased with how our core Radio division performed in Q2. Also, we outlined in the press release that our Q3 continues to be strong as well, and we feel really comfortable with where we sit going into the back half of the year, given that we are also starting to see political dollars coming to the battleground states which we're highly exposed to -- North Carolina, Virginia and Ohio,. And we're focused on 2013 now and managing our covenant step-downs.

Peter is going to go into the details of the financial statements, and then after that, we'll open it up for questions. Thank you.

Thank you, Alfred. Net revenue was approximately $105.9 million for the quarter ended June 30, 2012, an increase of 9.1% from approximately $97.1 million for the same period in 2011.

We began to consolidate the results of TV One in second quarter 2011, and recognized approximately $32.3 million of net revenue from the cable television segment in the second quarter of 2012 to the pro forma increase of 8.9% over Q2 2011.

The Radio division, excluding Reach Media, produced net revenues of $61.8 million, up 2.7% from the same period last year. Normalizing for change in the timing of the One Love Gospel Cruise, Radio division net revenue was up approximately 6.5%. Reach Media had net revenues of $8.5 million in the quarter, which was down 12.6% year-to-year. This decline was primarily due to a change in the affiliation agreement between Reach Media and Radio One, effective January 1, 2012, and to a lesser extent, a decline in digital revenue.

The Interactive division had net revenues of $4.4 million, up 2.7% year-to-year.

Our five largest clusters performed as follows -- Houston was up 2.2%; Atlanta was up 8.5%; Washington, DC was up 5.9%; Baltimore was up 16.5%; and Raleigh was up 16.3% year-over-year.

Our Dallas, Detroit and Indianapolis clusters had significant year-over-year growth as well, while our Columbus, St. Louis and Philadelphia clusters posted net revenue declines compared to last year.

Radio revenue growth was driven by telecom, up 9% year-to-year, auto, up 20% year-to-year; financial, up 20% year-to-year, and government and public up 18% year-to-year.

Our top three advertising categories were retail at 14% of our total, which was up 1% year-to-year; food and beverage, at 14% of the total, which was flat; and entertainment, at 13% of the total, which was down 1% year-to-year.

Operating expenses excluding depreciation, amortization, impairments and stock-based compensation increased to approximately $74.3 million in Q2.

Radio division expenses decreased 2.8% due to the timing difference on the Gospel Cruise, the change in the affiliation agreements with Reach Media, and the reduced music royalty fees. These reductions were partially offset by increases resulting in the all-news format in Houston and revenue variable expenses.

Adjusting for one-time events, pro forma expenses at TV One were $20.6 million in Q2 2012, versus $22.0 million for the full second quarter of 2011, a decrease of 6.4%. TV One's corporate expenses in Q2 2011 benefited from the capitalization of approximately $1.2 million of expenses associated with a new debt facility at TV One.

Reach's operating expenses increased by 7.5% primarily as a result of a newly executed management agreement between Reach Media and Radio One.

The Internet segment's operating expenses increased by 2.2%, mainly due to higher costs of revenue.

For the second quarter, consolidated station operating income was approximately $41.4 million, up approximately 19% compared to the same period in 2011. Adjusted consolidated EBITDA was $31.6 million, an increase of approximately 16% including TV One.

Stock-based compensation decreased to approximately $46,000 for the quarter. Depreciation and amortization expense decreased to approximately $9.7 million, compared to approximately $10.2 million last year. Approximately $6.8 million of that were recorded for the fixed and intangible assets of TV One.

Interest expenses remain flat, at approximately $22.9 million for the second quarter. The Company made cash interest payments of approximately $15.5 million in the quarter. The PIK election for the Company's 12.5%/15% senior subordinated notes expired on May 15, 2012, and since then, interest accrues at a rate of 12.5% and is payable in cash.

The benefit for income taxes for the quarter ended June 30, 2012 was approximately $48.5 million, compared to a provision for income taxes of $38.6 million for the quarter ended June 30, 2011. This is a result of adjusting the year-to-date income tax provision based on the actual effective tax rate as of June 30, 2012.

Net income was approximately $42.7 million, or $0.85 per share, compared to net income of approximately $98.6 million or $1.94 per share for the same period in 2011.

For the second quarter, capital expenditures were approximately $3.8 million, compared to $1.9 million in the second quarter of 2011. Approximately $1.4 million of the CapEx relates to the Company's corporate office move to Silver Spring, Maryland.

The Company received dividends from TV One in the amount of approximately $1.8 million in the second quarter.

As of June 30, 2012, Radio One had total debt net cash balances of approximately $777.2 million. For bank covenant purposes, our total net debt was approximately $686.5 million; and our LTM Bank EBITDA was approximately $83.2 million, giving a total leverage ratio of approximately 8.25 times and a senior leverage ratio of approximately 4.31 times.

We elected to pay less than the maximum possible dividend from TV One for the second quarter, as we are focused on maintaining compliance through our 2013 covenant step-downs, and we are likely to defer some dividend receipts into 2013.

As of June 30, 2012, the Company's cash and cash equivalents by segment are as follows -- Radio and Internet, approximately $22.0 million; Reach Media, approximately $4.1 million; and Cable Television, approximately $16.7 million.

In addition to cash and cash equivalents, Cable Television segment also has short-term investments of approximately $232,000 and long-term investments of approximately $2.9 million.

We are reclassifying payments to TV One content assets in the cash flow statement from investing activities to operating activities. This will not affect the profit and loss statement or the balance sheet, but will result in approximately $23.4 million of payments for content assets being reclassified for the year ended 2011, and we will be filing a revised 10-K/A to reflect this reclassification.

Thank you, Peter. Operator, we'll open it up now to questions.

(Operator Instructions) And our first question comes from Bishop Cheen with Wells Fargo. Please go ahead.

Thank you for the update. Let me just go, to make sure I have this right. 2013, let's say first quarter, front half -- I thought you said TV One will defer some dividends in order to -- or did I misunderstand that?

Let me jump in, Bishop. So, what we've generally been doing is dividending out the net income and taking out to the maximum that we're allowed to do under all of the various agreements. And so, for example, we've got to leave $15 million of cash in there, but we can dividend out everything else. Obviously, once we take the dividends, that starts the clock running on the 12-month LTM period, over which they'll be counted.

And as we started to look through -- we obviously had a pretty good second quarter. We feel good about third, as Alfred said. So, we think we're fine on our covenant compliance through the end of this year. And what we're looking at now, is the step-downs that we've got coming up, particularly in Q1 of 2013, where we've got a half a turn step-down and then we got another big step-down at the end of 2013.

So, what.we're going to do, we think, in terms of TV One dividends, is we're just going to take the minimum that we need to maintain a reasonable cushion for the rest of this year and store up the cash at TV One so that we can take bigger dividends in 2013, probably Q1, which will obviously count against -- we can count that at a period where we're going to be stepping down in Q1 and it will roll forward 12 months and we'll count again Q4 as well. So, our thinking on covenants is -- we're fine through the rest of this year. Obviously, we don't know how next year is going to pan out in terms of Radio, so we think it's a good insurance policy to defer dividends, build up cash in TV One and take them in 2013, as we step down. Does that make sense to you?

Yes. I do. But the covenant (inaudible.) Now it does make sense. But basically back of the envelope, free cash flow of TV One equals the dividends that are distributed from TV One. Is that correct?

Sorry, what was the question?

Basically, when we try and model it out, we look at the free cash flow that TV One generates, and that is basically back of the envelope equivalent to the amount of dividends that are distributed from TV One.

Yes.

Okay. All right. That's fine. So you do the cash build there. So, can you give us - - you say political is starting to build up and we're sort of getting smells of that.

Yes.

Can you quantify it, on what you think you might see in the back half on political?

You know what? We're forecasting I think less than -- I think we're being conservative in what we're forecasting internally. But, literally, it just hit last week. Like, last week we got our first orders in Virginia, North Carolina and Ohio. So our assumption is that -- and by the way, that's early. Generally, it wouldn't start that early. These are the forecast numbers?

Yes.

And so, I don't know how good it's going to get. Right? And I also don't know -- the tighter the race the better for us. But for the year, we're kind of forecasting -- and this is not just the Obama campaign, this is everything -- about $4 million of political. We could do better than that. And right now, we think the race is shaping up to be in our favor. Certainly, at least I am, pro Obama, but unfortunately, I do find myself rooting for a very tight race, because our business interests are rooted in a tight race given the fact that African-American voter turnout should be really, really critical in those swing states. And hopefully, the campaign sees that and they continue to utilize our assets.

And we have -- we own almost every black radio station in the major markets of Ohio except for Dayton, which you used to, and we sold them. And we're in Raleigh and we're in Charlotte. DC covers off the northern Virginia market. We've got a big position in Richmond, Virginia. Pennsylvania should be in contest. We're in Philadelphia, so I think it's going to shape up for us quite nicely.

Alfred, that all makes sense. Let me tell you something I learned from your mom, 30 years ago. When it comes to ad dollars, any one over 7 accompanied by money -- and that's her quote. So that all makes sense.

So, we're rooting for the President, but we're also rooting for a strong race that buoys our prospective advertising efforts.

Yes. All right. Then last one for me. TV One - - you have said, in some very helpful color in the past, that TV One, I think in the first quarter, maybe even Q4, was lagging a little bit in what it was spending or wanted to spend in program development.

Yes.

And so, that conjures up images of, oh my God, all of a sudden we're going to be hit with a TV One expense spike in some quarter or half ahead. So, can you give us a little color about how you think about that and trying to control that?

I mean, it's really in the guidance we've given for TV One. So, when we gave you guys a $40 million EBITDA number, we took into account that there was going to be a significantly higher programming spend in the back half of 2012. And the new programs are going to start rolling out in August and into Q4. And so, beyond what we've given you guidance-wise, I don't think that you're going to see any surprises. And if there are any surprises, hopefully, we do better than we've guided.

We're in the process now of thinking about 2013, however, we really can't nail down programming strategy spend for 2013 until we see what our baseline is going to be from the second half 2012 programming that we're launching. So, the budget process is starting, but it's really dependant upon, also, how well these new shows do - - what returns, and what doesn't return, and so, that's all being formulated.

I can tell you that we got into the cable business to diversify, because we knew that we were in a mature slow to no-growth industry in radio. And we're managing TV One's growth prospects to make sure that it meets Radio One's needs as well, because that's why we created it. And it's a balancing act, because you have to make sure that the network has enough support and enough resources to continue to grow as it has, but obviously, we've got needs, as well, and the dividends help Radio One in a significant way. And so, we're carefully managing that whole process.

So, I don't think you've got to worry about any programming spike beyond what we've guided to. Next year is not solidified yet. And the wild card is -- what's Radio going to do next year? If Radio continues for us, to be strong, then that gives us much more flexibility as a company.

And we're having a great year so far, and that's actually without Houston's news station kicking in yet. It's still at about a 1 share. It's starting to increase its revenue quite nicely, on a steady upward trajectory. But we're still been at just about the 1 share. We continue to market it. I still believe that the number 6 market can support one all news radio station. And so, we're managing the resources.

But we feel good. I mean, even though it's a departure from how we managed the dividends in the past, the fact that we have the ability to get ahead of 2013 step-downs with a plan, five months before we get to the end of the year, is a good place to be. I like being proactive and planning forward.

All very helpful. I'll pass it along, but in your comments, please give us some color on TV One Upfront, as well. Thank you, Alfred. Thank you, Peter.

TV One Upfront actually pretty strong for us, I want to say pretty strong. The Upfront in general, I think, I wouldn't call it soft, but yes, I definitely saw a -- we saw a shift of strategy even by the big guys, most of the big guys, to go for volume rather than CPM. We got nice -- I wouldn't say dramatic -- but we got nice increases in both volume and CPM.

I think the reason that we were able to also get decent increases in CPM probably a little better than the big guys is because we're a young network. So just because our CPM may be increasing, call it 5%, and theirs are increasing 2% or 3%, they may have -- there may be a 100% gap between where we're at from a CPM and where they're at, because we're 8 years old and a BET is 32 years old.

But I think that the guys at TV One did a very good job, are going.to get close, very close, to the volume goal that they set out, which was a significant number, tens of millions of dollars, in up front ad revenue. So, now it's up to the programming folks to deliver on the promise and the new strategy with the original programming. The ad sales guys are hanging in there, and holding their own, even in what is being seen today as a somewhat soft scatter environment.

Now, who knows? If the macro atmosphere continues to be cloudy and deteriorates, which if you ask me today, I think there's a real probability that the macro environment deteriorates -- if for no other reason than that's all that everybody is talking about on the news -- then we'll see if scatter further weakens and what that does, and also, what's that going to do to general advertising for radio and digital, et cetera.

We're going to miss you. I'm sure you must be happy to retire. But thank you for all of your support and always being first on the line to ask us some very insightful and intelligent questions.

Next question, please.

Michael Kass with Blue Mountain Capital.

Thanks for taking my question. Just wanted to delve a little bit into Radio OpEx. Specifically, what was OpEx growth if I take out -- or maybe the better way to approach it is - - what was the decline from the new affiliate agreement with Reach Media? And then also, what was the timing shift in expenses from the Cruise?

Okay, so, the decrease from the Reach Media agreement was a $1 million in the quarter. And the One Love Gospel Cruise costs that didn't recur was $2.6 million. And then, the other big movements, Michael, were, as we talked about before, the Houston format changed about $1.1 million in the second quarter of additional incremental costs.

Okay.

And then just a couple of other things I'll mention. Sales commissions and the like were up about $800,000. So the variable piece, variable costs on revenues ran $800,000. And then we had about a $550,000 benefit from reduced music royalties. So, we got credit essentially from ASCAP and BMI. So, they were the big things in the Radio.

So, if I take out Gospel and -- the Gospel shift, because it obviously went into Q1, the $1 million savings from Reach, which obviously is just inter-segment, and then the $550,000 benefit that you talked about, I mean, what was organic expense growth up in Radio?

I have to workout a percentage. But they really were - - aside from the variable $800,000, there's about $300,000 of Arbitron; there's about $300,000 of compensation costs, and about $300,000 of talent costs, and that was about it. So, organically, I would say we've got $600,000 - - $900,000 of costs plus $800,000 of variable revenue expenses. That's the extent of it in terms of Radio.

I guess what I was trying to get at is it looks like that pretty significantly - - it looks like it either outpaced or is mainly in line with the organic revenue growth that you were talking about; the 6.5%. And I'm just wondering if that is something that people should expect going forward, or should we expect some operating leverage, now that Radio, at least provisionally, seems to be doing a little bit better?

I think we do expect operating leverage. Obviously nothing we can do about the variable part. As revenue goes up we're going to pay more sales commission. Out of the things I mentioned, the Arbitron agreement is contractual. But the rest of it -- we're going to continue to benefit from lower music royalties, and we should get some operating leverage. As you know, there is a high-fixed cost element, and as revenues increase, we should see improved margins.

Okay. And just On TV One -- and forgive me if you went over this and I wasn't able to catch the beginning of the call. You've talked in the past about being able to disclose some operating metrics that would give people more of a handle on the growth of TV One, i.e., CPM, subscribers, things that other cable networks disclose. Anything that you can kind of shed on that this quarter --

No --

-- or any sense of kind of when you will be in a position to disclose that kind of stuff?

We've got to sit with NBC, Comcast and figure out exactly what it is - - if they're okay with us disclosing. But again, the strategy of TV One is in flux because of the new programming that's scheduled to hit in the second half. And so that will give us a baseline of what we're starting with going into 2013. So, we've been focused on that.

So, I would say that I'll be able to have more concrete answers by the next call. But, look, you're a big investor; and we can talk -- we can get more color in the coming weeks and we can have a conversation off line. In particular, if you've got some specific metrics that you're interested in, we can try to get those cleared for sort of, public release, as we have our budget conversations with NBCU.

Thanks a lot.

We have a question from Aaron Watts with Deutche Bank. Please go ahead.

Alfred, just curious, if I peeled away the syndicated programming from the Radio unit, does the growth, that 6.5% core growth, does that change drastically for the core stations?

If it goes up [as a] slight -- I think it's about 7 - - let me just pull it up, excluding syndicated shows. Just give me one second. I think we were up 7.2 off the top of my head without -- if you take out the syndicated shows. So it was a little stronger without the syndicated shows.

Okay.

7.2 is where we were in the markets ex the syndicated shows.

Yes, I didn't have an exact number off the top of my head so I'm glad Peter stepped in. But our performance in Radio is at the core market level. Our business is much stronger -- is our base business which is encouraging, and we've still got some significant upside left. Atlanta as a market for us has been very strong, driven by ratings growth. Our three radio stations, in particular, two of them the Hip Hop station and the Urban AC are -- have been on a multi-year very strong ratings trajectory. We just got a signal improvement back in November on the Urban AC and we've seen the ratings rise nicely since that signal improvement. We actually got a signal improvement on the Urban AC and the Hip Hop station. So, our Urban AC station is number 2 25-54 in Atlanta, and I think the Hip Hop station is, like, fourth or fifth. And our LMA in Detroit, the reconfiguration of the Detroit market (inaudible), is also extraordinarily strong with 30% and 40% and 50% revenue growth. So, we're seeing just core radio operation strength.

Is there a big difference, Alfred, between kind of your local sales efforts and what you're seeing coming in on the national side; or are they both pretty strong right now for you?

Well, no, national, I'd say first -- Peter [would have] the exact numbers, but for the first half of the year, national was weak and local was strong. I think national started to strengthen as we came out of Q2 and got into Q3. But national is always the variable that's toughest for us to control, and it's the most volatile.

I also have a theory that national radio and national [spot] TV -- broadcast TV and national magazine and newspaper is where the digital dollars are coming from. So, I think you're going to continue to see weakness on average in national, because digital conversion -- digital dollars have to come from somewhere. So, when local is driving the train, that's when we feel we're at our healthiest.

And to be specific around that for the second quarter, local was up 8.4%; national was up 4.6.

Got it. And last one for me. I'm just trying to get a handle on the general health of radio, and it seems like you guys are clearly doing a good job here with the growth. As you look across your whole portfolio, some markets are doing better than others - - I mean do you think those are market specific issues? Is it just choppiness across the country as you look at kind of a demand for the ad time? Alfred, what do you think is kind of the push and pull of what's driving radio growth or lack thereof now for the industry?

I wish I was that smart. I mean everything that I -- Houston is our biggest market. Everything that I read about Houston as a city, is all guns blazing, center of the worldwide energy sector, low-cost of living, people moving there. And Houston, as a radio market, is not doing great. We've got a great position there, and we think that we've got upside with our new station. But all of the sort of economic indicators of what should be a good market, Houston has it. But it's not coming through, in sort of it being a strong radio market. So, I wish I could answer the question. I'm just not clued in enough as to all of the different factors and variables that drive it.

All right. Fair enough. Thanks for the insight.

Thank you.

We have a question from Patrick Fitzgerald, with Gleacher and Company.

Thanks for taking the question. At TV One -- I know you're not really prepared to talk about it, but historically, you've given guidance that the sub fees versus advertising was roughly 50-50. I mean, is that still true?

That is still true.

Okay. Are you willing to say which side of that is growing faster?

Yes. Now that our sub fees -- our affiliate revenue is growing faster than advertising. TV One is having a soft year in ratings and it's having a soft year in ad revenue. But obviously, our sub fees are contractual and so they're growing faster. And TV One's at an inflection point. It needs to get some -- number one, it needs higher ratings, and it needs some increased distribution.

And we've got competition coming for it. VH1 has launched a whole slate of African-American targeted shows that, quite frankly, have hurt the incumbent African-American networks, us and BET. They've got better ratings than BET does. Some of the Comcast - one of the Comcast diversity networks has launched Aspire. It just launched about a month ago, so, we've got competition coming from there. They'll take ad dollars off the table.

This [Faust] TV which is on digital side channels, I don't think will get get any ratings, they don't give you sub fees. But they will take some ad dollars off the table as well. So, we've got headwinds coming at us, and we've got to figure out a way to meet the challenge. But this year has been a soft year for TV One. But even in a soft year, we're going to go from $32 million to at least $40 million of EBITDA.

Great. Thank you for the color. In terms of Reach Media, that's performing pretty weak since you renegotiated the contract there - -

Yes.

I'm just wondering, are you delivering programming of Reach to a smaller audience now, or --

(multiple speakers)

-- is the weakness really just materially -- just kind of related to the structure of the new deal?

Yes. The latter. What we're essentially doing is paying them $1 million less each quarter. So we're reducing their revenue, and as part of the deal, compensation for Tom Joyner and David Kantor went up somewhat. That was the way the math kind of worked out on the deal. So, we're [depressing] their revenues and we're increasing their costs, and that's the structure of the new deal. Works better for us at Radio One, but I think I said on the last call, you shouldn't expect to see much, if any, EBITDA out of that unit, because we're taking the money a different way.

Got you. Okay. And then, I think on your press release, you said that you're pacing up high single digits in the Radio division.

Yes.

I mean is that baking in some political that you're going to get in the second -- in the next --

In third quarter?

Yes.

The answer is yes. Actually, some of our markets we're forecasting political; some we're not. The guys in Ohio, were for certain that they were going to get it, so they forecasted political. Some of the other markets didn't have it in there, like Washington, because -- not sure whether or not they would use Washington as a media vehicle for Virginia, because Washington stations only really cover northern Virginia. But it did happen.

But, as I said earlier, I think we were fairly conservative on our political assumptions. So case in point, our pacings jumped last week. And they go back and forth, but they've been pacing high -- almost 10%, 9-plus percent. Then they dropped down to 7% a few weeks ago and they jumped back up to 9.2%, 9.5% last week, as political started to trickle in.

So, I think it's more likely -- I feel like we've got more momentum on the upside than we have on the downside right now for Q3. And Q4 was the worst quarter that we've had in a very long time, except for those quarters right in 2009, when the industry was down 20% a quarter. But we were down 10% last Q4, so, we're going to have a great Q4, because last year was so bad. So that's why we feel really good about this year, and now it's all about next year.

Great. What was political in 2008? Do you have like a -- however many million dollars you guys received in 2008?

Peter's got that number.

Yes. In 2008, $6 million.

All right. Thank you very much.

Thank you.

We have a question from Timothy [Stebbles], a private investor.

Guess one of my questions is about the short interest. We've got a sky high short interest in Radio One, the highest on NASDAQ. And I'm wondering, obviously, I guess there's really nothing we can do about that, right?

Yes, well look, I read that on the Yahoo message board. I guess there's almost 5 million shares short which is 10% of the 50 million shares outstanding. But because the trading volume is so low, it has the longest period to cover, like 167 days, of any listed stock in America.

I don't know if people are short the stock because they're hedging some of the other securities they own. I don't know. We stopped buying in shares, because business -- the economy started to -- because we thought things were -- a year ago, we thought things were going to be good; the economy started to weaken again. We stopped buying in shares, and started focusing on covenant management again. We're still focused on covenant management at this point. And so, I don't know what you can do about it; other than perform, which is what we're doing.

Alfred, does the window for insider buying in the open market open up after the earnings release in a few days here, generally, unless there's --

Yes.

Yes?

Yes.

So, the Company's pretty much done with the buyback for now? We're not doing anything for the rest of - -

No, we haven't done it. I wouldn't say that we're done with the buyback. Look, the stock's trading as an option now. At $0.80 people who are buying it are just basically betting that we're going to make it or we're not. I think everybody -- I'm sitting in a room full of five Radio One executives. I think we all feel really good about where the Company sits right now. I'm not so sure about where the economy is going to go, but we feel confident that we're in a good position to manage our way through it.

But when you have 8 times leverage, and asset values are trading between 7 and 8 times, theoretically, there's no equity value there, right? Unless, you take in the hidden assets and what's the value of TV One, et cetera. But I don't think investors - - equity investors are in any mindset to give us credit for a value of TV One. So, I think, ultimately, the stock really doesn't move until we get our leverage down to 6 times. So, they can say there's -- I think most people would agree, worse case scenario, these kinds of assets are 7 times assets. So, if we get down to 6 times, and there's a turn of equity value, and then we'll get some credit. But as long as we're perceived at 8 times or 7.5, I think stock trades is an option.

And the reason I say it's not -- I wouldn't say that we're done with buybacks. Once we know and we're very certain that we're not going to have any covenant problems, then we'll go back and refocus on it. We only have $5.5 million left in our [RP] basket, so it's not like we can do a lot. But there will be that arbitrage between some people thinking that the Company is in a very bad position, and those of us inside who know that we're in a much better position, and we will get down to 6 times, and there will be equity value.

That's helpful.

That's how we're thinking about it today. But six, eight months ago, actually almost this time last year, we were in -- I don't want to call it crisis mode, but highly concerned fire drill mode. We've got to get ahead of these covenant issues for next year, these operating issues. Today, even with the tough macro environment, we feel like we've got a lot of weapons in our arsenal to handle our leverage and our step-down and get it down.

You guys knew that you could do the TV One dividend timing strategy or tactic a good while back, obviously, I take it, right? That's not a discovery.

No, it's not a discovery. It's something we'd talked about. But I think as Alfred said, towards the backend of last year, we were really focused on 2012. This year we have step downs, and we wanted to make sure we were good on the covenants. I think over the past few weeks, we're looking further ahead. We're looking into Q1 next year; we're looking at step downs in Q4 as I mentioned earlier. So, I guess our focus now is on step downs further out, and then the strategy really plays into that.

Just one other question then. Do we have the ability to look at other financing options or just pretty much meeting our covenants going forward?

The bonds are trading at [82.5] and I don't think when those bonds are trading at that deep a discount, that you have any other financing options, unless you want to pay what the yield to worst is. So, we've got to get those bonds trading better before we can look at --

By the way, we're happy with our first lien. It's the sub notes that are expensive. And as long as they're trading at that kind of discount, then we've got to get those up, before we can look at any other less expensive financing options.

Good quarter. Good luck.

Thank you.

We have a question from Jared Golub with Marblegate. Please go ahead.

Thanks. I think most of my questions have been answered, but just a quick housekeeping. Peter, did you guys make an extra payment on the term loan in this quarter? Just having trouble reconciling what was in the release to what I think the number should have been.

We paid down around $2 million -- it was an excess cash flow payment and it was a couple of a million bucks.

No, I'm getting about 1.9 as I'm short.

That's exactly what it is. Yes. So, it's the annual excess cash flow test, and we made that pay-down as a result of that.

And, I can look it up in the credit agreement, but does that go against the front end of future amortization, back end, pro rata?

I believe it's pro rata, off the top of my head.

Okay. Perfect. Thank you very much.

Thanks, Jared.

Question from Kevin [Gilley] with Scotiabank.

You briefly touched on buying back stock, I was just wondering have you thought about using the $5.5 million in your RP basket to buy back any of the senior sub notes?

We've looked at all kinds of options, and lots of things are on the table once we get 100% comfortable on our operational metrics. So, I would tell you there's a lot of thought, and there's been a lot of thought that goes into every single option that we have, and we've looked at all of our baskets, et cetera. So I'm going to leave it at that.

That's everything for me today. Thank you.

Question from Michael Guarnieri with Nomura. Please go ahead.

Good morning, everybody. I had a couple of remaining ones. Again, most of mine have been answered as well, too. Peter, I want to come back to the pacings thing. It's really a two-part question. One is, can you give us some more color on current pacings? I saw, obviously, the release that said high single digits -- maybe perhaps a little color on July in particular. And the second thing, on the last conference call, you talked about pacings were up I think 3% in April and 20% in May, and Radio was up only 6.5 for the quarter. So, can you sort of give us some guidance as to what happened in June? I guess we would have thought things -- while a great quarter, things would have been up a little bit more.

Okay. I'll just take them in sequence. We've had a strong July. We're going to be up somewhere between 16% and 17%. We're still finalizing the number. August is up kind of mid singles, and September is flat right now. So that's how third quarter is just panning out. And yes, I think June came in weaker than -- I think the pacings weakened. I think that's been a trend that we've had for the last several quarters. So, we've been pacing high and then pacings have been falling off. I think in Q3, we're pacing close to where we're forecasting. And as Alfred said, the pacings seems to be pretty robust. I think we've got July in the bag, up strong whole digits. We've got August up mid singles; and some political coming in. September is going to be the big question mark; flat at the moment. We hope it's going to strengthen as we got political dollars.

Yes, the guys who run the markets aren't panicking on September yet. So, let's be clear, though. I do think the economic environment is weakening. And when I say weakening, you think that it was going to always be very, very slow growth environment, and people's sort of natural kind of reaction is that all of a sudden you're going to see some nice, steady rise, somewhat rapid rise, and that's just not going to happen. So, we as radio operators, and we as Radio One in particular, have to have a completely different strategy as to how we grow our cash flow, and drop our leverage, than just hoping that radio, all of a sudden, starts to grow 5%, because I don't think it is.

Terrific. Okay. I appreciate that color. And then, the only other one from me is focused on Houston. As you've said consistently and reiterated on the call, you're spending $1 million a quarter plus a bit more in fact on the format change and repositioning the station, et cetera. When do you believe we'll start to see an EBITDA improvement? And perhaps you could give us some guidance, even if it's in a range. What sort of EBITDAs are you reporting there right now, and how do you see that scaling, and in what timeframe?

We have to look at it and play it out. We don't have it down to that detail. We knew that we were going to take an EBITDA hit this year. We thought that - - we didn't know how long it was going to take to get the ratings. Right now, our consultant's sort of predicting that -- he thinks we get the ratings break in the first quarter of 2013. He's not Nostradamus. That's just his guess; you know what I mean.

So, the tricky thing on Houston, though, is that even though news is growing slow but steady, it's helped our urban stations tremendously. So I think that it's the right thing for the cluster. Not that what we all paid for these radio stations however many years ago, but we paid $72 million for the FM in Houston that we're doing this on. And we were doing $4 million in revenue and $2 million of cash flow doing Gospel and that's just an awful use of a signal with that kind of investment.

So, taking an approach where we're making an investment in a completely different alternative audience, freeing up the urbans to have better ratings, and going after ad dollars, and ultimately trying to turn that $2 million of cash flow into $4 million or $5 million cash flow, is just the right thing to do.

And we will manage that in relationship -- some people - - often times like when we look back on it - - when we did our bank deal a little more than a year ago, we lament, maybe we should have put a bond in so we didn't have any maintenance covenants. We talk about that a lot. But the other flip side of that is, those maintenance covenants keep us focused on getting our leverage down, which I think is actually a healthy discipline and a healthy governor for the Company. And I really think it's healthy when I'm sitting here thinking that we've got a clear path to deal with it.

Right. Okay, okay. Are you -- Alfred, just coming back to something about pacings. I guess - - so you're starting this volatility in pacings from month-to-month, I guess in your view, that's just the reality right now, given the economy? I mean any -- what are your thoughts? I mean obviously 17% in July is fabulous -- or, 16% to 17%, pardon. And you had obviously the big month, but then you have ups and downs.

Yes. But go explain it. I can't explain it.

There was some talk that some people were trying to get ahead of political, that people were concerned that they would get locked out of inventory, and particularly in TV and there was some overspill into radio. That was talk that we were hearing, so people were buying earlier to avoid getting locked out when the political came down. But other than that - -

But August is up but not drastically. And explain May, right?

Yes, right.

Our May was a huge spike, right?

Right.

Okay, listen, thank you very much for the color. I appreciate it.

We probably have time for one more question if you want to do one, and then the hour will be up.

One more question, please Operator.

Okay we have a follow up from Patrick Fitzgerald with Gleacher and Company.

Hi, Patrick.

Just with respect to the restatement, were those content assets that you categorized, I guess, improperly, on the cash flow statement, were they related to - - I assume they're related to TV One?

Yes, they are, and I'll give you the fuller version of it. What we're talking about specifically is the cash that was used to pay for content assets. And there are essentially two types of content assets, those that you license in and those that you produce yourself. As we brought in the cable business, we thought we ought to -- and made a decision about where we should categorize those. We decided that they should be in investing activities on the cash flow statement. As we've looked more deeply at it, we see actually that's something in the accounting literature that points to the fact that where you own the content, you should show it as an operating cash flow, not an investing cash flow.

And then as a follow up to that, we're looking around at what all our competitors are doing, and it would appear that they're putting all of the payments for content assets in the operating cash flow. So, that's what we're going to do, we're going to fall into line with what we see in the accounting pronouncements and in the competition. We didn't really have any angle on doing it one way or the other, we were just trying to do what we thought was the right thing. But it appears that we were wrong in how we categorized it, and so we're going to re-categorize it, and it just relates to those two asset types at TV One. Does that make sense?

Yes, totally. Thanks a lot. And then this is probably a longer answer, but you can answer it as quickly as you want. Just in terms of deleveraging type transactions, I mean it sounds like you have a few stations that are underperforming - - you know, their signal strength. Would you -- have you thought about any type of [stick] transactions out there. Are any stick transactions out there available to you?

Sure we have, but we don't have anything that would move the needle significantly. We have - - this is not Emmis. We don't have like New York or Chicago signals or LA signals where you can come up with a $100 million and pay down a chunk of debt. Quite frankly, we sold a bunch of that stuff prior to the downturn, which is why instead of $1billionof debt, we got high 600s. But we've got alternatives, again, that we're exploring. aAd I would say, particularly to the bond holders; look, I don't like the bonds trading in the low 80s either, because it prevents us from ultimately being a candidate for more attractively priced financing. But, we're not going to have a problem. So, those bonds will have to trade up as everybody else in the marketplace starts to believe what we believe and that we can deliver and will deliver. It's going to take us a minute.

But there's no silver bullet. There's nothing -- we're not holding on to anything internally that would be some big cure all. Otherwise we'd do it. I mean if the bonds weren't trading at 82 and they were trading at par, then the equity wouldn't be trading at $0.80 and all of us as shareholders, would be worth a lot more money. I'd take that deal tomorrow.

Thanks, I appreciate it.

Thank you, everybody. As always, we're available offline for any additional follow ups. Operator?

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