Urban One Inc (UONE) 2012 Q4 法說會逐字稿

Welcome to Radio One's fourth quarter conference call. I've 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 and 10-Qs and other reports periodically filed at the Securities and Exchange Commission could cause the Company's actual results to differ materially from those indicated by its projections or forward-looking statements. This call will present information as of February 20, 2013. Please note that Radio One disclaims any duty to update any forward-looking statements made in the presentation.

In this call, Radio One may also discuss some non-GAAP financial measures in talking about its performance. Its measures will be reconciled to GAAP either during the course of this call or in the Company's press release which can be found on its web site at www.radio-one.com. An audio replay of this conference call will also be available on the Radio One's corporate website at www.radio-one.com under the Investor Relations section of the web page. 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. Mr. Liggins?

Thank you very much, and welcome everybody to our fourth quarter results conference call. The press release went out this morning. As you can see, the Company performed extraordinarily well in Q4, not surprising given the political environment, political advertising environment. However, we considerably outpaced the market and we're positive even net of political. We're feeling very good about our Q1 pacings as well. TV One [misses] and Radio, TV One posted another strong year for 2012. You know, we anticipate that TV One will have another double-digit up cash flow year in 2013 and we're most excited about the fact that we believe that even in a soft to flat market in radio that we should be able to post another strong year as well. With that, I'm going to turn it over to Peter to go into the details of the numbers and then we'll open it up to Q&A.

Thanks, Alfred. Net revenue was approximately $105.9 million for the quarter ended December 31, 2012, an increase of 8.1% for approximately $98 million for the same period in 2011. The Radio Division excluding Reach Media produced net revenues of $60.2 million, up 11.0% from the same period last year. We recognized approximately $33.5 million of net revenue from the Cable Television segment in the fourth quarter, an increase of 6.8% over Q4 2011. Reach Media had net revenues of $8.3 million in the quarter which was down 20.9% year-to-year. While Reach Event revenue was up for the quarter, the decline was due to a change in the affiliation agreement between Reach Media and Radio One on January 1, 2012 and a decline in radio advertising revenue. The Interactive Division had net revenues of $5.2 million, up 7.7% year-to-year.

Our four largest radio clusters performed as follows. Houston net revenue was up 4.6%. Washington DC was up 37.8%. Atlanta was up 7.4%, and Baltimore was up 11.2% year-over-year. Our Indianapolis, Detroit, Cleveland, Dallas, Cincinnati, Columbus, Richmond, St. Louis, and Charlotte clusters all posted revenue growth year-over-year while our Philadelphia and Raleigh clusters posted net revenue declines over last year. Gross political revenue was $5.9 million in the fourth quarter and $9.1 million for the full year, which is the highest in Company history at more than twice what we've budgeted. All of our markets had political advertising in the quarter with the majority in our Washington DC, Ohio markets, Baltimore, and Detroit.

Our top three advertising categories were retail, which were 16% of our total and was down 4% year-to-year. Government and public, which was 15% of our total and was up 102% year-to-year. And telecoms, which is 12% of our total, and down 5% year-to-year. Aside from the political spend, revenue growth was driven by auto which was up 3%, health up 12%, and services up 29%. TV One had advertising revenues of $16.3 million, and affiliate revenues of $17.2 million for the quarter. And those numbers were flat and up 14.5% respectively year-over-year. Cable subscribers, as measured by Nielsen, finished the year at 57.3 million compared to 56.3 million at December 31, 2011.

Operating expenses excluding depreciation, amortization and stock based compensation increased to approximately $81.6 million in Q4. Radio division expenses decreased 0.9%. Expense reductions from the change in affiliation agreement with Reach Media and reduced music royalty fees were offset by increases in performance base and revenue variable expenses. Expenses in TV One increased 23.8% mainly due to increased programming content amortization. We review the recoverability on a program-by-program basis based on estimates of future usage and due to our product mix skewing more towards reality we took a higher amortization charge than in prior periods.

On a cash basis we spent $11.4 million on content assets during the quarter of which $6 million was on original programming. For the full year, TV One spent approximately $55 million on content assets of which $31 million was on originals. Reach's operating expenses increased by 4.8% primarily as a result of the newly executed management agreement to Reach Media and Radio One. The internet segment's operating expenses increased by 18.5% driven mostly by higher traffic acquisition costs. Corporate expenses increased due to corporate bonuses earned in 2012.

For the fourth quarter, consolidated station operating income was approximately $35.7 million, up 0.6% from last year. Adjusted consolidated EBITDA was $24.3 million, a decrease of approximately 9.9% year-over-year. Interest expense decreased approximately $22.3 million for the fourth quarter. The Company made cash interest payments of approximately $21.3 million. Net loss was approximately $17.2 million or $0.34 per share compared to a net loss of approximately $21.5 million or $0.43 per share for the same period in 2011. For the fourth quarter, capital expenditures were approximately $2.9 million. And there were no dividends received from TV One in the fourth quarter, and the total amount of dividends received from TV One in 2012 was approximately $8.1 million. As of December 31, 2012, Radio One had total debt net of cash balances of approximately $761.5 million. For [paying covenant] purposes, our total net debt was approximately $680.3 million and our LTM bank EBITDA was approximately $82.6 million giving a total average ratio approximately 8.24 times and a [single] average ratio of approximately 4.27 times.

As we did in the second and third quarters, we elected to take less than the maximum possible dividend from TV One in the fourth quarter and defer those dividend receipts for future periods. As of December 31, 2012, the Company's cash and cash equivalents by segment are as follows. Radio and internet approximately $23.9 million, Reach Media approximately $2.4 million, and cable television approximately $32.1 million. In addition to cash and cash equivalents, the cable television segment also has short-term investments of approximately $1.6 million dollars and long-term investments of approximately $97,000. While a stock repurchase authorization has been approved by the Board of Directors, no stock repurchase has occurred in Q4 or thus far in Q1.

Thank you, Peter. Operator, I'd like to go right to the Q&A.

David Hebert, Wells Fargo.

Good morning, everyone. Thanks for taking the questions. I wanted to just talk first about Reach Media. Can you just help us understand the ins and outs of what's going on there, maybe the cash outlay for the minority stake you recently purchased, and then how to think about modeling that segment in 2013.

Sure, the cash outlay was pretty minimal. It was $2 million, and the thing that we did as part of that deal or immediately thereafter was we transferred across our corporate sales division and all our syndicated shows. And so we contributed profit of around about $2.5 million give or take as well as the $2 million in cash. And there are going to be some -- the way to think about it going forward is we expect that business to be profitable through 2013. There are going to be some synergies. There's going to be less sales channel conflict, and they're going to have a whole roster of talent that is profitable in there.

Yes, so the way we viewed it here is Reach Media essentially was the Tom Joiner Company because that was really their main product. They had some travel services. They do a cruise. They do some events but they were all driven by the Tom Joiner Morning Show which is the largest by audience and affiliate urban syndicated morning show out there. And quite -- we at Radio One also had some syndicated morning shows, Ricky Smiley, Yolanda Adams, and oddly enough all these years they've competed against each other, and it may -- once valuations -- valuation expectation got down to reasonable levels both sides could make a deal. It always made sense for it to be under one roof, but there is a big disconnect on how we get there.

So, finally we were able to do it, small cash outlay for the Company moved in our syndicated shows. Now Reach Media is the urban syndication company. I think they've got eight or nine shows. They're developing more. They're also launching a new network that's not personality driven but just audience driven, called Reach Net which will compete on the lower end of the cost per thousand continuum. So, I'm pretty excited about -- we're pretty excited about it.

The guy who runs it, David Cantor, is probably the most experienced and formidable network radio executive that's still working today. He ran ABC radio networks for years, created the AM/FM networks which is basically premier now, and he's a great executive. And so he and Tom own the other 20%. We own 80%, and I think he's going to do a fantastic job for us.

Okay. Great. Thanks for walking me through that. And then on TV One, how much in deferred dividends have you guys put aside? I mean is it as simple as the $31 million of cash less the minimum that you have to keep it at that subsidiary?

Pretty much and that was $15 million at year end. If you do the math, we could attain another $8 million.

Okay. Got it.

Sorry. Just to be clear that would be our piece, that's not the total dividend. That would be the piece to Radio One.

Correct. Right. Okay. Understood. And then the TV One bond becomes callable this year. Is that something you guys have looked into? Obviously you could probably get something at a much lower rate.

Yes, we have looked into it and we haven't pursued it and the reason why is we're paying 10% but we've got a [$105 million] coupon -- we've got a $105 million call, right, so we have, call it $6 million or something like that to take it out. Here's the bigger issue. Our affiliate agreements start to come up at the end of 2014. That's when Time Warner comes up, I think Cox, and one other smaller one and then the beginning of 2015 comes Comcast, and then the end of 2015 -- then March of 2015 is Verizon, and the end of 2015 is DirectTV. I just know if I go and try to get some great deal, which we should be able to do because it's only levered it three times, then I'm going to have some conversation about risk with the underwriter. Right, which then is going to -- about risks to those affiliate deals, and at the end of the day there's always risk for an independent network.

I feel like we're in a good position, certainly our partners, Comcast I think, we're going to be fine there and quite frankly, TV One is built to set it up as a brand. I think really the risks that we're going to have on affiliate deals are do we get an increase in our rate, do people try to roll back distribution, or are we able to increase our distribution. And so -- and so the long-winded answer to your question is that I think anybody underwriting a new senior debt facility is going to want to talk about that risk. And I'm just not so sure that we're going to be able to get such a great deal given that we're right in front of that, that it makes sense to deal with it at this point in time.

Okay. That makes sense. A lot of the MSOs have talked about dropping low rated networks. How do you feel about TV One's ratings in this environment right now?

The networks that they've dropped so far, Ovation and Current are our ratings are light years ahead of theirs. I mean, substantially. So if it's just ratings versus -- our ratings versus those, there's no reason to look at dropping us. Two, we're a targeted network. Three, nobody likes to say this publicly or go there, but it happens. I mean, I think we'd be a very noisy network to drop. I mean, we have 20 million radio listeners, 53 radio stations, 8 syndicated shows. It's not like we would go quietly. So, our audience cares about this network and about our programming. So I have no idea what our conversations are going to ultimately end up like.

We have entered -- we did enter into a renewal discussion with one of our distributors that we ultimately -- that ultimately didn't go anywhere, and it was a renewal for -- and it wasn't they were willing to renew us, but the conversation ultimately terminated because it started to revolve around, well what's everybody else going to do. How many more subs are they going to give you, and because we didn't know that we didn't want to make any economic deals with this particular distributor until we got some of these other deals under our belt, so at least that conversation wasn't about dropping. In fact there was a rate increase on the table.

It was about how widely distributed should we have you given where everybody else is distributing so that's -- so we're going to have some business on the other side of this renewal. I'm 100% confident of that. The question is whether or not it's a business that can ultimately get to $100 million of cash flow or whether it's a business, that gets stuck at $40 million.

Got you. Understood. And then last question from me and then I'll get back in the queue. How do you think about core radio this year? Seems like the year has started off well, pacing up mid single-digits, but clearly you have some difficult comps ahead especially Q4 with political. I'm just wondering -- wanting to know how you're feeling about that business this year.

I feel good about it. We've come through hell, like everybody else in the radio business. I think we are more in tune to what our assets are doing, what our human capital is, our strengths, our weaknesses, our clients, our programming now, than we've ever been in the radio business. We're also more realistic as to what we think the market is going to do for us, and we're running our business accordingly. So I think even in a flat to down market, we're going to grow our cash flow this year and that was our goal last year. I've got to tell you political was a big surprise. We didn't think we were going to get that much. But even had we not grown our political, we were still going to have positive revenue growth and I think that we're positioned that way for 2013.

So -- and it's not just -- it's a combination of top line and it's a combination of expense control and reduction in a number of areas, and so it's just not all market related. We've got a number of assets that are not mature, believe it or not, our Atlanta cluster is not mature. Our ratings have continued to rise over the last three years, and we're not converting at what we think is the peak level that -- or the average level that we could get to, where we've gotten to in other markets. We did a great LMA in Detroit. We got upside there.

Our Houston market right now, and Houston is our biggest market, is on fire. And it's driven by a couple things. One, the market right now is healthier than we've seen it in many, many, years, and I never really understood that because Houston is like the center of the world in terms of energy and oil. It's got low cost of living and all these jobs, all these things that you would think dictate a great local economy, but it's been a crappy radio market for the last three or four years.

This year it's a great radio market. Our ratings on our urban stations are up substantially and we have got a whole new pool of advertisers that we're playing to with our news station even though the ratings haven't really gone to where we want them to go. So Houston's doing well. Atlanta's doing well. Ironically enough, Baltimore is doing well. I think that market is healthy and Washington is pacing positive as well so those are our four big markets all in positive territory, so I feel really good about this year.

Great. Thanks again for all the answers. Appreciate it.

Ben [Brogadir, BMP].

Hello, thank you guys for taking the questions. I wanted to drill down in terms of expectations for TV One in 2013. I know on past conference calls you said you expected year-over-year growth from the $40 million EBITDA number in 2012 and that distributions to Radio One could be around $15 million to $20 million. I also noticed that the TV One margin for 2012 came in over 30%, a nice pickup compared to 2011. Just overall, what should we expect in terms of TV One in 2013? Is that a guidance that you'd be reiterating at this time or changing?

Well, I said at the top -- I said that you can expect, again another double-digit cash flow growth year and I think that dividend, guidance is right. Yes, we're good on that.

Okay. Fair enough. I wanted to focus on the balance sheet for a second. You guys have some pretty expensive debt outstanding with a 12.5% notes. I noticed you guys announced a $2 million stock buyback program. I just want to get your thoughts on how you view retiring or refinancing expensive debt versus share buybacks and potentially increasing shareholder value via lower interest savings.

Well, look we know our debt's expensive. We want to refinance it. We think we need to get into the 6%s in order to refinance that. We think that we got a good shot of doing that, and when we get into the 6%s, we're going to refinance the debt. In the meantime we think that the stock is, attractively priced at certain times some more than others. Clearly when our stock was at $0.70 for many, many, many months last year it was a screaming bargain.

The question for us is going to be where is it going to trade after people have seen these earnings, and if we find that it gets to be, attractive we want to bring in some shares opportunistically. $2 million isn't going to help us refinance our -- it's not going to mean the difference between us being able to refinance or not refinancing. What's going to drive that event is whether or not we can grow our cash flow again like we did last year in 2013, and which I've articulated just now that I think we've got a good shot at.

And that's fair enough, on the deleveraging comment, I noticed that on a sequential basis it looked like the term loan balance was down $6.3 million sequentially. Was that a free cash flow sweep or was that just an optional prepay?

All we paid in Q4 that I'm aware of is the mandatory amort which is about $1 million. We did make -- we do have a cash flow sweep once a year but that's earlier in the year. That's around May. I think we paid $2 million on that.

Okay. I'll go back and check that number. Lastly for me, just want to touch on your internet segment for a second. I know you guys spent some time discussing Reach Media. Internet's another division for you guys that is EBITDA negative. What are the expectations there for 2013 and going forward?

We think that, that division will be break even this year. We thought it was going to be break even this year, in 2012. We ended up losing $1 million. I think we've got it -- we have a plan, actually to break even and make a little money. That industry is very difficult because competitors keep popping up all the time, and there's no real pricing power. However it needs to consolidate, and I think it's starting to consolidate because people aren't making money.

In fact, a lot of people are losing a lot more money than we are. We've got it down to a really manageable number. Call it lose $1 million, break even, hopefully make $1 million. And I think that we need to continue with our strategy. Continue to grow our audience, make sure that we always have the largest African-American online digital audience and find a way to monetize that, not just through ad dollars but other ways and see what opportunities we have to consolidate the rest of the competitors in the marketplace in a very cost effective low risk manner.

I'm just going back to your other question that the difference that you may be thinking of, how to look at the OID. So we -- in the sites and leverage data in the press release $371.9 million, that's net of $5.4 million of OID, so I suspect that might be where you're getting the difference on the debt balance.

Got it. I'll settle with you off line. Thanks for taking the time. Appreciate it.

Matt Nelson, RBS.

Hello, guys. Quick question on programming expenses at TV One. Just curious if you could bridge us from the normal $13 million up to the $20 million that we saw in this quarter and then what you guys expect that number to look like going forward.

A couple of things. We have one show that under performed, Idiots, I think it was called. We wrote off about $600,000 on that. And I think our characterized fourth quarter amort as being -- us being prudent and conservative and we probably tied it up another $2.5 million of stuff that we just felt we're looking out and trying to figure out how it would run into the future, and we were pretty conservative with it, so I would say we probably took an extra $3 million, $3.1 million of amort just by cleaning house and making sure we were well covered, I would characterize that as.

And then looking forward to 2013, I think the amort that we're expecting to see is going to be ballpark for saying -- it will be a small increment probably more than we've had this year and on a cash basis, again, it's incrementally more but it's not hugely more. Now having said that, we haven't made final decisions for the whole year about the programming spend and we've got some [asks] in front of us for programs. We've got to make some decisions with that, so I don't think we're going to be spending another $20 million, $25 million, but could we spend another $5 million or $10 million? Possibly depending on what's on the table. Is that fair, Alfred?

Yes.

Awesome, thanks. And then corporate overhead was also up $2 million. Just curious if you could give us some more detail on that and also if it's going to go back to the $9 million to $10 million going forward.

Yes. That's a simple one. We didn't pay corporate bonuses in 2011 mostly because we had a poor year in radio. We obviously had a good year in 2012 so the delta is we accrued for corporate bonuses. We didn't in the prior fourth quarter.

Got you. Thank you.

Michael Kass, BlueMountain Capital.

You guys just going off that last question on TV One programming expenses. Could you just restate -- you mentioned before what the cash OpEx was in this quarter versus prior quarter. I just wanted to make sure I understood. So you're saying that you expect programming expense amortization to be roughly like $80 million next year?

No.

Okay.

No, I was talking about full year, Michael, so I expect it to be similar on the full year basis is what I was trying to say in 2013 to 2012 -- obviously caveated by the fact that we've got some programming decisions we haven't yet made. And we spent in fourth quarter, it was $11.4 million which $6 million was on originals and the rest was on acquisitions.

And that was versus how much the prior year?

See, I don't have that in front of me, but I'll get it to you.

Okay. Thanks a lot.

Colin [Lawson, Bowery].

Thanks for taking my questions. Actually, a number of my questions have been answered. I was just hoping that you could shed a little more light -- you said you'd be amenable to refinancing once you guys get into the low 65s. What do you mean by that and then the follow up to that is what's the timing that you think it will likely take for you to get to that low 6% number? Thank you.

I said into the 6%s. I didn't say low 6%s. We studied this and I think right now the Cumulus bonds are trading in like the high 7%s, call it 8% -- 8%, and they're my understanding is -- I haven't actually done the numbers but my understanding from the intelligence we gathered are levered at about 6.5 times. So, if we get -- we assume that we get to 6.5 times even though we're not purely a radio company like they are, but they're larger -- but if we get the 6.5 times we should be able to refinance at least our sub debt at 8%, and we're currently paying 12.5%.

I wouldn't want to go out and try to do something -- today because if we think that by -- if we think that we've got a better than 50% chance of getting into the mid 6%s for 2013, yes, I'd rather wait six months, as opposed to trying to shave 100 or 200 basis points off of the 12.5 % and go for shaving 450 basis points off of it.

Okay. Thank you. Very helpful.

(Operator Instructions)

Michael Guarnieri, Nomura.

This is Pete Kaye for Mike. Most of my questions have been answered but I just wanted to get what the leverage EBITDA number was and the leverage ratios that you said earlier were $8.24 million and [4.27]. Are they gross or net?

Okay. Let me -- let met walk you through that. So for LTM EBITDA, the number you need is $82.6 million. And you should be able to get -- I think the only number you will not have is that we have non-cash -- we had add backs of $3.5 million on an LTM basis. So, the way to look at it from the press release for your numbers is add in everything except TV One and then add back $3.5 million to that, and then add back the TV One dividends of $8.1 million. If you follow that math that should get you to the $82.6 million.

And then in terms of leverage, per the press release, you've got first lien of $371.9 million. Add back the OID that I mentioned earlier of $5.4 million. We've got $1 million of LCs outstanding, and then obviously we've got at that point we have $700,000 of notes and $327 million of notes, less cash in the Radio and Reach divisions of $25.8 million.

Right.

So that nets you down to $680.2 million. So that should give you the ratios. Perfect. Thank you.

And at this time there are no further questions in queue.

Thank you very much everybody. As is usual we're available offline for any follow up conversation. Thank you, operator.

Thank you. Ladies and gentlemen, that does conclude our conference for today. Thank you for your participation and for using AT&T executive teleconference. You may now disconnect.