Urban One Inc (UONE) 2014 Q1 法說會逐字稿

Welcome to Radio One's first-quarter conference call. I've 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 that certain factors including risks and uncertainties referred to in the 10-Ks, 10-Qs, and other reports they periodically filed with the Securities and Exchange Commissions 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 March 31, 2014. Please note that Radio One disclaims any duty to update any forward-looking statements made in this 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 this conference call will be available from 12 PM Eastern Time May 8, 2014, until 11:59 PM May 10, 2014. Callers may access the replay by dialing 1-800-475-6701 within the United States of America.

International callers may dial direct 1-320-365-3844. The replay access code is 324541.

Access to live audio and a replay of this conference call will also be available on Radio One's corporate website at www.radio-one.com. The replay will be 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, Chief Financial Officer. Mr. Liggins.

Thank you very much, operator, and welcome everyone to our first-quarter results conference call. As you have seen from the press release we, too, on the radio side were a victim of the weather in Q1. We are heavily concentrated on the eastern seaboard and the Midwest so we had experienced quite a bit of closures and saw resulting business falloff from that.

We obviously feel that this was a temporary, unique weather situation that we haven't seen in a very long time. And we are experiencing future hope that with political coming in the back half of the year that things will be turning up.

Peter is going to go into more detail about the exact nature of the categories that were affected. Also there's some noise in the numbers from the timing of the Tom Joyner cruise and also from the NAACP Image Awards on TV One.

The Image Awards is a big event for TV One. It was our highest rated event ever. One of the reasons that we were very focused on securing the Image Awards and securing it for the long term is because it puts us in a very good position going into our renewals, which are coming up in 2014.

TV One's primary focus right now is getting those renewals done. We are very hopeful that we will have a positive outcome with those renewals as the cable industry looks to consolidate.

Having shows like the Image Awards and also our new news show, NewsOne Now, we think are good community factors that bode well as to why TV One has value. We have increased our programming budget in TV One in 2014 as we go into renewals, so I think you can expect programming expenses to be up this year and EBITDA guidance to be modestly up from 2013 levels.

I think EBITDA was about $49.3 million in 2013 but again this is all set up as we go into renewals and we expect that those programming benefits will pay out over time. So we can talk about that in more detail after Peter goes through the details.

Thank you, Alfred. Net revenue was approximately $111.1 million for the quarter ended March 31, 2014, an increase of 12.1% year to year. The Tom Joyner Fantastic Voyage generated approximately $6.6 million in revenue in Q1 2014 compared to $7.2 million in Q2 of 2013 for Reach Media.

Adjusting for the timing difference of this event, net revenue increased 0.6% for the radio division including Reach Media. We recognized approximately $39.7 million of net revenue in the cable television segment in the first quarter, an increase of 7.3% over Q1 2013 primarily from an increase in advertising sales.

TV One affiliate revenue was up 6.9% versus prior year while advertising revenue was up 12.7% versus prior year. The Internet division increased net revenues by 27.6% year to year due to growth in direct advertising sales and studio services revenue.

Our Charlotte, Dallas and Detroit clusters are the most significant revenue growth in Q1 while our Atlanta, Cincinnati and Philadelphia clusters had the most significant declines. Local revenues were down 7.6% and national was up 19.8%.

As Alfred mentioned, the series of winter storms unfavorably affected several of the local radio markets in our Midwest, South and East Coast clusters. Partially because of it ad sales in the entertainment category were down 20% and the retail and travel and transportation categories were both down by 16%.

We did see growth in the auto and government stroke public services categories. Both of those were up 6% in the quarter and then the health category which was up by 21%. Telecom, financial, food and beverage and services categories were all relatively flat year to year.

Cable subscribers as measured by Nielsen finished the quarter at $57.1 million compared to $57.3 million at the end of December last year. TV One currently has 50.6 million billable subscribers.

Operating expenses excluding depreciation, amortization impairments and stock-based compensation increased to approximately $85.9 million in Q1, or approximately $72.7 million in 2013. This includes approximately $5.8 million from the Tom Joyner Fantastic Voyage and $4.8 million relating to TV One's NAACP Image Awards Show.

TV One generated higher programming and technical expenses primary from an increase in content amortization of which $3 million was from the Awards Show. In addition, TV One incurred higher selling, general and administrative expenses related to higher marketing and promotional expenses to advertise and promote new TV One shows, which $1.8 million was related to the Awards Show. Normalizing for the expenses of the Tom Joyner Fantastic Voyage and the NAACP Image Awards Show, operating expenses were up 3.6% year over year.

For the first quarter consolidated station operating income was approximately $35.2 million, down 1.9% from last year. Adjusted consolidated EBITDA was $25.1 million, a decrease of approximately 4.8% year to year.

Adjusting for the timing difference of the Tom Joyner Fantastic Voyage and the revenue and expenses from the NAACP Image Awards Show, adjusted EBITDA was up 2.7% year to year. TV One achieved its highest ever ratings with the Awards Show and the benefits of that partnership will be evident during the 2015 upfront advertising sales period and over the longer term.

Interest expense was approximately $21.9 million for the first quarter. The Company made cash interest payments of approximately $21.4 million in the quarter.

The loss on retirement of debt of approximately $5.7 million for the three months ended March 31, 2014, was due to the retirement of the 2016 notes during the first quarter. This amount includes a write off of approximately $4.1 million of previously capitalized debt financing costs and approximately $1.6 associated with the net premium paid to retire the 2016 notes.

Net loss was approximately $25.2 million, or $0.53 per share compared to a net loss of approximately $18.1 million, or $0.36 per share for the same period in 2013. For the first quarter capital expenditures were approximately $1.7 million compared to $2.2 million in the first quarter of 2013.

Q1 cash taxes paid were approximately $573,000. The Company received dividends from TV One in the amount of $3.6 million in Q1. As of the March 31, 2014, Radio One had total debt net of cash balances of approximately $777.2 million.

For bank covenant purposes, our total net debt was approximately $686.1 million. LTM bank EBITDA was approximately $98.7 million, giving a total leverage ratio of approximately 6.95 times and a senior leverage ratio of approximately 3.56 times.

The Company's cash and cash equivalents by segment are as follows -- radio and Internet approximately $20 million, Reach Media approximately $2.8 million and cable television approximately $23 million. In addition to cash and cash equivalents cable television segment also has short-term investments of approximately $307,000 and long-term investments of approximately $3 million. With that I will hand back to Alfred.

Great, thank you, Peter. Operator, we can go right to questions. Please open up the lines.

Yes, sir. (Operator Instructions). David Farber, Credit Suisse.

High guys, good morning, how are you? Just a number of questions for us.

I just wanted to, Alfred, you talked a little bit about TV One and the renewals cycle, I'm just curious if you want to share a little bit more color on how you think those conversations are going and then just big picture strategy around TV One given to put at the end of the year, any additional thoughts you might have there? And then I have a number of follow-ups, thanks.

Yes, sure. Those of you who follow the cable television industry know that there is a lot of activity right now. Obviously the Comcast, Time Warner merger pending, the spinoffs to Charter as well and now the conversations around DirecTV and AT&T.

So I would say, and our Comcast deal is up at the end of January of 2015. Our Time Warner Cable is up at the end of 2015. Our Charter cable is up in June of 2014 at our Cox deal is up at the end of 2014.

So we are engaged on a fairly significant level with a number of these companies. So far talks have been I would say positive.

We are optimistic that there will be a positive outcome. We haven't engaged with DirecTV and AT&T because AT&T's deal is not up until the middle of 2016, but Direct is up at the end of 2015.

But I think it's a good thing for us that our deals are up while the industry is looking to consolidate, for a number of reasons. TV One was created because there needed to be more diversity in the African-American space in the cable television industry. And as these companies seek to get larger, people ask them questions about why is bigger for you better for consumers and what is in it for everybody else, and diversity is something that is important to lawmakers.

Diversity is -- that's important to consumers, and so we feel good about it. I don't want to give any more detail than that now. We are in the early stages of those conversations.

But it's all happening right now, real time. So I feel -- I felt good and optimistic about our chances on renewals however many months ago we did our refi back in January. I feel better about it today than I did in January.

Understood. That's helpful. The conversations you are having do they contemplate with respect to put in acquisition or divestiture or any thoughts there?

That was the second part of your question. So I like to try to compartmentalize things and so my first goal was to, my first goal is, to hone in on the distribution deals in the renewals of Comcast and Time Warner and figure out what those are going to look like.

And then I can move to what's going to happen at the end of 2014 whether or not we are going to be a buyer, whether we would be a seller, or whether everything stays pat. I think our desire would be to be a buyer and further diversify into cable TV. My early discussions are a signal that our partner is probably not opposed to that.

But the devil is in the details in terms of price and timing, etc. And so we haven't had those discussions yet.

We've only started to talk about our distribution renewal. But I suspect that those discussions will commence in the next couple of weeks.

Understood, thanks. Just two quick ones.

Any additional color you would be willing to share with respect to what's driving the pacing and how you see the balance of the year what is driving some of the commentary you had in the release? And then one last one for me. Thanks.

So pacings going forward in radio in Q2 are not good. They are down mid single digits. I would say that from what I have seen in terms of people releasing Q2 guidance that folks are kind of guiding to kind of flat, maybe a little bit down.

We are down more than that. I think we've got a confluence right now of our four big markets having challenges for our four big markets being Atlanta, Baltimore, Houston and Washington, and they are having some challenges for varying reasons. I think Atlanta is probably the market that is probably the most easily corrected because ratings are actually very strong there and so we are focused on that.

We are having some ratings challenges in Baltimore and in Washington but it's not really, particularly in Baltimore, it's not really ratings in terms of rank, it's ratings in terms of average quarter hour rating going down and just a number of market compression, number of people using radio and how close the radio stations are in the rank to each other. And so it's really more of a pricing problem. I think our pacing gets corrected for a couple of reasons.

I think there is some markets that we have that are doing well, they are just not large enough yet to offset some of the bigger markets like the Charlottes; Cincinnati has been down but our ratings over the last year have been very strong and I expect Cincinnati to turn around. And we are also seeing significant strength and ratings uptick in Detroit, upticks in Detroit.

So I think Detroit will start to contribute and continue to offset. And we are still starting to see some signs of life in Philly. Our biggest market is Houston, has a new competitor in it so that has caused some challenges this year.

In the first year of a new competitor you generally take a hit. It happened to us in Raleigh. We took a hit.

The competitor lasted about a year. Houston we have got a very strong position. We are very committed to that market.

And we've got an offensive game plan to beat back that competitor. So I think that there are number of things that we can do operationally to stem those negative pacings.

And then we believe that we are going to see an updraft for political given our concentration in Ohio, in Pennsylvania and there's going to be a big governor's race in Texas. I think there's also significant political activity we are expecting in Georgia. So I feel like we're going to be able to turn it around in the second half of the year.

Got it. Appreciate that. And then just finally, you guys it looked like just put some sort of equity, I don't want to say announcement, but just a filing and I just wanted to understand the thought process there.

Were you just bookmarking, or thoughts around the equity giving the filing you did? Thanks.

Yes, are you talking about the shelf registration?

Correct, yes.

Lots of folks know that we've got this TV One put. It's not really a put, it's a jump ball.

So if either Comcast or Radio One could elect to -- buyer or a seller -- saying we want to dissolve the partnership either way, or neither one of us could do anything and just remain partners. But it's always been our goal to figure out a way to buy that other half. And so we put the shelf registration up just so we would be prepared if in fact that that does happen later in the year.

We just picked a number that was large enough so we wouldn't be short and have to come back and amend the registration statement. So I know when it first went up people thought my God you got $220 million market cap and you're about to sell $100 million worth of stock.

That's not it at all. And if we actually use that shelf registration it would probably be for something, if we decide -- if we use it for something considerably less, and we would only be using it if we were buying a significant asset that was going to significantly increase our cash flow, and our valuation.

Okay, that's it. Very helpful. Thanks.

Lance Vitanza, CRT Capital Group.

Hi guys, this is actually Brad in for Lance. Just staying on the TV One topic for a second, could you let us know how many Comcast subscribers you currently have four TV One?

13.5 million.

13.5 million? And do you guys have any estimates in terms of if you did an expanded distribution deal approximately how many more homes you guys could be in?

Look, it got 21.6 of 21.7. The likelihood that we would be in all of those homes is very low.

And we don't actually need to be in all of those homes because a number of those homes are in places where there are not large African-American populations like Salt Lake City, or Seattle. But let's suffice it to say if we were to, if we were able to get any kind of expanded distribution or upside it could be meaningful.

So I don't want to say anymore than that. But there are other factors that go into also a renewal of what is important, how long the renewal is.

We are an independent network and CBS probably likes short renewals. They like to fight with you every two or three years, right?

I think a TV One would like a long renewal because we want to be around for the long term. And then what the fees are. That's the other part.

So you got three legs of the stool. Half a stool, how many subscribers, how long is your deal and what's the fees.

Got you. And back to the jump ball that is coming up at the end of the year. Comcast historically has been a buyer rather than a seller of content and I knew you alluded to a little earlier on the call that your initial conversations lead you to believe that they might be open to selling.

What makes this asset different and why do you feel that way? If you could just shed a little more color there?

It's a diversity asset. It's an African-American targeted network.

I know Viacom owns BET but Radio One, me and my mother, founded this network. We actually went out and -- Comcast did the original distribution deal but every other distribution deal we made and we made with those companies. And then those companies that signed us up they signed us up because we were a competitor to BET.

We are an African-American focused, African-American-owned network. It's got a very unique opposition and characteristic.

And by the way, I think that the identity of TV One is even more so now linked to that as the asset has continued to mature and the programming has grown on it. So I think that they, in their minds some time ago back prior to the NBC-Universal deal, had given us sort of a green light to buy out all the other investors as opposed to them.

Had we actually executed on that, and that was our original plan when we went out and, I forgot, what year was it that the Greek, the first Greek crisis happened? We had a busted bank deal because the first Greek crisis essentially happened right in the middle of it.

2009, or 2010.

Yes, it was right before we went into default. So we basically made an agreement with Comcast to let us buy out DirecTV and all the financial investors.

So they were already agreeing that you are going to control the majority of this network. They give us that right. So they made the decision then.

But we couldn't get the bank deal done because of the Greek crisis and then we ended up tripping a covenant. And so we ended up financing it just at TV One and so our interested didn't increase as much as it would have if we had bought it out directly, which is why we are now only at 52 and they are at 46.

But the point is they had decided back then that it was not strategic to them. When they had made this agreement with us I had no idea that they were actually negotiating to buy NBC-Universal.

And now they've got all kinds of content channels and cable networks and a broadcast network. So I am not so sure that this one network really means that much to them.

And also diversity does matter, right? In their NBC-Universal deal they actually committed to giving distribution to 10 new diversity channels.

So giving distribution to 10 new diversity channels which are going to be either black or Hispanic or women owned, and then turn around and buying one in kind of is counterproductive to the whole notion of diversity. So that's why I believe that this asset is different.

That definitely makes sense. And if I could, just one last question on the radio group.

I know you had mentioned a lot of the weakness this quarter was weather related and you gave some color on the different markets when you guys talked about the pacings. But in terms of how you performed in 1Q relative to the overall markets in which you operate were you guys a little ahead of the group, a little behind, or did it vary wildly depending on the market?

It varied wildly but overall we were a little behind. So the markets in which we operated in Q1 were up 1.5% and we were up 0.3% when you look at the Miller Kaplan data. So we just overall we just trailed the market but there were some fairly wide fluctuations and we called out the markets that hurt us earlier.

Got you. Thank you very much, guys.

(Operator Instructions). Brian Hirschfield, Sankaty.

Hi guys, thanks a lot for taking the question. I am just curious about you talked about this in your opening but I would love to understand a little bit more.

When you think about the expenses that you bore for the incremental programming and presumably a big chunk of that was for the Image Awards, and the revenue generated in this quarter do you look at that, is that a success because of the tail of incremental value that you have going forward from having done this, from having driven those ratings and gotten TV One's brand out there? Or did that not meet your expectations?

Well, we didn't know what the expectations were going to be for the Image Awards because we made the deal late Q3 last year. And it was our first year and we had missed upfront, it was all scattered.

So we did a couple million dollars of revenue, we had about $4.8 million of expenses, so we lost money on it. We expected to lose money on it but, yes, we did it for a number of reasons.

One, we wanted to get into the awards show business because advertisers like tent poles. And this was a way to instantaneously get into the awards show business with a big brand, a 45-year-old brand that everybody knew as opposed to try to convince somebody that the TV One awards was something that they should get excited about.

But second, going into our renewals which the outcome of our renewals are going to mean the difference between whether or not TV One is a $60 million or $70 million EBITDA network, or a $100 million EBITDA network over time. The Image Awards and our relationship within the NAACP means something. That's a very good conversation to have with cable operators and satellite operators saying that you are essentially the official network of the NAACP and the home of the Image Awards for the next five years.

And there is a couple ways to be important in the television landscape. And one of them is have big shows with huge ratings, the other is to have meaningful programming that important people care about. The Image Awards I think is just programming of that nature.

We also launched a daily news show back in November called NewsOne Now. It's on Monday through Friday from 9 AM to 10 AM, hosted by Roland Martin. And we've been utilizing that show since November by showcasing members of Congress and senators and civil rights leaders and community groups and it is gaining a lot of traction and it is having a significant impact with a lot of people who are in powerful positions.

One example, there's a congressman who credits that show for calling into question and shining a light on some judges that were appointed in Georgia by the Obama administration that had a questionable history of racial sensitivity. Basically one of these judges was a proponent of making the rebel, the Confederate flag the official flag of the state of Georgia and it called into other -- that called into question other issues in that person's background.

Essentially a very conservative judge appointed by an African-American liberal president. And that congressman and his constituents were excited that somebody was talking about this.

I was in a meeting the other day and a congresswoman from another state saying, hey, you guys did a great job on the kidnapping of the Nigerians, the young Nigerian girls. She said that the mainstream media is talking about it this week but you guys were talking about it last week because I was on NewsOne Now talking about it with you.

And those kinds of stories make those people say that this platform is important, this show is important, this network is important, and they tell folks. They tell cable operators, they tell their lobbyists, they tell their government relations people and that helps when you are going through renewal discussions.

Got it. Thank you.

Ralph Newsome, New Level Investment Management.

Good morning, guys, thanks for taking my call. My question is, are you guys looking to go into HD broadcasting for TV One anytime in the future?

We already broadcast in HD, not 100% of our schedule, but I think we probably have 12 million or 13 million HD homes but all of our original content is shot in HD. Stuff that is not in HD is acquired programming, like our sitcoms and things of that nature, but we are already broadcasting in HD.

Is that with just Comcast customers?

Yes, (technical difficulties) you sound like you are probably a DirecTV subscriber because DirecTV is probably 25% -- somewhere between 25% and 30% of our current audience and we are not HD on DirecTV. They didn't have any bandwidth on their satellite. Supposedly they are launching a new satellite very soon.

Hopefully it is something that we can resolve in a renewal but we are not HD at DirecTV and it's a problem. But we have to solve that over time.

But we are HD (technical difficulties) I think on a number of Time Warner systems. And I'm not sure exactly where we're at with the other platforms like Cox and Charter.

Okay. Thank you.

And, gentlemen, we have no questions in queue at this time. Please continue.

Well, if there are no more questions we again thank you for your support and as usual we are available offline for any additional follow-ups. Thank you very much, operator.

Thank you, sir. And, ladies and gentlemen, that does conclude our teleconference call for this morning. Again, thank you for your participation and you may now disconnect.