Urban One Inc (UONEK) 2013 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to Radio One's third-quarter conference 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 the 10-Ks, 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 November 7, 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. 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 12.00 PM Eastern Time today until midnight November 10, 2013. Callers may access the replay by calling 800-475-6701. International callers may dial direct, 320-365-3844. The replay access code is 305381. Access to live audio and a 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 will now turn the call over to Alfred C. Liggins, Chief Executive Officer of Radio One, who is joined by Peter D. Thompson, Chief Financial Officer. Mr. Liggins, please go ahead.

Thank you very much, operator. Welcome, everybody, to our third-quarter results conference call. As you can see from the press release, we are pleased with the quarter that we have posted. We have had strong performances from each of the divisions. Really proud of the management team at Radio, at TV One, at Interactive One, at Reach Media.

We have been able to grow in each of those segments. We've also reduced our leverage significantly; continue to reduce our leverage all year long. On the last conference call, we talked about a target of getting below 7 times by year end, and we thought that we could achieve that. And that is where we sit now at the end of Q3.

Our Q4 pacings for radio, which include Reach Media, we think are pacing and looking to come in about flat. And that will be a significant achievement going against huge political comps. Last year, we did about $9 million in political, which was $3 million more than our high watermark before which was $6 million which was in 2008 and that was the Barack Obama/Hillary showdown. So we're not just going against political comps, we're going against abnormally high political comps. And for us to be pacing at the rate that we are now against those is a pretty good prospect. And again, proud of the management team.

I am going to turn it over to Peter, who is going to go on into more detail, and then we'll open it up for Q&A.

Thanks, Alfred. Net revenue was approximately $118.4 million for the quarter ended September 30, 2013, an increase of 7.7%. The radio division, including Reach Media, produced net to revenues of $76.2 million, an increase of 3.4% year to year. We recognized approximately $37.8 million of net revenue in the cable-television segment in the third quarter, an increase of 13.7% over Q3 2012. Affiliate revenue was up 8.5% against the prior year. Advertising revenue at TV One was up 20% versus prior year.

The internet division had net revenues of $6.1 million, which was up 37.6% year to year driven primarily by him a customer agreements with GlobalGrind. All revenue categories for the Internet division posted growth for the quarter.

Our radio growth was driven by solid performances in our largest clusters -- Houston, Atlanta, Washington, and Baltimore. Also our Charlotte, St. Louis, Columbus, and Dallas clusters posted revenue growth year over year, while our Cleveland, Richmond, Philadelphia, Indianapolis, Detroit, Raleigh, and Cincinnati clusters posted net revenue declines over last year.

Local revenue was down 2.4% for the quarter and national was up 12.9%.

Our top-five advertising categories were retail, which was 14% of the total, up almost 8% year-to-year; telecoms at 13% of the total, that is up 20% year over year; financial at 11% of the total was up 9% year to year; food and beverage at 11% of the total was down 24% year to year; and entertainment at 11% of the total was down 11% year to year, also was our six largest category representing approximately 10% of the radio revenue and was up 1% year-to-year.

Cable subscribers, as measured by Nielsen, finished the quarter at 58.4 million compared to 57.2 million at the end of September last year. TV One currently has 50.7 million billable subscribers.

Operating expenses, excluding depreciation and amortization impairments in stock-based compensation, increased approximately $83.3 million in Q3. The increase is primarily the result of an increase in program and in technical expenses related to the higher content amortization as TV One continues to expand its content programming. On a cash basis, we spent $12.8 million on content assets at TV One during the quarter of which $8.8 million was on original programming.

For the third quarter, consolidated station operating income was approximately $44.8 million, up 9.7% from last year. Adjusted consolidated EBITDA was $35.1 million, an increase of approximately 12.5% year over year.

Interest expense was approximately $22.3 million for the third quarter. The Company made cash interest payments of approximately $20.9 million in the quarter. In the third quarter, there were $3.7 million of noncash impairment charges recorded to reduce the carrying value of the Boston and Cleveland radio broadcasting licenses.

Net loss was approximately $13.2 million, or $0.28 per share, compared to net income of approximately $13.1 million, or $0.26 per share, for the same period of 2012.

For the third-quarter, capital expenditures were approximately $1.3 million compared to $2.8 million for third quarter 2012. Cash taxes paid were approximately $221,000. The Company received dividends from TV One in the amount of $6.2 million in Q3.

As of September 30, 2013, Radio One had total debt net of cash balances of approximately $767.9 million. For bank covenant purposes, total net debt was approximately $673.3 million, and our LTM bank EBITDA was approximately $97.5 million, giving a total leverage ratio of approximately 6.91 times and a senior leverage ratio of approximately 3.55 times.

The Company's cash and cash equivalents by segment are as follows -- radio and Internet, approximately $24.8 million; Reach Media approximately $4.8 million; and cable-television approximately $18.7 million. In addition to cash and cash equivalents, the cable-television segment also has short-term investments of approximately $3.2 million and long term investments of approximately $72,000.

During the third quarter, the Company repurchased 1100 shares of Class A common stock in the amount of $2655 and 512,300 shares of Class D common stock in the amount of $1,209,108.

And with that, I will hand it back to Alfred.

Thank you very much.

So a few highlights. IOne, our online division, which actually is a decent size revenue business for us, probably call it $25 million-ish, will actually -- as we have said before, our goal was to get it to breakeven and then figure out where to go from there, where the promised land is, where we could make the most money in. It looks like 2013 is going to be that year and they will breakeven. They may even make a little money. So that's a big deal for us. We've got strong revenue growth, strong traffic growth, and some new revenue streams, in particular, our Studios business where we're actually going out acting, facilitating as the technology backbone and/or the sales force for a number of other publishers.

TV One, great ratings story; strong cash flow growth for this year. Third quarter was the highest rated quarter and TV One history, fueled by a number of new original programming premieres. So we're very proud about that. And as we go into 2014, we are even amping up our original programming strategy even more. We recently announced two big things that we think bode well for the network. One, we launched the first daily African-American focused news and information show, NewsOne Now in the mornings. It is the first morning show of its type focused for African-Americans on news. And that launched November 4. And it is essentially a three-hour radio show that has an hour of it also simulcast on TV One at 9.00 AM. We think that it fills a void that is not currently being satisfied. We also think that it makes the network more than just an entertainment network and more of a utility for the African-American community. And things like that bode well for reasons for cable operators to think that you matter to your target audience.

Something else that will help TV One continue to matter to its target audience is, and is also part of our NewsOne Now, which is our new show, strategy is we formed a multi-year media partnership with the NAACP starting in 2014 where the centerpiece of it is that we will be the official home of the NAACP Image Awards. Next year, 2014, will be the 45th annual Image Awards. It is the first time that this prestigious show has been on a cable network. It has historically been on broadcast television. Last year did about 3 million viewers on NBC. It was on NBC for the last couple of years. Before that it was on FOX. We're very excited about that partnership. TV One is the official network of the NAACP. We think is a significant statement as we go into 2014.

Reach Media, a big turnaround. Reach Media lost a little money in 2012, and then this year, it will make more than a little money. Many of the analysts out there I think kind of underestimated what Reach Media was going to ultimately do. And it continues to track well. And our radio division is having another good year in a flat advertising environment. Even though I think the trends continue to improve, radio is a traditional medium and the traditional mediums are moderate, flat-to-moderate growers. And we continue to grab share and find ways to grow our EBITDA.

And we've been starting to be much more successful also in our cross platform initiatives where we are combining all of our platforms into what we call One Solution, which we go to market as reaching 82% of African-Americans and we been able to score some significant wins. Most notably is our partnership with Wal-Mart. It is a multi-year partnership. We are one of three media partners that they have, us, Univision, and Facebook. So we think that is good company to keep.

So with that, operator, I like to turn it over to the callers for questions.

(Operator Instructions) Lance Vitanza, CRT Capital Group.

I just have two, the first on TV One. If I'm reading the release right, looks like $41 million of EBITDA for the nine months ended September 2013. That suggests that you will be at around -- you will be in the mid-50s I suppose for the full year. Is that the right way to be thinking about that?

Mid-50s? No, but we will be close to a 5 handle on it. It will be approximately -- depending on a few things, but it will be high $40s million, $50 million. We've been clocking it in, forecasting it at $50 million right now. Some of it will also depend on where we -- there's one issue that hasn't been completely settled yet, and that is the size of our management fee with comp cast. So that could swing it one way or another, but it won't swing it by much.

Okay. And then could you talk a little bit about the planned casino investment and how that fits into the overall picture?

Say that one more time.

The casino investment and how that fits into the overall picture.

So that got announced and essentially one, there is no deal yet because MGM doesn't have a license. But the state of Maryland basically decided to issue gaming licenses. And they issued five casino licenses, and there wasn't any real significant minority participation in any of those licenses in the state of [America]. And it also happens to be almost a third African-American.

And then there was a huge referendum last year for -- was it last year or this year? It was last year, yes -- for a sixth casino license in Prince George's County, which happens to be 70% African-American. And it's in our backyard. We were based in PG County for 15 years. It is where the vast majority of audience in the Washington area is. And so, we view that -- we like to say we're in the black people business and almost anything happening in Prince George's County qualifies as being in the black people business.

And so when this came up, we started -- we knew that there would be conversations, a need for some sort of local minority participation. And so we reached out to the MGM guys. And they are a great company, the CEO, Jim Murren, and the president, Bill Hornbuckle, great managers. They run an incredible organization. They also run an organization that happens to be really hyperfocused on diversity. And so they were very open to conversations.

They have also been a client of ours in Detroit, Michigan with they also own a casino already which is the number one casino in that market. And so, they were looking to find folks to potentially be in business with that could bring a diverse, a local perspective. Also, what we also bring to the table is the ability to help market.

And so, we structured a deal that we think is low risk and potentially high return for our shareholders. And I think it will bode well for our debt holders. At the end of the day, if they get the casino license, if we get the casino license, which we will know at the end of this year, we have the right today -- it's not obligation, but we have the right to invest up to $40 million. And it would be staged with a $5 million investment in Q1 of next year.

And then, the other $35 million is due sometime before the casino opens. And the casino won't open by legislative decree until no earlier than July 2015. So you are talking 2.5 years before we would have to make that remainder of the investment. And we don't have an obligation to make the remainder of the other $35 million investment, but we have the right. We think we made a pretty good deal for the Company from the aspect is that once our investment is complete we will share in a percentage of the gaming revenues. So, they will be an immediate cash return component to this investment in addition to an equity stake that we think calculates out to a pretty reasonable chance of us getting a significant double-digit return, higher than what we can invest in anything else right now in the media business.

We don't have any obligations on any of the debt. We've got a right to put our interest to MGM. These casino efforts are very much about what are you going to do for the community; how much revenue are you going to bring to the state; what kind of minority participation are you going to have in building it; are they going to be any local minority partners. They were an organization that we felt really comfortable being in business with given their history, their profile.

They are looking to build a $925 million fabulous resort as they do in a great location, national harbor. And without speaking out of school, if you want to get any sort of idea of how lucrative these particular projects can be, all you got to do is pull some of their filings as we did and look at what their casino in Detroit, Michigan does, which is not Washington DC by a long shot. And these resorts are oftentimes immensely profitable.

So that is -- we think it's low risk, high return. It's a right, not an obligation so we didn't bet the farm. We can change our minds, not that we likely would, because we think that we have been afforded a great opportunity by the nature of our platform.

And also, there's a marketing agreement that is associated with it. They have agreed to spend -- make a significant investment in marketing across our radio and our digital properties to promote their property.

Last follow-up on that, so the $40 million, to the extent you do choose to make that investment, that would go in as equity capital I presume, into the venture?

Right.

And the $925 million I think you said $925 million project, can you tell us of that amount, how much the total equity funding component is? Presumably there will be a significant that component as well that is included in that $925 million.

Yes, with the way the deal is structured -- my understanding is that they are just going to fund it off of their balance sheet which is -- because they believe in the project that much, so won't be project financed. But our deal with them is agnostic to how they finance it and their balance sheet. Essentially, we have a put-right that is based on a multiple of EBITDA times the EBITDA. And that's what we did. It doesn't matter what the balance sheet looks like.

And given that you have the revenue participation, maybe this doesn't work anyway, but what I was trying to get at was you are putting in $40 million to figure out what kind of equity stake you might have, is it's $40 million over $925 million or is it $40 million over some smaller number that represents the equity?

It is a less than 10% equity stake but it's more than 4%.

Okay, so it's meaningful. And you have the revenue in addition to that. Can you tell us anything about that -- is it a couple of percent on the revenue line?

We think it's a great deal. We think that we are going to get a significant return on it. When I say a significant return, a return -- for us we looked at this as we are not a control shareholder; we're not even a significant -- when I say significant, it's not like we are a 40% -- we are a partner but we're not like a operating partner. We are more of a strategic partner.

So we viewed this as more like a private equity investment. And that is how we determined what we thought we needed to participate in, the kind of return that this thing is designed to get us.

Did you say you could actually fund these $5 million and then choose not to fund the $35 million? Or are you locked in once you do the $5 million?

Now, we can't fund the $5 million and not fund the rest.

We will provide some more information, Lance. Obviously the key gating item is will MGM be successful in the bid. And if they are, then will we partner with them and we will put some more -- you are asking about the revenue percentages. It's premature to get into that, but we will put all of that out there at the appropriate time so you can take a look at the numbers.

Thanks very much, guys.

I think shareholders and bondholders will be really happy with the overall deal that we made. Like I said, it's low risk, high return, high likelihood of success should they be fortunate enough, we be fortunate enough to win the license. We are not on the hook for any of their debt. Our exit is agnostic to how they finance it and the balance sheet that comes with a marketing component. And first and foremost, we are a marketing company to African-Americans.

Thank you.

David Hebert, Wells Fargo.

Just along those same lines, would these investments count against your restricted payment capacity or ability to do RP?

Yes. Right now, we don't have -- we have the capacity in our term loan. We don't have any more RP capacity in our indenture, but somebody is going to ask a question on this call, what are you doing thinking about refinancing. We set on the last call that we are focused on getting our leverage down below 7 times, and then we were going to start to explore the markets and what are refinancing opportunities look like.

And now that we are through the quarter, we're going to start to do that. So we don't anticipate actually having the current indenture that we are living with in place by the time we've got to make this investment.

That was actually my next question, so thank you for that.

And then on the pacings, you said flat including Reach. I wonder if you could dig down little bit and just -- what does the station business look like away from the network?

We think the station business will probably end up anywhere down call it 2 -- we are hoping our pacings improve. We're at the low watermark now. But if I had to bet a $1000 on it, I would say we'd be down 2 and maybe it could be a little better; and then Reach would be up; and then it would all net to about flat.

Okay. And then you obviously had --

And that was after like I said, a huge, huge amount of political last year.

Right, of course, okay.

And then on TV One, how much of the revenue growth is coming from advertising and how much from the subscriber side?

The advertising revenues were up 20% for the quarter and the affiliate fees were up 8.5%.

Okay. And as you look at potentially buying out Comcast, how do you balance thinking about that transaction versus refinancing the 10% secured notes? And if you do pursue something of that nature would you anticipate TV One being part of the radio global credit group or restricted group?

I think how we are thinking about it right this minute, David, is just that whatever we do in terms of a new indenture which Alfred just talked about is we would like to plumb in some flexibility to deal with the Comcast [jumble] which is at the end of 2014. I don't think we have fully, 100% committed to whether we should have two separate capital stacks for TV One and the radio division or whether we should have one capital stack. I think we're leaning towards one capital stack. But we'd like some flexibility plumbed in to deal with it. And that's about as far as we've gone in thinking about it because it's obviously an uncertain event. We don't know whether we will -- whether the jumble will happen or not. Comcast is being a good partner and we will have a dialog with them and then we will have an outcome (multiple speakers)

And could you remind us, is that a buy/sell agreement where both parties have options in this case?

It is like a -- it is a sealed bid so if we agree that the process is going to actually happen and we have deferred this process before, then you put in a sealed bid that says you want to buy or you want to sell. And then dependent on the matrix of who wants to buy and who wants to sell, one party buys, one party sells, or the network is essentially could be put up for auction if both parties want to sell.

So there are number permutations depending on who wants to buy, who wants to sell.

All right, great. Thanks, gentlemen.

(Operator Instructions) And that this point, no additional questions coming in.

All right, thank you, operator. And thank you, everyone. And as always, we are available off-line for further conversations.

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