Urban One Inc (UONEK) 2013 Q4 法說會逐字稿

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, 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, 2014. 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; if measures will be reconciled to GAAP, either during the course of this call or on the Company's press release, which can be found at its website at www.radio-one.com.

An audio replay of the conference will also be available on 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, Operator, and welcome, everybody, to our fourth-quarter conference call, also our year-end results. You have gotten the press release, so you know that we feel good about our Q4 core radio business performance. Ex-political, we were plus 5%. We also recently completed a refi of our 12.5% notes, and took those out and replaced them with 9.25% notes, saving us a substantial amount of interest going forward.

We are very happy with where we ended up the year with Interactive One, making a positive EBITDA performance for 2013 of approximately $300,000. TV One finished in line with guidance at roughly $49 million. And we're off to a pretty good start in Q1 with TV One, with ratings up about 7% quarter-over-quarter.

And Peter is going to go into the details next, and then we'll open it up for Q&A.

Thanks, Alfred. Net revenue was approximately $111.6 million for the quarter ended December 31, 2013, an increase of 5.4% year-to-year. Excluding political, consolidated net revenue was up 10.6% year-to-year. The radio division, including Reach Media, produced net revenues of approximately $67 million, a decrease of 2.2% year-to-year, due to tough political comparisons. Excluding political, the radio division net revenue, including Reach Media, was up 5%. We recognized approximately $38 million of net revenue from the cable television segment in the fourth quarter, an increase of 13.5% over Q4 2012.

Affiliate revenue was up 10.1% versus prior year, and advertising revenue was up 12.9% versus prior year. The Internet division had net revenues of $8 million, which was up 54.6% year-to-year, due to growth in advertising and studio services. Our radio growth was driven by solid performances in Houston, Atlanta, Baltimore, and Dallas. Our Charlotte and St. Louis clusters also posted revenue growth year-over-year. Local revenue was down 5.2%, and national was down 2.6%, due to the record political revenues that we received in 2012, and that we were comping against.

Cable subscribers, as measured by Nielsen, finished the quarter at 57.3 million compared to 57.3 million at the end of December last year, so flat. And TV One currently has 50.8 million billable subscribers.

Operating expenses -- excluding depreciation, amortization, and payments and stock-based compensation -- increased to approximately $84.9 million in Q4. TV One incurred higher selling, general, and administrative expenses, which partly related to a $1.2 million increase to the inter-Company management fee payable to Radio One; and also higher marketing and promotional expenses to advertise and promote the new TV One shows. And this was partially offset by a decrease in programming and technical expenses, primarily related to lower content amortization incurred by TV One for Q4 versus the prior year.

For the fourth quarter, consolidated station operating income was approximately $39.1 million, up 9.9% from last year. Adjusted consolidated EBITDA was $26.7 million, an increase of approximately 10.1% year-to-year. Interest expense was approximately $22.4 million for the fourth quarter. The Company made cash interest payments of approximately $21.0 million in the quarter. Net loss was approximately $16.4 million or $0.35 per share, compared to a net loss of approximately $17.2 million or $0.34 per share for the same period in 2012.

For the fourth quarter, capital expenditures were approximately $2 million compared to $2.9 million in fourth-quarter 2012. Q4 cash taxes paid were approximately $53,000. The Company received dividends from TV One in the amount of $4.1 million in the fourth quarter. As of December 31, 2013, Radio One had total debt, net of cash balances, of approximately $759 million. For bank covenant purposes, our total net debt was approximately $668.5 million, and our LTM bank EBITDA was approximately $102.2 million, giving a total leverage ratio of approximately 6.54 times, and a senior leverage ratio of approximately 3.34 times.

The Company's cash and cash equivalents by segment are as follows: radio and Internet, approximately $27.6 million; Reach Media, approximately $5.9 million; cable television, approximately $23.2 million. In addition to cash and cash equivalents, the cable television segment also has short-term investments of approximately $2.3 million, and long-term investments of approximately $170,000.

Core radio pacings for Q1 are approximately 3%, and this despite the recent series of winter storms that closed many businesses across the Midwest, the South, and the East Coast, and adversely impacted revenue. And, as Alfred mentioned, during the first quarter we successfully refinanced our 12.5% notes with $335 million of new senior subordinated notes with a coupon of 9.25%. The new notes have a six-year maturity, and will save the Company approximately $10.6 million per year in cash interest expense.

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

Thank you very much. And so, now, a lot of people have asked us, well, what's next? And we're essentially hyper-focused on executing, continuing to bring down our leverage. And we are in the middle of a renewal cycle on TV One, so we've got a number of contracts that come up for renegotiation and renewal in 2014 -- most notably, Comcast, Time Warner, Charter, and Cox. And as you've probably read in the press, there's a big M&A transaction going on between Time Warner and Comcast right now. So we'll be negotiating right in the middle of that particular transaction.

So, once we know where we come out on our renewals, then we'll focus on whether or not it makes sense, or is prudent, for us to buy out the other half of TV One. And so that's the focus at this point in time: operations first; renewals; and then the buyout decision. So we're really happy about the progress we continue to make in bringing down our leverage. We feel good about our ability to grow our radio cash flow again in 2014. And TV One is off to a great start.

And, actually this weekend, on TV One is a momentous occasion because we will be airing the 45th Annual NAACP Image Awards live from Pasadena, California. This is the first time that those venerable awards have been on cable television. They have historically been on broadcast. We expect to bring a whole new slate of viewers to TV One. And we'll also promote a number of our new shows coming up in Q3 -- excuse me, in Q2 -- out of the Image Awards, and have had good advertiser response to it as well.

So, with that, Operator, I want to open it up for Q&A.

(Operator Instructions). Lance Vitanza, CRT Capital Group.

Thanks for taking the questions. Two really come to mind, the first on TV One revenue. Nice performance of 13%; EBITDA only up slightly. I heard the comment regarding the increased promotional -- saw that in the release. But is there any more detail you can provide there in terms of the magnitude of that spend, and the extent to which you expect it will be recurring, just based on the slate of content that remains in development?

Sure. Let me take that. So, there were a few things in there. In the SG&A line in TV One, you will see it's up approximately $6 million year-over-year. About $4 million of that relates to marketing and promotion. And we are promoting about approximately 30 hours of new premieres in the quarter, which was One Christmas, Unsung, Fatal Attraction, and Life After. So that was responsible for about $4 million of that uptick. And that was pretty heavy spend. We have not been spending that amount quarterly, so I think that was an unusually heavy quarter, is how I would characterize that.

The other things that were in there, there was a true-up of the Radio One management fee. It was about $1.2 million. So for many years now, TV One has been paying a management fee of $0.5 million to Radio One for the management, and we discussed and renegotiated that with Comcast. That has now been taken up to $1.7 million. So I think it reflects, amongst other things, the fact that Alfred is running the network on a day-to-day business. So there was a $1.2 million adjustment there in the fourth quarter.

And then there were some additional -- because we had such a good year, the bonus pool and sales comp pool was roughly $1 million higher year-over-year. So it's a combination of those three things, Lance, that pushed it up in the quarter.

Perfect, okay. And then my other question would just be, is there any update on the MGM partnership from the last time we spoke?

Yes, we're down to the short strokes again at paper; I mean, really close. Now that we have our sub-debt refinanced and we've got the restricted payments capacity to actually make the initial $5 million investment, I think they are negotiating with accounting on permits and stuff like that. And last conversation I had, they were looking to break ground sometime later this year. I think there's a good deal of excitement around what the project is going to mean to the local economy. And as I have reiterated before, we think that we made a special deal, given that we've got a unique focus and a unique audience, and we are based in Maryland. And I think it's going to be really good for all stakeholders, not just our equity holders.

But one of the things I mentioned, while we were on the road doing the bond deal, is that I think it's good for bondholders. The project has a high degree of likelihood of being successful. And, quite frankly, even if it's half as successful as MGM thinks it is, it's still going to be a good deal for us. And that's going to be good for bondholders, because that means there's value inside the Company that increases their collateral position.

Change in the thinking as to when the project will open up?

No. Legislation says that it can't open up before July 2016. So I'm sure if I'm MGM, I'd like to open up at 12:01 a.m. on July 16, because the more days you're open, the more money you're going to make. But construction is a funny business, so we'll see what happens.

Okay. My last question, just on the core radio business -- we've heard about the weather impact from a host of broadcasters, radio and TV alike. I'm wondering if you think you could take an estimate as to how much of an impact that's been. Your core revenue pacing -- I think you said it was up 3%. Is it possible to say it would've been up 4% were it not for the weather? Or up 5% or --?

Yes. We haven't tried to drill down and quantify that. That's difficult. You've got multiple things that happened. Not only were we closed as a company in a number of markets, but then your advertisers are closed.

And so you just -- I don't know if you (multiple speakers)

Well, the only thing I can say is, I think we put out an 8-K when we were doing the high-yield offering, and that that point we were pacing plus 7, so obviously we've seen 4 points of slippage. And that coincided with the period of time during which all this adverse weather was hitting and our offices had been closed. Now, I'm not saying that all of that is due to weather. We just don't know. But pre-weather it was plus 7; now it's plus 3. That's as good of data as we have.

Yes, but we haven't drilled down on it to figure out exactly what we thought it would've been, because pacings fluctuate week to week in any event. But, actually, our plus 3 was probably not that far off from where we were forecasting. It's off where we were forecasting internally, but it's not drastically far off. So, plus 7 was above where we were forecasting as a real pacing number right out of the system. So, we were kind of forecasting plus 4.5, plus 4.2. And now we're pacing plus 3.

Thanks for the color.

David Hebert, Wells Fargo Securities.

Wanted to first ask around the refi. Can you provide an estimate of your cash interest expense for 2014, based on the new capital structure?

Sure. So, I think with the roughly $10.6 million of savings, we're looking at total consolidated cash interest expense of about $72.6 million. Obviously about $11.9 million of that is the TV One piece on that $119 million at 10%. And then $60.7 million is the calculation for radio first lien, plus the new notes. So, yes, about $10.6 million down year-over-year.

Okay. And then have you started conversations about refinancing the bank debt. now that you have addressed the bonds?

No. We're going to wait and see what happens with Comcast, and whether or not we're going to buy out the other half of TV One. If we decide to remain partners collectively, then we'll refi out the bank, get a cheaper rate. But if we're going to end up buying the other half, we're going to factor that into a global first lien refi of our term loan and the TV One term loan. Actually (multiple speakers).

Okay. And the timing of that would be year-end, correct?

I would say yes, in general. But if we agree a deal with Comcast before that -- we probably would want to wait to ask for September when the call premium on the term loan goes down from $8 million to $4 million. But that will be here before you know it, right?

Right, right. So does that imply that you would look at incremental bank debt to finance a potential buyout at TV One, as well as potentially equity proceeds? Or is it a little too early to tell?

We will utilize incremental bank debt. We've got room under the covenant still up to 4.5 times. If there is a hole beyond what we can fit into our covenants, then we're absolutely willing to look at equity.

Okay, that's helpful. And as you think about these renewals this year, do you have any thoughts around TV One cash flow? Or is it that there's just too many moving parts at this point?

Well, the renewals don't affect this year's TV One cash flow. We expect EBITDA to grow close to 10% again this year; so from $49 million to, call it, $53.5 million, $54 million. And, by the way, that is on the heels of increased programming spend. Going into renewals, we want to make sure that we are telling a good story about our percentage of original programming, all the new things would come. Cable operators aren't big fans of paying license fees for reruns that are everywhere, and I get that. And also original programming really drives your brand and drives your growth. So we decided to invest additionally into programming.

And we thought that a 10% plus EBITDA increase was reasonable to give back to the marketplace as well. But that's not necessarily what we think the historic growth rate will be, going forward. We think that there's the ability to continue to grow the cash flow at strong rates -- stronger rates, as we've done in the past.

Okay. And you mentioned original programming. Do you have any statistics around how many hours you had last year, and how many you are planning this year?

Yes. We've got those exact numbers. We can give them to you off-line. Just off the top of my head, it's in the 130 hour range. But don't quote me on that; I'll get you an exact number from the CFO. But it's roughly about 40% of our programming in 2014. I think it's high 30s -- 38%, 39%, 40% -- is original, which is a pretty strong statement.

Excellent. And then last question for me, just curious how you might be thinking about Reach Media and Internet this year. They both took very nice leaps in 2013. Should we expect continued progress on both of those segments?

Absolutely. Reach is off to a great start in January and February. In fact, it's going to beat their budget. March is too early to tell. We expect Reach Media's cash flow to double over the next 18 months.

And the Internet is funny; I don't like promising -- what I historically used to like to say is that we're going to make at least $1. Well, we made $300,000 last year. The team there has got a budget and a game plan to make substantially more than that in 2014. And we're hopeful that they're going to get there. We're probably not ready to go out on a limb and give a forecast for it yet. Because when I say the Internet is funny, it's so last minute that you can have wild swings in forecasting. But, yes, they believe that they're going to make some real money this year.

And, David, just on the -- to add a bit of color around Alfred's comments -- Reach will, we believe, strongly increase its cash flow, but a lot of that is going to come in 2015. We pre-negotiated and extended some employment agreements, which are going to give us a substantial saving in 2015. So I wouldn't look for huge growth in Reach Media in 2014. I think it will be more modest, and then we'll accelerate in 2015. But we are expecting good, solid EBITDA growth from Reach in 2014, accelerating into 2015.

(Multiple speakers) an 18-month timeframe.

Got it. All right. Thanks again for the color. I really appreciate it.

Aaron Watts, Deutsche Bank.

Just a couple of big-picture questions for me. Alfred, first, Lew Dickey and Cumulus are really pushing this country platform, NASH, with the national branding; talked about radio, maybe moving into TV, publishing, all with this branding. Have you given any thought to that? You already have the cable network in place. And you obviously have a strong brand with your radio stations. Any kind of thoughts on what they're doing and how that could translate to you?

I think we already are doing what they want to do.

Yes.

They want to -- they've got a country brand called NASH; we've got an urban brand called One. We own a cable network that does $50 million of EBITDA. We have a big online business. It's just starting to make a little money, but it's a $28 million business. And I think that we'll expand off of it. I find it really interesting to see Clear Channel rebrand as a media and entertainment company, and that Cumulus has got their strategy. Well, this has been our strategy for the last 10 years, and I think it's paying off. And I think that the good thing for us also -- we happen to be in a multicultural target wheelhouse that is growing substantially faster than the rest of the population. So I think there's going to be many opportunities for us.

So, I like to tell people that we have a lot of places that we can make money. In addition to the thing I'm most excited and most bullish about these days is our ability to continue to grow our radio business, in what I view is going to be a flat industry. Although I do think that the industry will have some upside this year because of political.

The other thing about our radio platform is that we've got really great exposure for political advertising. We are all over Ohio -- Cleveland, Columbus, Cincinnati. Where we are strong in two big North Carolina markets -- Raleigh, Charlotte. So, swing states -- Pennsylvania is usually hotly contested.

So I think we're in really, really, really good shape. We've reduced our leverage over the last two years, a couple turns. That says a lot.

Okay, that's helpful. And then, secondly, curious -- your thoughts on digital radio. Obviously a couple of your peers are pushing pretty hard the digital product. And wonder what you think about that, and how that impacts traditional, terrestrial radio listenership, and what it could mean for advertising as well.

Yes, I think of digital similarly like I thought about satellite. It's more competition, more mind share, and it's new services like Pandora and Spotify. And I guess Apple has got a streaming service, and Beats has got a streaming service. This is just more competition for the audio audience, and it contributes to why our view is if you think of radio as a flat business and run your company that way, you don't give up on necessarily growing your EBITDA, but you just run your company knowing that the industry's going to be crowded. Then I think you've got -- we have a pretty good shot of being successful.

I do believe that there isn't any reason why the radio guys, traditional radio guys, shouldn't be able to participate in that Renaissance, of the digital Renaissance, if you will. We've got most of the revenue now. We've got most of the talent, on-air talent. All of us have access to the same music that the record companies produce. It's not like Pandora actually makes the music; they get it from the same places that we do. So, if the differential is that they've got 100 engineers that are creating a unique user experience, it would seem to me that that's something that the radio guys can tap into.

Either you hire your own engineers like Clear Channel is doing, or you partner with somebody who's got a whole cadre of engineers, like we did. We have a streaming site called BlackPlanet Radio, and we use a platform called Songza, which has been touted as a very good application. I think it's backed by one of the big tech companies, like Amazon or somebody. Don't quote me on Amazon, but it's somebody of that magnitude. But we decided to not try to create that internally, but we tapped into somebody else.

I think it's going to get dicey, though, with all of these people essentially trying to do the same thing -- distribute music to the consumer. And so, from my perspective, we as radio operators have to think of ourselves not just in the music distribution business, but the consumer business. And I think our digital strategy needs to be as much about how people listen to our radio stations, but as much about how they interact with our websites and what kind of content we deliver to them there. And I'm talking about video content and textual content, because there's 250 people that listen to the radio every day, and you can send them to a website, and you can do all kinds of things with them.

So, to the extent that the radio industry starts to think like that, then I think that we have an opportunity to participate in the digital Renaissance.

That's really helpful. I appreciate all that. Thanks.

Patrick Fitzgerald, Baird.

Congrats on the refi.

Thank you.

So, did you say 51.8 million paid subs now?

It's 50.8 million (multiple speakers).

50.8. Could you remind us what that was last year, and just how you think about where that number can go in the future at TV One?

Okay.

Yes, look, I think there's upside on subs in the future. I know there's upside on sub fees in the future. And so there's trade-off, though. If you want more subs, then you've probably have got to be less aggressive on fees that you ask for. And so, because it's a mix of things that are going to get you home, I kind of like not to set a sub target. But I like to think about if we come through our renewals in a mediocre fashion, I think TV One has got the ability to go from $50 million to $70 million of EBITDA over the next three or four years. If we come through it in an above-average fashion, then I think the network has the ability to get to $100 million of EBITDA.

Okay.

And, again, that's going to be a mix of getting increased subs, getting some reasonable rate increase. If we don't do better in ratings, then we'll be on the lower end of that EBITDA number. If we do do better in ratings, we'll be on the higher end. And I feel also pretty confident that we can increase our ratings.

Okay. What's advertising up at TV One in the fourth quarter?

You got that number, Peter?

What was what? Sorry.

Advertising.

Yes, it was up 12.9% in the fourth quarter for TV One.

Okay. And then you gave ratings pacings at TV One, 7% is -- did you give advertising pacing?

No, we did not.

Okay. But fair to say you're monetizing that?

Yes. Well, actually, the 7% -- there's a lag, because you sell so much of it in the upfront. But right now, we're close to our budget for Q1, and we've got a nice advertising revenue jump budgeted for TV One in 2014.

And just going back to your first question, same period, at the end of 2012, we had internal subs was 50.5 million, of which 49.6 million were paying. So, billable subs was 50.5 million.

Okay. And then how should we think about radio expenses in 2014?

Low single-digit increase, I think is probably where it comes out overall. We'll do cost of living increases on wages. We've got some increased cost over that, associated with our research and our Arbitron contract. But other than that, we're fairly tightly buttoned-down. We've got a competitive situation in Houston; we're going to have to spend some marketing dollars there. But we don't think there's going to be a big jump in expense.

Yes, we told the market, when we were on the road doing the high-yield deal, that we feel pretty confident that, between Reach and radio, we'll grow. Because that's how we look at our radio business now, because it really is a radio business. The radio network business is really starting to merge and overlap with the national spot business. So, between those two platforms, we think that we can grow our EBITDA at least $5 million this year.

All right, great. Thanks a lot.

Ben Brogadir, GMP.

Just wondering how you guys are viewing the current M&A landscape. I know you guys mentioned the Time Warner/Comcast pending transaction. But in terms of consolidation in this space, how do you guys view Radio One? And what's your appetite in terms of the current M&A environment?

Yes, we are focused on radio M&A where we can get the highest invested return, and that's probably doing something that's in market. Other than that, we're not all that interested. We did not bid on the assets in New York that Emmis just bought, and a lot of people thought we would be a likely candidate for that, since they were urban assets. We like our pool of assets right now. We think we can grow what we have. And we think that if we buy the other half of TV One, that's as good an M&A opportunity is anything we would see in radio, unless it was an in-market opportunity that fit with our existing positions.

Appreciate that. And then last one for me, just going back to the thought process behind your partnership with MGM and entering the casino business. What do you guys see as the bigger opportunity there?

I don't know. Beyond the fact that we have a deal with them from a marketing standpoint -- they're going to spend a significant amount of money on an annual basis with us, over a five-year period of time, for our Washington-based assets to support that casino. And we're getting to know the MGM people. And who knows what else comes to light? They spend a lot of time focused in China. They're very selective about what they do in the states. Maryland was a big opportunity. There's not a lot of other states that don't have gambling, so I wouldn't say that there is a plethora of new opportunities.

We don't add much value in China (laughter), and so I think that we're just kind of focused on what's going on in Maryland at this point in time.

Understood. And then I'll try to sneak one more in. Do you guys have your current cash balance just as of yesterday or today, just given the refinancing and pro forma?

I do, but it's not going to help you much. We're sitting on about $116 million of cash that has come in that has not yet gone out on the tender. So I think we're at about $130 million of cash. I can pull up an exact number for you, but that's probably not really what you're looking for. You follow me?

Yes, no, that's fine. Appreciate the color. Congratulations on a very good quarter.

Thank you.

David Hebert, Wells Fargo Securities.

I think we already had David earlier.

Yes.

Yes. He did queue up again. All right, you have no questions. (Operator Instructions).

All right.

And we have no further questions in queue. You may continue.

Well, thank you, folks. And I say this at the end of every call -- we are always open to off-line conversations. If you missed something, or think of anything later, feel free to call the office and touch base with Peter or myself. We'll see you next quarter.

Ladies and gentlemen, that does conclude our conference for today. We thank you for your participation, and for using AT&T Executive Teleconference service. You may now disconnect.