Urban One Inc (UONEK) 2014 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to Radio One's second 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 August 5, 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. 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 PM Eastern time August 5, 2014, until 11:59 PM August 7, 2014. Callers may access the replay by calling 1-800-475-6701 within the US. International callers may dial direct 1-320-365-3844. The replay access code is 330905.

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 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, and welcome everyone. As you can see from the press release, second quarter was soft for us led by challenges in Houston from a competitive standpoint. The markets are soft, as well.

All in, our real business was just about flat with our markets being down 4.1. We were down 3.8 and if you normalize for Houston, we actually beat our markets. Peter is going to go into some more detail about it, but the competition in Houston has been challenging, but we have an offensive plan there and we are bouncing back. I think there was a blurb in Inside Radio today that talked about us opening up a significant lead against our competitor and the ratings; and so we are feeling like our sense of plan is in process and is working.

Also, TV One, relatively flat year over year in EBITDA. I have mentioned a number of times on conference calls that we are investing in programming this year as we go into all of our renewals of our cable carriage agreements. We are on target, based on where we were budgeted. Our TV One carriage renewals continue to go very well, extraordinarily optimistic that we will have positive outcomes with our major distribution partners.

So I will turn it over to Peter now and then after he finishes with the detail, we will open it up for Q&A.

Thanks, Alfred. And just a point of clarification there. The markets in which we operate were down 3.8% this quarter. We were down 4.1%. As Alfred mentioned, we have the competitive issue in Houston. The back half of Houston market and the markets in which we operate were down 4% and we were down 2%, excluding Houston.

Thank you.

I am going to -- net revenue was approximately $108.4 million for the quarter ended June 30, 2014, a decrease of 9.4% year to year. Decrease primarily resulted from timing difference of the Tom Joyner Fantastic Voyage. Adjusting for the timing difference of that event, net revenue decreased 5.4% for the radio division including Reach Media.

We recognized approximately $38 million of net revenue from the cable television segment in the second quarter, an increase of 0.7% over the second quarter 2013, primarily from an increase in affiliate sales.

TV One affiliate revenue was up 4% versus prior year while advertising revenue was down 3% versus prior year. And net revenues for the Internet division decreased by 8.2% year to year.

Charlotte, Columbus, Dallas, and Detroit clusters had the most significant revenue growth while our Houston, Atlanta, and DC clusters have the most significant declines. Excluding Houston, our core radio revenues are down 2% versus minus 4% in the markets in which we operate. Local revenue was down 9.8% and national revenue was up 1.4%.

Cable subscribers as measured by Nielsen finished the quarter [at 56.8] million compared to 57.1 million at the end of June last year. TV One currently has 50.5 million billable subscribers.

Operating expenses excluding depreciation and amortization, impairments and stock-based compensation decreased to approximately $76.8 million due to approximately $81.9 million in 2013. There was approximately $6 million of expense from the Tom Joyner Fantastic Voyage in the second quarter of 2013. And normalizing for the expenses of that event, operating expenses were up 1.1% year over year.

For the second quarter, consolidated station operating income was approximately $41 million, down 10% from last year. Adjusted consolidated EBITDA was $31.7 million, a decrease of approximately 15.9% year to year or 13.5% after normalizing for the timing [of events].

Interest expense was approximately $19.3 million for the second quarter, down from approximately $22.3 million from the same period last year. The decrease in interest expense was primarily due to the lower interest rates associated with the 9.25% senior subordinated notes due 2020. The Company made cash interest payments of approximately $10.4 million in the quarter.

Net loss was approximately $10.8 million or $0.23 per share compared to net loss of approximately $14.2 million or $0.29 per share for the same period in 2013. For the second quarter, capital expenditures were approximately $1.7 million compared to $3.6 million in Q2 of 2013. Second-quarter cash taxes paid were approximately $311,000.

The Company received dividends from TV One in the amount of $6.3 million in the second quarter. As of June 30, 2014, Radio One had total debt net of cash balances of approximately $761.4 million.

For bank covenant purposes, our total net debt was approximately $671.4 million. Our LTM bank EBITDA was approximately $94.3 million, giving a total leverage ratio of approximately 7.12 times and a senior leverage ratio of approximately 3.57 times.

Company's cash and cash equivalents by segment are as follows: radio and Internet approximately $33.1 million; Reach Media approximately $3 million; cable television approximately $23.9 million. In addition to cash and cash equivalents, cable television segment also had short-term investments of approximately $2.6 million and long-term investments of approximately $806,000.

With that, I will hand it back to Alfred.

Great. Operator, I would like to open it up for Q&A, please.

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

Could you elaborate a little bit, Alfred, on the comments you made regarding TV One? And I think you mentioned you were very enthusiastic about the opportunity there. I missed maybe some of the comments that you began with regarding affiliate fee rates and distribution and so forth, but any additional color that you can share on either of those fronts would be appreciated.

Yes, no. Well I didn't mention anything about affiliate fee rates, but I've mentioned in the past that our rate is in the mid- to high teens. And we are in the middle of discussions with almost everybody. Comcast and Time Warner effectively both end at the end of this year. Charter ended in, I think, it was June. We extended them till January 2015 so we could focus on a deal. That is not uncommon that happens. Particularly for a network our size because the big guys end up getting more focused. And so we have very positive conversations with them about renewals and they asked for an extension of six months and we gave it to them.

And we got AT&T -- DirecTV comes up at the end of 2015, but we have already started discussions with AT&T and DirecTV about that. And we are also in discussions with Verizon. That ends in March of 2015.

So, I think the network has great brand awareness. Has enormous consumer report -- excuse me, support. Enormous community support. I think the industry recognizes that after 10 years we fulfilled our programming promise. We have got pretty (technical difficulty) ratings for a network only in 57 million homes.

The rankings bounce around, but I think we are right high 50s or 60th out of the top 100 cable networks. And by the way, Comcast has deals with 500 networks. So from a rating standpoint even with stiff competition, we are doing pretty well. So I am fully confident we will get all of our renewals done at fair rates.

Thanks for that. Can I ask you one follow-on question? Obviously and you touched on it, right, there is so much M&A in the space with the distributors combining, I would think that has got to be a negative for you. And being you have got potentially Fox and Time Warner combining, potentially making it more expensive to bid on content. How do you -- how would you describe the lay of the land from that perspective and are things getting more difficult for you?

Actually, I think it has been the opposite for us. With distributors combining it has actually been a positive for us because anytime the big guys want to get bigger, they have to explain to community groups and government why them being bigger is good for everybody else besides their shareholders and diversity comes up always. Diversity has been a question that has been raised in every single Congressional incentive hearing that has happened thus far on the mergers. TV One has actually been mentioned in a number of those. So I think we couldn't ask for a better time to have our deals come up.

And, quite frankly, on the programming contents -- first of all, Fox and Time Warner don't really compete with us. They don't have an African-American focus or really even slanted programming outlets. So our competitors are Viacom, Discovery with the Oprah Network, NBC Universal with Oxygen and Bravo. And all those guys are already way bigger than us, so we are already operating in a world where the other guys can pay more for content than we can and we are actually focused on trying to make smart acquisitions, but increasing our original programming offerings and trying to do it in a smart way so that we don't have to play the game of bidding against guys that are 100 times our size.

And by the way, the distributor, ultimately, I think really wants to hear that you are going to create original programming as opposed to asking them to pay for regurgitated reruns that they are already probably paying for on somebody else's network.

Thanks very much for the color.

David Siebert, Wells Fargo Securities.

Could you elaborate on that Houston situation, and how that competitive situation got so disruptive? And, secondly, on the radio business in general, we have heard a lot of talk about net national displacement with the World Cup and the Olympics. Share shifted digital mobile. Just curious if you could provide big picture thoughts on the radio space given the sluggishness we are seeing.

Look, I've been -- I have been -- I hate to use the term bear, but I am going to use it. I have been a bear on the radio space for 10 years. When I say bear, I think it is a great business. I think it is wonderful particularly for reaching ethnic audiences. African Americans, Hispanics.

But it is a mature medium, period. End of story. So, yes. We run our business looking at radio as a flat business that is never going to grow. And who knows, maybe over time it secularly declines. Although, it is an audio medium and distributing audio is not all that complicated. Whether you are a radio station or whether you are Pandora and there isn't as much of a disruption coming from Internet guides to the traditional audio distributors like us as there has been to the newspaper and the magazine folks from the Internet. Distributing magazines, distributing newspapers is very complicated, very costly. So, I don't think you can compare the radio business to those businesses.

But the fact of the matter is it is [reversed], we used to have the car to ourselves. Then came satellite, okay. Now, you have got the connected car. You have got Pandora, you have got Spotify. There's just more mind share that you have got to deal with. So I think that you are going to continue to see radio be a business that's mature and under pressure.

So we have got to reinvent ourselves. All of these radio companies need to reinvent ourselves. I think that we have done a good job of it, of reinventing ourselves as an African-American targeted media company. I know for sure that the African-American population is growing and it is going to grow faster than the general market population. And so our pitch to advertisers, more and more is about the demographic and our platform and we don't need to argue with them about whether they reach them on radio or on our syndicated radio shows or on television or online or on mobile.

But, the Houston situation we used to say, how did it get so disruptive. I never expected it would be disruptive. I mean, no, we have had no urban competitor and Clear Channel puts a hip-hop station on and all of a sudden they have got close to a 4 share. And that hurts and it shaves a couple of share points off of our hip-hop station there. But that station is bouncing back. That happened in January. So it is midway through the year now.

There are still other levers we have to pull in that battle, but we have been in format battles 20 times before. Maybe 50 times. In fact, we usually pick most of the fights. And so we have got to make adjustments, but it is our biggest revenue and cash flow market and even if it is down 10%, it's a big number.

Now, I think that we have got some upside opportunities that are going to offset that in places like Detroit, there's a lease coming up, starting to show significant ratings growth. Charlotte is doing well. But we are going to go through a bit of a rough patch here and we will come out on the other side in a good place.

Okay. That's helpful. And I know you have the jump ball with Comcast at the end of the year on TV One. Just curious. Comcast was quite busy, do you have their ear? Are you having any discussions around that buy/sell agreement? And is the thought still that you change to the capital structure would still dovetail with the TV One (multiple speakers)?

Yes. So, we have absolutely had high-level discussions with Comcast about the buy/sell agreement and they have indicated that if we want to buy, they would consider selling. We need to approach them and make them an offer and begin the negotiation. We have been primarily focused on getting the distribution deal done first. Which, unfortunately, they're complicated. We have agreed on essentially the economic terms of the deal and now we are trying to work through all of the different rights because the world is changing and their business is changing and there's new media rights, et cetera, et cetera.

And so working through all of that stuff is a brave new world. So we have been focused on that before we actually come back to them and engage in a resolution to the buy/sell. But they have been very open with us. They have been open with other people. That is something that they are willing to consider. It has never been strategic for them. They know it is important to us.

So, the change in the capital structure essentially will be that we will redo our first lien. TV One is underlevered. I mean I think it is levered at two times. We need to change our first lien at Radio One because it is expensive. And so, we will essentially redo our first lien to affect a Comcast buyout.

Now, by the way, if we don't buy out Comcast and we ultimately end up staying partners, whatever, we are going to redo our first lien anyway. Because it is expensive and we can get cheaper debt. But that is the thought process is that sometime in Q4 we will look to effectuate that.

Okay. Thanks for that. And last question for me, is there any update on 2014? Some of the guidance numbers you have talked about in TV One, Reach Media, and Internet largely being better on the EBITDA perspective versus 2013? Just any change (multiple speakers)?

Yes. The Internet -- [I -- One] is still making money. And I think -- we didn't -- I don't think we gave radio guidance. I mean, how much --? I don't think we have given radio or reach guidance. I'm looking at Peter. No, yes. I think we gave TV One guidance and said it was going to be in the low 50s. Now I still think that somewhere between $50 million and $53 million of EBITDA for TV One is where it will end up.

Again, TV One was designed to have tepid cash flow growth this year because, again, we are investing in programming. When you are asking distributors to sign up for another extended period of time and continue to pay your rate, you have got to give them a good reason why they are doing it. And so, I -- there's no change beyond what we have given you already. I don't think that we want to give radio guidance at this point in time. We have guided to Q3 which is looking negative mid-single digit. We are expecting a bump in Q4 from political. We are pacing ahead of 2010 by $2 million we think, or we are forecasting $2 million higher than --

Yes. Forecast (inaudible), but we are --.

And so we think Q4 is going to be better than Q3, but if you had -- I think that there is a strong possibility that the radio business finishes down even if it is down one or two in a political year and I would not have thought that going into this year. So I just don't -- I gave up giving radio guidance a long time ago when I couldn't really predict the share shift. And there are share shifts and it is just the money is going somewhere. And the share shifts there are starting to be talked about in television to.

The cable upfront this year is going to be down and lots of people are pontificating that it is a share shift out of cable television into digital video. I saw a report yesterday that said maybe the share shift really didn't go to digital video, but I know for sure that the upfront is soft this year. TV One will probably finish the upfront flat. which I would count as a win. Because most everybody else didn't finish flat, but (inaudible) they are finishing down. And so it is hard to predict in terms of where those dollars are going.

That is the reason our strategy has been and continues to evolve to one of talking about the demographic and how we are a unique player in this demographic and we are the only company that has assets in all of the relevant distribution channels. And let's just figure out how you take advantage of the growing buying power of the African-American community.

Thank you, Alfred. Thanks, Peter.

(Operator Instructions). Aaron Watts, Deutsche Bank.

You covered a lot of ground. I had a couple of questions on the radio business. Could you repeat for me I know you said what local and national did in the second quarter. Could you say that again?

Sure. National was up 1.4%. Local was down 9.8%.

Okay. And is that excluding the timing issues?

No. That is not excluding those.

Okay. So as I think about what you are seeing in the third quarter versus the second quarter, any kind of bifurcation between local and national advertising and thoughts that may be driving that?

Yes. They are both down about the same as per yesterday's pacing spoke down mid-singles. So, we have been doing consistently better nationally than locally for the last several quarters. But it seems Q3 (inaudible) they are both pacing down about the same. Political is going to help us, going to help national. So, as Alfred said, Q4 is looking stronger than Q3 and we have still got, I think, probably around $4 million in political that is not yet on the books. It will come through between now and the end of the year.

Okay. But generally speaking, would you say that the environment in the third quarter for core radio, I guess setting aside what is going on down in Houston, feels pretty similar to what you have experienced so far the last few months?

Yes. If anything, it is a little softer. The start of Q3 has been very soft.

And what do you think has been the culprit there?

I don't know. I mean, you know, it -- if you just talk about overall markets that the markets that we operate in why they are soft, you know, the only thing that it could be -- it'd only be one of two things. It can be a softening economy or it can be share shift, right? Or I guess it could be both.

Yes and you see it in the national numbers, back to your original point. So national has been holding us up and then national has been feeling soft in Q3. So we have got -- that's why it feels softer because the national is not pacing (multiple speakers).

How about this? Again, we have got a good view into a bunch of different channels, right? That upfronts -- the cable upfront for the first time in recent memory and I think twice, this is the second year it's happened, I forgot what the timeframe was, is -- it is going to be down. That says to me that national advertisers are not as bullish, you know, about, you know, business as they have been, you know, in the past.

And I guess there could be a share shift argument there, you know, as well, but you know, they don't -- that happens behind the black curtain, the share shift. So let's ignore that for a second. I think that is an indicator, you know, that the economy continues, you know, to be a sluggish -- you know, it is a sluggish recovery.

(inaudible) anyway we have heard this theme a little bit across the board in broadcasting for the third quarter, so I was just curious, your thoughts around that.

You are right. And I just don't -- I mean, I think that -- I think companies are making money, corporate earnings are good, but, you know, it is maybe for a lot of other reasons besides the fact that consumer spending is rebounding robustly. Because companies make money doesn't mean that the consumer is doing much better and we are obviously a business that is dependent upon how much the population is consuming.

And that it also flips through a lot of stuff that I have now seen in the news and read myself.

Okay. Last one for me. I think you may have touched on this before, but, Alfred, in your experience when you have a format flip in one of your markets, whether you are the one pulling it or you have a competitor acting on it like Clear Channel did here in Houston, what's the typical kind of cycle that happens? Obviously they will gain some share off the bat. Do you typically see that reverse over a certain amount of time or give back a lot of it? How should we think about that?

It depends on -- it is a fight, right? It depends on (laughter) how hard they punch, how hard we punch. Who has got stronger will and puts more resources at -- you know. What I can tell you the thing that has been, the thing that's been, I think, a secret to this Company's success is our singular focus, you know, for the most part. It is like we won't lose the battle meaning that we are not leaving the format. We are only going to fight harder, put more resources behind it, be smarter, and defend the turf. So the question ultimately is, is how committed are they to the battle. So we have one many more battles than we have lost in the urban radio business.

Okay. Thanks for taking the questions.

Mr. Liggins and Mr. Thompson, no further questions in queue.

All right. Thank you for joining us and as always, we are available off-line for any additional questions. Talk to you next quarter.

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