Urban One Inc (UONEK) 2014 Q3 法說會逐字稿

Good morning, ladies and gentlemen. I've been asked to begin today's conference 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 10Ks, 10-Qs, and other reports it periodically filed 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 September 30, 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, November 12, 2014, until November 14, 2014. Callers may access the replay by dialing 800-475-6701. International callers may dial direct at 320-365-3844. The replay access code is 337-345.

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'll 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, operator, and welcome everybody to our third quarter results conference call. Earnings are out. You've seen the press release and in my quote, we've guided in radio for some time now to a very tough quarter.

We said we were going to be down but we're pacing down high singles. We came in minus 8% which is actually better than we had been pacing throughout the last three months.

And there's a confluence of events there, it's kind of like a perfect storm as I said in the quote, with significantly down markets in a couple of our biggest markets like Atlanta and Washington and Baltimore, but also soft ratings. And then also in Houston, which was a flat market but we had taken a format competitor in January.

So the good news is that we're rebounding strongly in Q4. Pacings are minus 1.9% yesterday, have improved to minus 1.6% but also we've done some significant programming things to change our trajectory, most notably a change of format of our news station in Houston.

We've taken that station all news three years ago in November and while it was a valiant effort and we tried hard and we think we put all of the right Class A resources against it, we just couldn't get any real significant ratings traction. And that's also kind of the history of these all news FMs in New York, in Philadelphia, in Chicago, Atlanta, Washington.

A great idea but in practice, it really hasn't proven out to be a winner and we're losing about $1.5 million a year on that and so we switched to a music format. A classic hip hop format and we will wipe out those losses in a music format and the early returns on it are actually substantial.

Earlier this week, we got our first full week of ratings for the classic hip hop station called Boom and the week before, we were doing about a 0.9% share 12-plus with all news and the first full week of Boom we had a [0.4%] share and it ranked us I think 625 to 54.

So I think that we're going to see a substantial immediate turnaround in Houston and ratings are starting to improve and pacings are improving in places like Atlanta, but there are other bright spots in the Company that during Q3 where pace -- the rest of the portfolio is pacing up plus 1.5% and in markets like Detroit and Charlotte, and now Philadelphia as well, we think will help offset some of the softness in Washington and Baltimore.

So we feel good that we bottomed out and we're coming out of this trough and Peter is going to go into some detail and then we're going to talk a little bit more about TV One and Interactive One and where we're at with those two businesses. Peter?

Thanks, Alfred. Net revenue was approximately $112.2 million for the quarter ended September 30, 2014, a decrease of 5.3% year to year. Decrease is primarily the result of lower advertising and sales revenue for the radio division, including Reach Media.

We recognized approximately $39.5 million of net revenue from the cable television segment in the second and third quarter, an increase of 4.5% over Q3 2013. TV One affiliate revenue was up 6% from prior year while advertising revenue was up 2% from prior year. Net revenue for the Internet division decreased by 4.9% year to year but there was some nice expense savings that offset that and actually made them more profitable in the third quarter.

Our Charlotte, Dallas and Detroit clusters had the most significant revenue growth in the third quarter. Our revenue declines were concentrated in our four big clusters. Three of our four largest clusters saw steep declines in market revenue.

According to Miller Kaplan, the Atlanta market was down 10.4% for the quarter. The Washington DC market was down 7.1% and the Baltimore market was down 4.1% year over year. Those weak markets, coupled with some ratings challenges in those three markets, drove 70% of our net revenue decline.

And while there's no single reason for the market softness, we've looked in detail and we made some changes to some sales and programs and elements to address the ratings, as Alfred was alluding to. I guess most notably, our largest cluster in Houston had a 15% decline due to the competitor that we picked up this year.

The format change from news to classic hip hop is already seeing promising initial ratings as Alfred just reported. Along with an increase in revenue, lower operating costs on the Boom format will yield significantly higher EBITDA going forward than we were previously driving from the news format, which was loss making.

For the third quarter, local revenue was down 12.7% and national was down 7%. Political revenue was approximately $507,000, mainly from our clusters in Michigan and North Carolina and this was a decrease from approximately $584,000 generated in the third quarter of 2010, the last mid-term election year and it was also significantly less sequentially. We took $900,000 of political revenue in the second quarter of this year.

Our full-year political revenue will probably be -- is likely to be around $4.5 million and as Alfred also mentioned, today's pacings for the fourth quarter are minus 1.6%. October was flat. November is currently pacing minus 5% and December is pacing plus 1.6%.

Cable subscribers, as measured by Nielsen, finished the quarter at $56.4 million compared to $57.1 million at the end of September last year. TV One currently has 50.8 million billable subscribers.

Operating expenses, excluding depreciation and amortization, impairments and stock-based compensation, increased slightly to approximately $83.4 million in Q3 from approximately $83.3 million in the same quarter in 2013. Expenses were generally well-controlled with reductions at Reach Media and our online division.

Operating expenses in the radio division increased by 1.4%. For the third quarter, consolidated station operating income was approximately $38.6 million, down 13.8% from last year.

Adjusted consolidated EBITDA was $28.8 million, a decrease of approximately 18% year to year. Interest expense was approximately $19.4 million for the third quarter, down from approximately $22.3 million from the same period last year.

Decrease in interest expense is primarily due to the lower interest rate associated with the 9.25% senior subordinated notes due 2020. The Company made cash interest payments of approximately $26.3 million in the quarter.

Net loss was approximately $13.2 million, or $0.28 per share, compared to a net loss of approximately $13.2 million for the same period in 2013. For the third quarter, capital expenditures were approximately $1.3 million, which is the same as Q3 of 2013.

Q3 cash taxes paid were approximately $117,000. The Company received dividends from TV One in the amount of $8.9 million in the third quarter and there were no share repurchases during the quarter.

Company's cash and cash equivalents by segment are as follows: Radio and Internet approximately $32.7 million; Reach Media, approximately $3.4 million; and Cable Television, approximately $19 million. And in addition to cash and cash equivalents, the Cable Television segment also has short-term investments of approximately $2.1 million and long-term investments of approximately $803,000.

As of September 30, 2014, Radio One had total debt net of cash balances of approximately $765.8 million. For bank covenant purposes, our total net debt was approximately $670.5 million and our LTM bank EBITDA was approximately $89.5 million, giving a total leverage ratio of approximately 7.49 times and a senior leverage ratio of approximately 3.75 times and with that, I'll hand it back to Alfred.

Thank you, Peter. So the radio division we do believe is rebounding. Reach Media also had a tough Q3 and they're rebounding in Q4 as well. They're set up very nicely for 2015 to have substantial EBITDA increases because we've put in place contractual cost reductions that are very, very significant and also centering around some of our big talent contracts there.

TV One is faring quite nicely, particularly given the headwinds that are in the cable network industry right now. It was the first negative upfront in quite some time. TV One ended up the up front minus low single digits, minus 2, minus 3 but up plus 1 in CPMs which we thought was a very good performance given the headwinds in the industry.

Also what's happening in the cable industry and you've heard it from Discovery and you've heard it from NBC, Universal and Time Warner as well, that ratings are down and they're down significantly. I think that, that's not all organic audience loss.

Nielsen hasn't figured out a way to accurately track a lot of the viewership that's happening on mobile devices yet so I think that's part of the problem but the good news for TV One is that we are not down anywhere near as much as our competitors. The big incumbent networks tend to be taking it more on the chin and so as an example, year-to-date total day household ratings for TV One are flat year to year, at about a 0.18 and in demo, on 25 to 54 demo, we're down slightly at minus 8%.

And that's a great performance given some of the big double-digit numbers that I've heard from some of the larger networks and also from a sequential standpoint, our Q3 2014 ratings of TV One versus Q2 2014 for total day are up 9% in households and plus 14% in demo so pretty happy with their performance this year. They're tracking to get pretty close to their budget that we set for them for 2014.

Distribution deals, again moving along quite nicely. We have signed extensions with Charter and Cox to give us more time to get those long-form renewals in place so we just signed a six-month extensions just to give us some more breathing room in order to get the right deals with those two operators done, given that we're in the process of trying to get our larger deals done.

Comcast, our largest, will be our largest distributer once they complete the Time Warner merger is basically done but not signed and the reason it's not signed yet is it's pending our ongoing conversations with Comcast about a buyout of TV One. We've got a jump ball that comes at the end of 2014 so we have ongoing discussions with them that we're in the middle of now about a buyout, or not a buyout and we expect that those discussions will be concluded soon. And we'll know what we're doing and then either way, we'll end up signing the new distribution deal which we're quite happy with.

And we're also in discussions with AT&T and Timer Warner about renewals even though Comcast will take over Time Warner, we still have to deal with the fact that their current deal is up at the end of 2014. Interactive One, while their revenues were down mid-single digits in Q3, their profitability was up substantially in Q3. And they are on track to make considerably more money in 2014 than they did in 2013.

So we are happy about that as well. So with that, operator, I'd like to turn it back over to you and start taking questions from those on the conference line.

Certainly.

(Operator Instructions)

We'll first go to the line of Aaron Watts with Deutsche Bank.

Thanks for taking the questions; got a few. Alfred, I guess when I think about the minus 8% trend for radio in the third quarter moving to kind of down around 2% pacing for the fourth quarter, and you feeling good about things heading into 2015, what would you say are the biggest drivers of that? Is that your markets that you said were weak? (multiple speakers)

Yes, so, Atlanta and Washington were down high singles, I think -- which one was down 10%, was it --?

Atlanta.

Atlanta is down 10%, and so there are a handful of big markets. One of the things that you've seen is you've seen radio companies reporting, quite frankly, not so bad, kind of flattish kind of Q3s, and not so bad Q4 pacings. And I think the big markets are getting hit harder than the middle to the smaller markets. Cumulus reported that the biggest driver of their down performance was New York and Washington, DC. And Atlanta, I know as, like I said, the market is down 10%.

I just ultimately don't see that persisting forever. We've been in Atlanta for a very long time, and Washington, and you don't see a minus double-digit number like that, or even high singles, unless it was something like the recession, and people ultimately tend to place their dollars -- the majority of their dollars in the larger markets.

So, I think the backdrop for me is that the industry isn't falling apart. I've always said this is a flat industry, and these handful of big markets that we're in are having a tough way to go. Now, Houston, and I think Dallas, too, but Houston is like -- was flat in Q3; is that correct?

It was plus 0.9% as a market, so essentially flat.

Essentially flat. And they're a top-10 market as well, right? So, I can not -- I've never been able to figure out why markets specifically are up and down, but I just don't see it persisting over the long term. Now, even with that, we underperformed those down markets, so I think that we're doing things to change that performance.

But I'm feeling better about it because, one, I think that we're going to have a big win in Houston, and the biggest driver of our down performance was Houston, by far. We lost millions of dollars of cash flow there. We're fixing that, and we're going to have a big win there. And so, I think we've got enough upside in other places like Detroit and Philadelphia and Charlotte.

We also -- I didn't mention this -- we just also launched our classic hip-hop format in Philadelphia last Friday, and Philadelphia is actually starting to pace in the right direction for the Company. And that's before we've launched this new format, which I think is also going to get some traction there as well. And then, Reach Media, as I explained earlier, is going to rebound big going into 2015.

So, I'm not good at predicting the future. But if I had to bet, I don't see Atlanta being down another 10% next year. And all of these other things that we've got going in the radio business, I think, are going to help out. So, that's why I feel good about it.

All right. I know you said it's always hard to read too far into this, but if you had to take a stab at why these big markets specifically are hurting, do you think it's certain verticals, like auto, moving away for right now? Is it traditional media dollars leaking to digital --? (multiple speakers)

If I had to take a stab at it, I think it's money moving to digital or other platforms, but I don't know for sure. I think, if you're going to spend more money in digital, and you're probably going to focus on making those shifts in the larger markets first, before you get to someplace like Charlotte.

Also, if you're going to take a stab at a digital campaign, you'd probably do it in a New York and Atlanta. But you'd also do it in Houston, and that's not down anywhere near like Atlanta and Washington and New York are. So, that's what I think, but I have no clue whatsoever, and it could just as easily rebound next year.

Now, how about this? Here's the other thing. So, I asked -- I was meeting with the CEO of GroupM yesterday, one of the largest buying agencies in the country, and I -- we were talking about the cable upfront, and I said: Look, how much did you think this upfront being down is a shift to digital, because that's been a big conversation. And I said: Is it really going to digital video and other digital?

He says: You know what, I think it's a little bit of it, he says, but I don't think that really is the vast majority of the driver; I think people are just being more cautious about sitting on the sideline, and where they're putting their money. He says: They don't have perfect information either, because even though they've got a suite of clients, those clients have other relationships with other agencies, and even they are not under the hood with how those clients are allocating their budgets or if those clients have extra money still sitting on the sideline and waiting.

But it made me feel better about this whole idea of the shift to digital, and maybe it's just sort of the luck of the draw. It has never happened in the history of me running this Company where we have all four of our big markets take this kind of hit at one time. So, that's why I believe it's an anomaly.

That's helpful color. Now, just, as we think about going forward and modeling, Houston sounds like it may have a bit of a faster turnaround maybe for you, but what's a realistic time frame if you're seeing improved ratings with some of the changes you've made for your Company specifically? When do you think we start to see a turnaround in the revenues on that --? (multiple speakers)

Houston is pacing positive for Q1 right now, so we're seeing -- now, that's not just Boom, right? Our other two stations there -- we're doing better. Boom has helped it, and we're going to eliminate -- Boom is going to accelerate it, but I think that you're going to start to see that turnaround come through in Q1.

Okay, but is it fair to assume that because the biggest markets for you are a little weaker, that we should think about margins being hit a little bit over the next couple quarters in the radio business?

No, I mean, I don't think -- because, again, I don't know that Atlanta is going to be weak in Q1 2015. I don't know that Washington is, and I feel like Houston is going to be better. Detroit is going to be better. Philadelphia is going to be better. Charlotte is going to be better. And we're going to keep a tight rein on expenses, so I wouldn't make that assumption at all.

Okay, good. Last one for me -- I appreciate you taking all these. You commented about kind of the jump ball coming up with Comcast for TV One. As we think about kind of broad strokes how that might happen if it was -- if you were to reach an agreement, with your leverage at 7.5 times now, how should we think about financing that and how it fits in with the rest of the group --? (multiple speakers)

We're looking at that now. We're looking at financing alternatives, as we speak. So, I don't want to go into specifics right now because there are a number of ways that we could finance it. Obviously, it all depends on price, right?

But put it this way: If we don't come to terms on price, then we'll just stay partners. Comcast is not a buyer today, given they're in the middle of a big regulatory transaction as it is, so we either are going to come to a price that we can finance and that both parties feel is fair, or we're going to stay partners. And once we know which way we're going to go, then we'll focus on our capital structure. And again, this is all real-time.

All right, thanks again.

Thank you. Next question?

Thank you. Our next question comes from the line of Lance Vitanza with CRT Capital Group.

Hi, guys. I guess I had two sort of follow-ups to Aaron's questions; the first on the weakness that you saw in your key markets. Just to be clear, can you give us some sense for what the overall, across the spectrum of media, what advertising was like in those markets? I mean, I assume that it was down a lot less than the down 10% in Atlanta, down 7% in DC and so forth, but do we know that yet?

I don't understand the question.

I guess the question -- I'm trying to confirm whether or not advertising dollars moved away from radio, or if (multiple speakers) -- or the extent to which that happened?

So, I thought that was it; I have no idea. I'd have to do some deeper digging to see how radio fared -- I mean, excuse me, television fared, and the other mediums, but we haven't done that research yet.

Okay. Is there anything about the economies in those regions that would lead you to conclude that advertising would be a little bit softer? I wouldn't think so necessarily, but -- ?

There's cranes everywhere in Washington, DC. It's just -- again, you got Washington, Atlanta and New York, right, that have been hit hard. Three very different places; so, I don't know.

Okay. And then I guess the -- with respect to TV One, I mean, I think we all appreciate the intrinsic value there, but given the stock price not reflecting the real value of the Company right now, given the leverage, it seems like, to your point, it seems like maybe the best outcome at this time might be to just stay as partners, and then revisit this when you've got some wind in your sails and a better currency to use; is that fair?

You know what? That could very well be the outcome, and we'll see. I mean, clearly, with the stock price at this level, we're not going to sell common equity to do it, but again, there are a number of ways to finance this, and there are a number of ways to raise equity in doing it. It doesn't all have to be done with the current publicly traded Radio One common equity. So, we're exploring all of those options now.

I think my last question would just be on the non-core side -- if you could give us any update on the casino project?

They broke ground. They are building it. We still haven't put in our [initial] $5 million. We're waiting for the State of Maryland to determine whether or not they believe that we have to become licensed as part of that investment. And when they let us know what that outcome is, then it will dictate what the timing of that initial investment is.

Just to be clear though, if you do need to become licensed, that doesn't present more than just a timing issue for you guys?

Correct. Well, as far as we know. (laughter)

I was just about to say: I'm not so sure what, in my background, that they might find offensive. They might find something, but it certainly won't involve any sort of prior conviction of a felony.

Okay, all right. Thanks, guys.

Thank you.

(Operator Instructions)

We'll go to the line of David Farber with Credit Suisse.

Good morning. How are you guys?

Good, and you?

Good, thank you. A number of my questions have already been asked, but just a couple of follow-ups. I was just curious to hear maybe somewhat quantitatively, if you would, some of the things I think you were speaking about in your prepared remarks on the cost side. Is there anything you guys have been doing, or thinking of doing, as revenue has been a little bit muted obviously into the next 12 to 18 months -- any thoughts you could share there? And then a couple follow-ups, thanks.

Yes, no, absolutely. We've got an eye on cost and cost levers, and I mean, I think we've always done a really good job of managing our cost and being Draconian when we needed to be Draconian, and we're going through that process as we speak, so --.

Yes, it is uppermost in our thoughts.

Are there any sort of dollar amounts you guys would be willing to share or help us understand what the magnitude could be?

No, not at this point in time.

Understood. Okay, and then, just on the Comcast issue with respect to TV One, anything directionally in terms of renewals or additional thoughts there on sort of how you see that business playing out over the next few months?

Yes, I said earlier, we're all but -- we're done with the negotiation for the Comcast renewal, and it just hasn't been signed, and it's sitting, waiting to be signed, pending the outcome of our jump ball discussion. And we're very happy with it. It's a long-term deal. We're happy with our rates.

We're happy with the distribution commitment, and we'll -- there's going to be -- when we do announce it, there will be some parameters around what we can say about it, because these agreements are confidential. But I'm sure that if we're buying them out, we're going to have to say something more specific about it because it will be wrapped into our financing. If we're not buying them out, we probably will just give more general, high-level stuff.

Okay, that's helpful. And then just lastly, to the extent that you get clarity at the end of the year, on TV One, does that present some financing alternatives away from TV One, in terms of the restricted group do you think about? Is that going to happen either way?

How do you think about some of the repricing options that could be with the Company over the next year or so? And does TV One need to happen one way or the other for you guys to consider that, in terms of via the bank or TV One debt outstanding and things like that? Thanks.

Yes, I think it's a great question. I think we can bifurcate, and obviously we need to, in the not-too-distant future, we're going to need to refinance out the Radio One first lien, and so we can't -- and are now thinking about that, independent of the acquisition of TV One.

So, we're looking at paths which leave TV One where it is, as an unrestricted sub, and there's a couple of ways we think that can be done. And then we're looking at a path which brings it into the restricted group and deals with it that way.

So, I think, at the moment, all options are on the table, and it's a kind of real-time discussion we're having with our advisors, but obviously we're mindful of covenant compliance. The revolver facility that we have comes due the end of March next year. So, we really, in the pretty near future, want to get that refinancing risk taken off the table.

This has taken up 90% of Peter and I's time right this second. It's like all we're focused on.

Got it. Okay, that's helpful. Appreciate the thoughts. That's it for me. Thanks.

Thank you.

(Operator Instructions)

We will go to the line of Gene Neavin with Federated Investors.

Hey, guys. I've got one covenant-related question. Can you remind us what the bank leverage covenants are -- the maintenance covenants -- and when they would be stepping down, and how you feel about that with recent third quarter and even the negative pacings going to the fourth quarter? Thanks.

Yes, look, great question, Gene, and obviously highly focused on that, so we've got step-downs coming up. We're currently -- total leverage covenant at the moment is 8 times. In Q4, it steps down by half a turn, 7.5. And then there's a full turn -- a step down in Q1 of next year. And I think that's really a legacy to the fact we bought ourselves a couple years' relief, and that's coming to an end. So, we've got these pretty aggressive step downs that were part of the original credit agreement.

So, in Q1, 6.5 times is going to be the benchmark, and that's pretty hefty step down, so we have a path to remain in compliance obviously. It does involve some cost cuts, and it involves probably taking more dividend out of TV One. So, there are various levers that we have that will help us remain in compliance.

And then, looking ahead through the end of next year, the next big step down we're looking at is total leverage going to 6 times in the fourth quarter of 2015. I think it's safe to say we would have refinanced out by that point, but we are projecting out and showing various ways in which we will remain compliant with those step downs in the future.

Okay, thank you.

Thank you. At this time, I'm showing no further questions. Please continue.

Thank you, operator, and thank you, folks. As usual, Peter and I are available offline to answer any additional questions. Thank you.

Thank you. Ladies and gentlemen, that does conclude your conference call for today. Thank you for your participation, and for using AT&T Executive Teleconference Service. You may now disconnect.