Urban One Inc (UONEK) 2015 Q1 法說會逐字稿

Welcome to Radio One's first-quarter conference call. I have been asked to begin the call with the following Safe Farber 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 May 1, 2015. 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. Its 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. An audio replay of the conference call will also be available on Radio One's corporate website at www.radio-one.com under the investor relations section of their webpage. Of 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, operator, and welcome, everyone, to Q1 earnings call. We have put out a lot of information as of late because we have been in the middle of a number of transactions. And so there are lots of great things happening at the Company at present. And, as many of you know, maybe most of you know, we have completed the long-talked-about acquisition of Comcast's 47% stake in TV One, giving Radio One full ownership of this fast-growing asset to further diversify our revenues and cash flow. This acquisition was done with the refinance of both Radio and TV One's first-lien debt tranches at substantially lower interest rates, resulting in a doubling of the Company's free cash flow profile, which will allow us to delever on a consistent basis. The TV One asset continues to make great progress with long-term renewals of our affiliate agreements with Comcast, Charter, and now Verizon, just this week, having all signed new long-term agreements securing and improving our carriage as well as locking in favorable annual increases of license fees. TV One ratings are also on fire so far in 2015, with total day 25 to 54 ratings plus 15%, and prime time 25 to 54 ratings plus 28% year to date, while most of our competitive set is down double digits year to date. TV One will also post a mid 60-ish million EBITDA number in 2015, which at the $550 million valuation we bought Comcast at is about and 8.5 times purchase multiple, which we think is very attractive.

While our radio business continues to see headwinds, it is improving sequentially from Q1 to Q2. Peter is going to talk more deeply about the numbers in each of the divisions next. So before I turn it over to Peter, I also want to acknowledge that we have also made our first $5 million investment in the MGM casino project at Prince Georges County, Maryland. When we get into Q&A, we will talk a little bit more about that deal. We have talked about it before, but we think that is a very, very attractive deal for the Company that is going to continue to diversify our revenue on our cash flow.

So with that, Peter?

Thanks, Alfred. Net revenue is approximately $105.8 million for the quarter ended March 31, 2015, a decrease of 4.8% year to year. Adjusting for time and differences for two major events, consolidated net revenue increased by approximately $2.7 million, or 2.7%, driven by advertising and affiliate revenue growth from our cable television segment. A breakdown of revenue by source can be found on page 5 of the press release.

Net revenue for that radio division was down 6.7% when adjusted for time and difference of a single major event. Charlotte, Cincinnati, Dallas, and St. Louis clusters showed revenue growth in Q1. These gains were offset by declines in our four biggest clusters: Houston, Washington, DC, Atlanta, and Baltimore. For the first quarter, local revenue was down 7.9% and national was down 7.2% for our radio stations. The radio markets in which we operate were down by 4.5% for the quarter.

By category, automotive was plus-4% and detainment was plus-4%, healthcare was plus-6%. But we were hit by a reduced cellular spending, which was down 35% across 4 large clients, driving our telecommunications category down 22% overall. And by grocery stores, which were minus-26% and pushed our retail category down 19% year over year. And that was specific to 2 large clients.

For Q2, our core radio businesses is pacing down mid-single digits after a soft month in April. Our cable television revenue is pacing up strong double digits for the second quarter.

Net revenue for REACH Media increased 5.9% when adjusted for time and difference of a major event. The increase was mainly due to strong advertiser demand. Net revenues for our Internet business decreased 10.9% for the three months ended March 31 due to a decline primarily in direct revenue.

We recognized approximately $45.7 million of revenue from our cable television segment during the three months ended March 31, 2015, compared to approximately $39.7 million for the same period in 2014. The increase was due to higher advertising demand and an increase in subscriber rates with certain affiliates.

Advertising sales were up 9.9% and affiliate sales were up 21% year over year. Cable subscribers, as measured by Nielsen, finished the quarter at $56.9 million compared to $56.6 million at the end of December.

Operating expenses, excluding depreciation, amortization, impairments, and stock-based compensation, decreased to approximately $79.5 million in first quarter from approximately $85.9 million for the prior year. Mainly driven by the time and difference on events. For the first quarter, consolidated station operating income was approximately $36.6 million, up 4% from last year. Adjusted consolidated EBITDA was $26.6 million, an increase of approximately 1.6% year to year, or 8.3% when adjusted for the event timing differences.

Interest expense was approximately $19.2 million for the first quarter, down from approximately $21.9 million from the same period last year. Decrease in interest expense was 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 $25.8 million in the quarter. Cash interest payments were higher than in prior year due to the timing of the semiannual payments, which are due on the 2020 notes.

Net loss was approximately $18.5 million, or $0.39 per share, compared to a net loss of approximately $25.2 million, or $0.53 per share, for the same period in 2014.

For the first quarter, capital expenditures were approximately $2.9 million compared to $1.7 million in Q1 of 2014, and this increase was mainly due to the relocation of our Dallas market office. So it was a lumpy quarter. Q1 cash taxes paid were approximately $54,000, and the Company received dividends from TV One in the amount of $6.3 million in the first quarter. There were no share repurchases during the quarter.

The Company's cash and cash equivalents by segment are as follows; radio and Internet, approximately $37.6 million; REACH Media, approximately $7 million; cable television, approximately $16.4 million. In addition to cash and cash equivalents, cable television segment has long-term investments of approximately $593,000. As of March 31, 2015, Radio One had total debt, net of cash balances, of approximately $758.7 million.

On April 17, the Company completed the acquisition of Comcast's 47.5% interest in TV One, and a simultaneous refinancing of Radio One is approximately $368 million of first-lien debt, together with TV One's approximately $190 million of 10% notes. The purchase price of $223 million and redemption of existing debt was financed by a $350 million term loan price at LIBOR plus 450. $350 million of senior secured notes priced at 7 3/8, and a $12 million seller note, which was priced at 10.47%.

Transaction will be significantly accretive to free cash flow. While our borrowings increased by $224 million, the reduction in our overall cost to capital means that the incremental annual cash interest expense is only approximately $5 million. As a result, the transaction pro forma 2014 free cash flow of $24 million more than doubles to $56 million. For bank covenant purposes, pro forma LTM bank EBITDA was approximately $142.1 million, which includes adjustments of the new Comcast carriage agreement and including the add-back of non-cash launch amortization expenses.

And with that, I will hand back to Alfred.

Thank you, Peter. The acquisition of the other half of TV One really kind of completes our strategy of becoming a multi-platform African-American-targeted media Company. And our strategy continues to be that -- very similar to that of Univision's. And instead of really debating with advertisers the merits of television versus digital versus radio versus syndicated radio or events, we aim to deliver it all.

And we have actually started to put more resources behind our in-house branded content studio/agency, which we recently announced, called [1-X] for One Experience. So we are -- we have hired some staff -- a number of professionals -- advertising professionals, creative directors, copywriters, account people to help us service accounts like Walmart, University of Phoenix, J&J; which we go in and we actually create campaigns and content, ideas that are run across all of our platforms, and other platforms if they so desire.

We find that advertisers now have the ability to find impressions everywhere with the Internet. And what they are really looking for are better ideas to connect to important target market segments. And the African-American market segment continues to grow, and we have got a unique strategy in this area. And we think that our MGM investment plays into that because the Prince George's County marketplace is about 70%-something black. It is a close-in suburb of Washington, DC. So it is within a stone's throw from our corporate headquarters. We operate in a lot of radio stations in Washington, Baltimore, and Richmond, the surrounding areas. So not only does our investment, we think, make a very attractive investment, we have got a marketing agreement with them -- for them to spend significant dollars on our surrounding radio stations throughout the five years -- the first five years of our deal with them.

Those of you who don't know, we have invested -- it is a total $40 million investment. We have put in $5 million, what, two weeks ago?

Yes. That's it. April 10.

April 10. The other $35 million is a right, but not an obligation. But because it is such a great deal, we plan to do it. The other $35 million will go in by mid-2016. We anticipate the casino opening the earliest July 2016. And if it slips in the first quarter, we are going to get a percentage of the gaming revenues, which will be reported, to the state of Maryland as a cash distribution on an annual basis. The state of Maryland believes those gaming revenues are going to be $700 million, $750 million. Our percentage is roughly a point on that. So we have got a nice cash-on-cash return of about 17% on that.

And then we are going to own about 6.6% of the casino as a residual equity interest. That, after the end of the year three, we are able to put back to MGM. They don't have a call on it. We have a put, so we can stay in the deal as long as we want. And we believe that it is the start of a great partnership with them and just another effort on our part to use our platform to build value in other areas. So we are building value in a pretty lucrative and interesting business with a partner who knows what they are doing, but we are also getting value from an advertising perspective. And it is a relatively low-risk and high-return effort.

So with that, operator, I would like to open it up to Q&A from those on the line.

(Operator Instructions) Aaron Watts, Deutsche Bank.

Wanted to start out on the radio side. Alfred, definitely a little bit of a step back in terms of the broadcast business in the first quarter. Can you maybe talk about, month to month, how it felt? And I think you said April kind of turned the wrong direction. Maybe what you are feeling, not only from the first quarter but as you look ahead now, however far ahead you can tell, how the business feels to you.

Yes, look -- we read the -- when we give pacings, we read of them off of what is coming out of our system. So early on, I think it was in January, pacings were positive. And then as the quarter went on, they continued to weaken. And so January, for us, was minus 34; February is minus 67; March, minus 45.

No, 14.5. (multiple speakers) March was when it really started to drop off. March and April were really softened. So we were down double digits in March, and then April is kind of minus-6.5-ish.

And while we are seeing improvement in Q2, there is still negative mid-single digits. And so, yes, I think -- and I have said before, some of that is self-inflicted. Well, I don't want to say self-inflicted. We drew a competitor in Houston, which was our largest market. So that is not self-inflicted, but that is not a market problem. And we have made some changes there that are improving our position as we speak.

Self-inflicted was Washington. Our ratings are down there. But, also, last year that market was one of the worst -- it was one of the top four worst-performing markets in the country in terms of negative revenue growth. The good news is, so far this year, through March, it is up almost 3%. So we think things are going to be stabilizing there.

But most of the markets that we are operating in, irrespective of how we are doing there, are negative. And people ask why that is, and I always say, look, we are not in a bad business. We are in a good business. Audio is still very important. Radio is ubiquitous. It is just that there is much more competition across all -- for all traditional mediums to share advertising dollars. And so that money has got to come from somewhere, and it comes from the traditional mediums. And where that ultimately levels out, we are not sure. But our job is to do the very best that we can in a tough market and get back to grabbing market share and then figure out other ways to insulate ourselves and diversify ourselves.

So I would say, again, that Q2 is still negative. And I think you are hearing that from other companies. I saw what Cumulus said. And I think if you dig into the iHeart numbers, their local markets are down, too, but they are offsetting it with their other businesses -- so traffic and syndication and live events. And we are offsetting it with our cable network.

Okay. No, that's helpful. If I take that a step further, if you look into your crystal ball, do you feel like the industry as a whole -- can it get back to a flat or growth state? Or do you think -- so I guess is this a temporary lag in spending with radio, or do you see it more as just dollars are shifting out and you are kind of looking at this down (inaudible)?

I actually do think it will because I think that you have audio delivery, and then you have video delivery. And I think that audio delivery has always been a part of the advertising mix. I don't see that changing. I saw the iHeart announcement, and they are moving to programmatic. And by the way, [CATS] brought us in and talked about to promote programmatic strategy that they have for the industry. And I think that that is going to be something that is helpful.

I believe that the difference between a Pandora and a Spotify and delivering audio just basically comes down into their software systems that allow people to subscribe and stream music and create their own playlist. I believe that that is a function that is duplicatable. We haven't followed that strategy individual company, but I think that is duplicatable by the radio industry. And ultimately, I don't see -- there is nothing that much more special about their form of audio delivery or ours. We are streaming all of our radio stations online. So if you want to listen to us on your smart phone, you can. And I believe that we have -- we have got the incumbent advantage in that we have got most of the audience now. We have got most of the revenue. And we currently have a favorable cost structure as it comes -- when it comes to -- down to royalties. I don't believe -- I believe it is a fair cost structure given the value we bring to the artist and to the record industry in promoting their music. They continue to say that terrestrial radio brings value. And I think it is ultimately going to be hard for the business model on the webcasters to continue to pay out half of their revenues in royalties. But, again, we give our music give away free; we are not charging for it. So if they are charging for it and have two revenue streams, why shouldn't they pay more? And they are actually having to sell advertising now. So it is not as if Pandora and all these guys are going to have commercial-free services that are going to be wildly different than terrestrial radio. In order to offset their cost base, they have got to sell ads. And they may start out now with three or four minutes, but, trust me, there was a time when radio was running six minutes. On FM radio, you were running very few units and, over time, economic reality set in and you run more units. And I think that that is happening and will happen there.

So I do think it will equalize and get back to a more normalized flat to modestly growing. Plus, I also believe that, at least for us, our online strategy is more about display, native advertising, video content, and our radio stations are great drivers of traffic to those websites that we own. And I think a lot of the radio guys are figuring out how to utilize their inherent competitive advantage of large and strong local sales forces to find other products to sell to local advertisers.

That makes sense. Just shifting over to the television side, the new deals -- distribution deals you have been striking, including the Verizon one just recently, can you just remind me, what is the tenure of those deals? Are they trending longer in length than they used to? Or, on average, how many years are we looking at?

We are different. I am bound in a form of confidentiality to not disclose too much about these deals. But let's just say ours are longer than normal. And if you were to -- and there is a range of them. There is three of them that are already done. We are in discussions with everybody else. And I would say they are on the short end of five-ish years, and on the long end 10-ish years. And I won't tell you who is who.

Okay. And last one for me, a little bigger picture. As we hear about and see more and more over-the-top streaming options and then also some of the smaller bundled packages that are being put out there now, where does TV One fit in to that world, and how do you get paid for that?

Yes. So it is interesting. TV One is really still a nascent service; we are 11 years old. I mean, we don't even have Dish yet. And we have got to figure out a strategy of how to get Dish. Where, in the middle, we have hired a consultant that I have worked with for a number of years who is very good, whose specialty is international. And right now, she is developing our international strategy. And by that, she is communicating with distributors in the Caribbean, in Africa, in Canada about how do we expand our brand in those territories. And by the way, BET is in all of those territories, so we have that opportunity.

We have not approached anybody about Netflix or Hulu or Amazon deals. We haven't even talked to Amazon or Apple yet, and we are on the front end of that process. All the while, we are continuing to create more original content and think that we are going to be in a prime position to generate revenue in those areas.

And we haven't thought about it yet, but it came up in our affiliate deals because obviously over-the-top is on the top of mind for all of the distributors. We are learning what that business model is and can be for us. But here is what I believe. I believe with all of these assets targeted to African-Americans, one of the reasons I think TV One is successful is we use our radio platform to bark TV. And ever since we have owned it, or created it, we have barked TV One almost on an hourly basis every day. And I think it has helped grow our brand. And in a market where you are seeing other networks trend down significantly, we are trending up. So I said that is the power of the platform to sell something, to sell TV One to black consumers. I think we have that same ability to sell some over-the-top service, if it was black Planet TV.

Now we have some restrictions on not being able to run the content on TV One simultaneously with some over-the-top or online service. But you could do it with library content. You could do it with content that hasn't hit the cable network yet. You can do it with content that you have licensed to other places just for that service. But if anybody has the ability to market an over-the-top service to African-Americans, I think it is us.

One of the things we have learned here is when we try to do a lot of things at the same time, particularly when you have been dealing with a legacy business that has come out of a growth mode, it is challenging. You're best to focus. So we have been focused on things that keep us in business for the long term and create the most immediate long-term value. And that was getting the distribution deals done and buying the other half of TV One and stabilizing radio and getting iOne to profitability and getting Reachback up to substantial profitability.

But all these other things that I have mentioned -- just mentioned to you that you asked about, those are in our future, and those are opportunities. And we will focus on them as we are getting past these other things. Once we get all of our renewals done, it is like, okay, what is the next opportunity to create value?

David Farber, Credit Suisse.

Some of my questions have already been asked, but I just wanted to touch base on some of the improving margins you guys put together for the quarter. Could you just walk us through, Peter, or maybe Alfred, what is driving that? And then, any thoughts on how that all takes shape over the next year or so? And then a couple of follow-ups. Thanks.

One more time. I'm sorry. Can you repeat that question?

Just wanted to hear what is driving the improving margin, what you guys are doing on the cost side. Because it looks like you had some better flow-through there. And I was just curious (multiple speakers) if you had any thoughts on a go-forward. Thanks.

Obviously, we are hyper focused on it. Some of that, unfortunately, was just lower sales commissions, right, because the revenue was down. But then there is a bunch of other savings initiatives in radio. We made some employee changes at a fairly senior level related to DC. And we managed to save a pretty good amount of cost with the reorg in DC. And that really are the main things. We are just chipping away on all fronts.

I think, looking at the market being down 4.5% for Q1, we are anticipating looking to Q2, something kind of similar. Actually, have just got to try and control our costs as best we can to stabilize that cash flow.

Yes, we -- and I have mentioned this before, I think. I know I have mentioned it (technical difficulty) to the financing, but we have hired PWC to help us look at this entire platform and figure out how do we increase productivity, where can we create synergies, lower costs. It also includes where do we invest to grow our revenue.

This is the first time that we have ever brought in an outside, big consulting firm to help us do something like that. Before, it was just me and the senior team sitting in a conference room and saying, let's do this, let's do that. But we are hopeful from this exercise is we learn all of the things that we don't know that have been used at other companies that may be similar media companies or even in other industries. That is what they do for a living. We are cognizant that we don't know what we don't know. And so we are deep in the middle of that now, and we hope that that is going to result in some additional insight.

Yes. And the other area where we are trying to reduce cost is in our interactive and digital business. Because I think it is fair to say we set that up in anticipation of the revenue coming in faster and higher, and so we are having to re-look at that in the context of growth being somewhat less that we would have hoped. So we are taking out -- there has been some attrition there that we will probably not replace, and so that is actually helpful on the cost side there.

Yes.

Sorry. Was that David I was talking to? I didn't quite get it when the operator said --

That's right. That's right.

Okay. Sorry.

No problem. Okay. That makes sense. And then, congrats on the Verizon deal. Any update on AT&T or Direct TV? And then just also wanted to hear about the MGM investment. Do you have a sense for when that will open? And that is it for me. Thanks.

Yes. We are -- we have been in deep negotiations with AT&T for a number of months now. I think we are nearing the end of that process. They just had a change at the top of their programming group which I am hoping doesn't slow us down. That just recently happened. But we were down to like the last .42, and we are feeling very optimistic about that. In particular, we are very feeling optimistic about it. It doesn't come up until the middle of 2016, so we are getting going early on it.

And Direct TV, we are kind of assuming that AT&T and Direct TV is going to happen. And so then -- and our Direct TV deal ends up at -- ends at the end of this year. So if we end up doing a new deal with AT&T, then the Direct deal doesn't matter. But, as we saw with Comcast-Time Warner, anything could happen. So because the Comcast-Time Warner deal unraveling was new news, I think we are rethinking right now whether or not we should engage with Direct now. I don't even know if they would engage because they are probably assuming their deal is going to happen. So there is two sides of that coin.

But, look, I feel confident that network has a unique position. It is certainly, from a price value standpoint, our ratings versus what we cost versus the other competitors, and particularly Viacom networks, is really attractive. And I think that we are positioned well in the marketplace, politically as well, given that we are the home of the NAACP Image Awards and the official network of the NAACP. We have the only black news show, daily news show done out of Washington, DC, on Capitol Hill. We are minority-owned. Diversity is always a big issue in this industry.

So the only reason somebody could have for not wanting to renew us is that they feel that you are just a standalone -- and, I don't care about what your ratings are; I can just live without your one channel. And we are not feeling like anybody is targeting us to pick one. They see value in the network. It has got a real audience that is growing.

And so I think -- I have been saying it, I think we are going to be okay. Now, I have got to tell you, two years ago as we were going into this, I felt good about these things, but I didn't have any real empirical data. Now, after having significant and deep conversations with everybody, I feel a lot better about it. How about this? Verizon, they just signed up. They are not merging with anybody. So they got no reason other than they see the value of the network to continue to carry it.

So I think -- oh, and MGM timing. Supposed to open the middle of 2016 -- July 2016. I think it slips a little bit, but I think it still gets done between July and the end of the year. Next question.

Chris Pattillo, 10 Capital.

I know you guys have been very busy, but you also own a television station in Indianapolis. And you were just at the NAB conference. So have you guys started the process or started to look into -- I imagine it is not a strategic asset for you, but have you started to look into the process of what you could do regarding the spectrum auction next year?

Yes, we have. It is complicated, as you well know. We haven't engaged a lawyer to help us. We haven't figured out what the strategy is for us to participate in it. But, given the numbers that people are throwing around -- actually, that low-power television station, we bought; and we bought a group of radio stations in Indianapolis. So we never went out and bought it just to buy it. That station was run with the radio station. So we bought it all. Originally, it was a music video channel that we never made money on. We always lost money.

A year ago and some change, we switched to a Telemundo affiliate. And it has got full cable carriage, so we are actually breaking even now. So we are breaking even now on it. And we hope to make some money on it. But the fact of the matter is, given the numbers that are being thrown around, it could be extraordinarily attractive to us to sell the spectrum in the auction. And, quite frankly, we already have the cable carriage. And the cable system is owned by Comcast and Bright House. And Comcast owns Telemundo. So I am assuming they are still going to want to carry their network on cable that they are already carrying. So you could actually give up the spectrum and still stay in the Telemundo business in Indianapolis.

So I don't want to get too far out over my skis because I have never been that lucky that somebody is going to come and give us some double-digit millions of numbers for this television asset, which, by the way, we haven't been able to sell for seven years because we would have sold it for $2 million.

We were asked when the downturn was here, do you have any assets that you can sell. We sold radio stations that were not strategic or that were not making any money. We would have sold this for sure, but we couldn't find a buyer.

So the answer is, we are going to figure out who is the best representative for us to help us figure out a way to participate in the auction. And I hope it is as robust and as big as the FCC is saying it is, and we would absolutely plan to participate.

Lance Vitanza, CRT Capital.

Regarding that TV station, I guess sometimes it is better to be lucky than good.

You know what? I have been wanting to be lucky all my life.

I wanted to ask you about programmatic buying. I joined the call late, but I think you mentioned something about that with CATS. And I know it was a theme on the iHeart call yesterday. And rightly or wrongly, there is a perception out there that says programmatic buying equals race to the bottom in terms of pricing.

Yes.

I guess -- what is your take on it? It is not something that we spend a lot of time talking -- I would be curious to get your thoughts.

I think in digital, that has certainly been the case. I saw Bressler's comments about they want to create unique value-building opportunities around traffic patterns and weather patterns. And, quite frankly, when CATS explained it to us, the idea that an advertiser or an ad agency that has a business that does well when the weather is bad, preloads an order months in advance that says every time it rains or snows or whatever that this particular set of radio or audio ads triggers in these markets around these parameters. I think it is actually very interesting.

I don't know enough about -- I mean, programmatic's never happened -- hasn't happened in radio and, I think, television yet. So I don't know enough about how do you do it and not just have it be the race to the bottom to the lowest CPM. But, yes, I am optimistic that some smart people can figure out how to do it.

But even if it is a race to the bottom, the industry is going -- a certain part of the industry inventory is going to move there anyway. And right now, we do what we call remnant business. And it is business that preemptable; it's low-cost. You can take it if you want it. And if not, it is low-cost, they pay on time, and we all take a bit of that. And to the extent that you could automate that process, that probably increases productivity and takes cost out of the system. And you can have your sellers focused on the more high-value clients that you are getting better rates and doing bigger campaigns for.

So I tend to try to figure out what is actually going to happen or what is happening in the industries and just go there and see how you can best play your hand in that evolving situation. And I think programmatic is going to -- it is absolutely coming. So we have just got to figure out how to play the best hand out of it.

And I think what the iHeart guys are saying is right. Figure out what are the value points as to what local radio brings and why you shouldn't just care about CPM (inaudible). Now, by the way, radio already has a low cost compared to other ad mediums, so I think that that has something to do with it.

An example that we have internally that I think is germane -- so Dallas, Texas, is a market that is not doing great right now. It is negative. It is negative 4.2% year to date through March. But our stations are up like 21% there. And our competitors' stations are up -- our direct competitor, and in a market that is negative. And neither of our ratings have appreciated dramatically over the last, call it, four years. But, because we have been beating each other's head in for so long, we were both pulling out together collectively less than the African-American percentage of the marketplace. So we were price-killing each other. So I think what has actually happened is we both reached the basement, and now the buyers are figuring out, you can actually pay more for these guys, still be way under, and it is improving our business. So I say that to the point where radio may be already so attractive priced that even programmatic doesn't run it to such an intolerable price level. It is not like this is an overpriced medium to begin with.

And I think the other side of that coin is if we make radio easier to buy and easier to measure and figure out an ROI on which are traditional complaints, then you end up fishing in a bigger pool and competing against for more digital dollars.

That is a great point.

So that --

And that is a traditional complaint. I was on the phone with MediaVest yesterday talking about a big client. And they brought it up, how the client wants to move more towards digital because it is measurable and they have got ROI. How do we -- we all know the power of radio. How do we make radio more measurable, more targeted -- and when I say measurable on ROI. We are a bit ahead of -- we have handled one issue, and that is die reverses, electronic medium. So I think with electronic -- with PPM, it is kind of hard to -- hard for people to argue that. This isn't the real, true audience of radio. So now, how do we measure its effectiveness?

Tiffany Gouch, Sweet Entertainment. (Operator Instructions).

(technical difficulty)

One more time. Tiffany with Sweet Entertainment, your line is open.

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Davis (inaudible).

One of the things out of NAB we heard was that local direct billing has been positive for some of your peers in the first quarter and in the second quarter, while the agency business continues to be pretty difficult. Just curious if you are seeing those kind of trends. And then for Peter, just wondering if you could talk about the glide path of lower leverage over 2015 and 2016, how you see that playing out? Thanks.

Sure. On the glide path to low leverage, the free cash flow improvement that we talked about comes from a couple of things. Obviously, no dividend leakage going out, which was kind of $25 million, roughly, last year. And then, the growth in TV One's EBITDA driven by the new affiliation agreements. And the fact that we won't have recurring launch amortization.

So Alfred mentioned a kind of mid-60s EBITDA number, and we are going to participate in pretty much 100% of that -- 99.6% of that is ours, and the stub is a management equity pool.

So you can see how that -- going from $24 million to $56 million of cash flow and is projected to go higher than that, we will pretty quickly start to ramp up cash.

The other thing Alfred mentioned, we have hired PWC Consulting to come in and help us on the cost aside. And we have an internal run rate target of EBITDA, which I think will accelerate the deleveraging process. So in the very short term, i.e. within 12 months, we want to be back under 7 times levered. And then within two years, we want to be under 6 times. I think where would it be comfortable, it would be nice to have a five handle on it or even less. And the management projections we have over the next five years get us to that position.

So really we have to just execute on the strategy and the assets we have. And I think you'll see over the next two to three years, the leverage profile should change dramatically.

In terms of the national, local, obviously it varies market by market -- and I am just turning to my page here. It is really mixed. So if I am looking at my local business for Q1, I would say the majority of the markets were down somewhat, but -- so DC was down 15%. Houston was down 5.9% local. Atlanta down 14%, Baltimore down 16%. But then markets like Charlotte were plus-21%; Cincinnati was plus-8%. Dallas was plus-9.8%, and Alfred referenced about a minute ago. St. Louis, plus-26%. So we have got some markets that are performing really well for us locally. And then we have got some challenges and some headwinds in others.

And it is kind of similar when I look at the national business. So Atlanta for Q1, national was plus-3%. Charlotte, plus-3%. Philly, plus-10%. Richmond, 30 -- plus-35%. St. Louis, plus-30%. So there are some good growth stories. But as we talked about, we have got challenges in DC. We are considering that as a turnaround situation.

And our national business in DC was down 36% for the quarter, which really hurts us. Which also speaks to the fact that I think if you isolate DC and you look at -- take our markets as a basket against the minus-4.5%, we actually outperform that. If you look at every market apart from DC, we would have been an outperformer in Q1. And then that national number in DC really hurts in Q1.

Tiffany Gouch, Sweet Entertainment.

I noticed a great amount out of growth in your business. I actually started as a user of Black Planet and a listener to the radio stations in my hometown, Hartford, Connecticut. And I was just wondering if you are looking into markets like Hartford, like Boston, and LA, for example. And Oakland or San Francisco as a possibility for growth in the radio arena.

Yes. We were in LA, we were in Boston, and we sold out of both of those markets.

Okay.

Yes. Primarily, the African-American populations as a percentage are fairly small. LA is like 7%. It may be 6% and some change now. And Boston was less than that. So the value -- but they are big markets. They are top 10 markets, right? So the value of a radio station there kind of far outstrips how much money we can make with it serving African-Americans. And so those were two of the markets that we sold to reduce debt because the stations were more worth dead than alive to us. And so the likelihood that we would be returning to those markets to operate is low.

Okay. Awesome. I see what you are doing on a number, also, of the NAACP Image Awards. And I am just really excited about the growth prospects. Small growth at a time; that is just really what I'm interested in being a part of.

All right. Well, thank you very much, and we appreciate your support of all of our products, including Black Planet and listening to our radio stations.

(Operator Instructions) Currently, we have no questions in queue.

All right. Thank you, operator. Thank you, everybody. And I say this at the end of every call -- Peter and I are always available post-conference call to ask any questions that you might have. And we have actually had some investors talk about coming to visit. And you are welcome at corporate any time. Thank you very much, and talk to you next quarter.

And that does conclude the conference for today. Thanks for your participation and for using AT&T Executive TeleConference service. You may now disconnect.