Urban One Inc (UONEK) 2020 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to Urban One's 2020 First Quarter Earnings Call. As a reminder, this conference is being recorded. We will begin this call with the following safe harbor statement. During this conference call, Urban One will be sharing with you certain projections and other forward-looking statements regarding future events or its future performance. Urban One cautions that you -- excuse me, one moment, please. Urban One cautions that certain factors, including risks and uncertainties referred to in the 10-K's, 10-Q's 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 May 28, 2020. Please note that Urban One disclaims any duty to update any forward-looking statements made in the presentation. In this call, Urban 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.urbanone.com. A replay of this conference call will be available from 12:00 p.m. Eastern Time today, May 28, 2020, until 11:59 p.m., May 31, 2020. The callers may access the replay by calling 1 (866) 207-1041 or (402) 970-0847 with the access code 4774576. Access to live audio and a replay of the conference call will also be available on Urban One's corporate website at www.urbanone.com. The replay will be made available on the website for 7 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 Urban One, who is joined by Peter D. Thompson, Chief Financial Officer. Mr. Liggins, please go ahead.

Thank you, operator, and welcome to our Q1 conference call. Also joining Peter and I are the CFO of TV One Jody Drewer; our General Counsel, Kris Simpson; and our Chief Administrative Officer, Karen Wishart.

You got the press release. I don't think that there's a ton of new information other than what our EBITDA ended up being in Q1, which we were happy that we were able to improve it. You know that radio for us started off Q1 great in January and February. You're certainly well aware of what happened in March. And we talked on the year-end conference call about the things that we've done to offset the effects of closures due to the pandemic. And all of those things are in place, I think that we have -- they say, if you do something to -- in preparation or in fear of a calamity, actually go a step further and do more because you probably haven't done enough. And I think that we took that approach as it related to our cost base going into Q2. And we did enough such that we felt that under a number of stress-tested scenarios, we were going to be compliant with our debt covenants, which was paramount to us. We want to continue down our path of delevering and paying down debt. And we think that we're in that position -- still in that position. Peter is going to talk you through the numbers. I think that Q2 is coming out where we thought it was going to be in terms of pacings kind of down high 50s.

We have not yet seen a bounce back from the planned -- actually the reopenings that are in some state of progress now depending on what jurisdiction. In [June], we haven't seen that effect yet. However, what I can say is that in May, and Peter will give you the exact numbers, is that we added money during May, a good portion of the days of May. So we're hopeful that we will do the same in June.

And now it's really about what the bounce off the bottom looks like and the recovery, which none of us really know. But we are prepared to weather it. Our casino investment at MGM shut down. So there is 0 contribution from that starting in mid-March.

You're starting to see casinos open up around the country. I think Louisiana opened up, and I think it was Montana or Wyoming, one of those -- South Dakota, one of those northern midwest states had opened up kind of first. And now they're talking about Las Vegas starting to open up in the first week of June.

I do not know when Maryland is going to open up. If I had to guess, I would say that it would probably be some time in June and at some sort of reduced capacity. One of the things to remember is that our income off of that is gaming revenue off the top. So when that does happen, we'll see immediate contribution. We don't have to wait for the actual EBITDA to bounce back. But certainly, the value for all businesses will be impaired for this COVID period this year.

And look, we're optimistic and hopeful that we'll climb out of this, just don't know what -- at what rate, but we're super focused on maintaining our liquidity, cost control, grabbing the kinds of revenue shares that we're used to, even in a declining market. And then ultimately, looking for, are there any opportunities to create value or EBITDA through any sort of consolidations and things like that. I don't think that any of that stuff is really on the table now because people really kind of want to figure out where they're going to be at in terms of recovery. But I do believe that there should be some opportunity there. Certainly, people are going to be worse off by the end of this year than they had planned to. The question is as to what degree. And that ultimately should create some sort of catalyst for people to want to do more in terms of finding expense synergies with competitors, et cetera. We've been exploring some options for our new cable network, CLEO, to see if there is a way to find some synergies with some other partners there as well. Nothing to do at this point in time, but it's kind of stuff that we're looking at. There's a lot of conversation about should there be more radio consolidation. The answer is, yes, there should be more radio consolidation. The entire industry is going to be levered higher than it had been in the past after many folks come in through bankruptcies, and so I think people should really start to take a really harder look at which combinations yield the highest possible operational synergies. But again, that's a conversation, I think for -- as people get into Q4 and see what their year-end performance and numbers are going to look like.

So with that, I will turn it over to Peter Thompson to go deeper into the numbers. Peter?

Thanks, Alfred. So net revenue was down 3.6% for the quarter ended March 31, 2020, at approximately $94.9 million. Radio segment net revenue was down 5% in the first quarter. National advertising sales were up 1.9%, while local ad sales were down 5.7%. On a same-station basis, which excludes Detroit, the Radio segment net revenue was down 0.7%, and excluding political advertising, it was down 5.7%. Net revenue for Reach Media was down by 4.1% in the first quarter, and the adjusted EBITDA was up by approximately $226,000 year-over-year. Net revenues for our Digital segment decreased by 15.4% in Q1, and adjusted EBITDA for the Digital segment decreased by approximately $909,000. And this was due primarily to 2019's major tentpole event, the image awards not recurring in 2020. We recognized approximately $47.5 million of revenue from our Cable Television segment during the quarter, decrease of 0.7%.

Cable TV advertising revenue was up 4.2%, driven by the increased delivery. And also, CLEO TV was up approximately $100,000 year-over-year. Cable TV affiliate revenue was down by 4.6%, with a rate increases of approximately $1.3 million being offset by churn of approximately $2.6 million.

Cable subscribers, as measured by Nielsen, finished first quarter 2020 at $51.8 million, down from $52.2 million at the end of fourth quarter 2019.

We recorded approximately $1.4 million of cost method income less administrative expenses for our investment in the MGM National Harbor property for the quarter, which was down 17.2% from last year. And this decrease is a direct result of the casino closure due to COVID-19 Maryland state mandate.

Operating expenses, excluding depreciation, amortization, impairments and stock-based compensation, decreased by $9.3 million or 12.4% to approximately $65.6 million in the first quarter. Noncash expenses were down by approximately $900,000 due to onetime adjustments, and they're excluded from adjusted EBITDA. Radio operating expenses were down 4.8%. Radio SG&A expense line was down 5.8%, primarily from lower revenue variable expenses such as sales commissions and national rep fees as well as nonrecurring station events.

Radio programming and technical expenses were down 3.2%, mainly from the discontinuation of radio stations in the Detroit market. Reach operating expenses were down 8.3%. Programming and technical expenses were down 15.9%, driven by lower talent compensation expense. Reach SG&A expenses were up 13.8% due to an increase in affiliate station compensation expense for the quarter. Corporate SG&A expenses at Reach were down at 11.5% due to staff compensation savings.

Operating expenses in the Digital segment were down 5.4%, driven by support cost savings in our digital hub.

Cable TV expenses were down 22% year-over-year. Programming expense decreased by approximately $3 million, driven by the absence of (inaudible) image awards in the quarter and fewer premier hours.

Operating expenses in the Corporate and Eliminations segment were down by $1.25 million, including a favorable variance of $700,000 for noncash adjustments to the company's employment agreement award liability, which is excluded from adjusted EBITDA. Net of those adjustments, corporate SG&A expenses were down approximately $600,000, driven by the reversal of accrued bonuses and nonrecurring third-party cyberattack remediation expenses from the first quarter of last year.

For the first quarter, consolidated broadcast and digital operating income was approximately $37.6 million, up 12.8% from $33.4 million in 2019. Consolidated adjusted EBITDA was $32.3 million, an increase of 16.4% year-to-year.

Interest expense was approximately $19.1 million for the first quarter compared to approximately $20.8 million for the same period in 2019, a decrease of 8.1%. Company made cash interest payments of approximately $13.9 million on its outstanding debt in the quarter. The senior unsecured term loan was paid down by approximately $11.9 million during the quarter, and the Term Loan B was paid down by approximately $824,000. $27.5 million was drawn from the revolving asset back line of credit as a preemptive measure to improve liquidity during the pandemic. The senior term loan balance increased by PIK interest of approximately $518,000.

The company recorded a noncash impairment charge of approximately $47.7 million for radio market broadcast licenses as well as $6 million in total goodwill assets for Atlanta and the Indianapolis markets. These noncash impairments resulted from change in market assumptions as a result of COVID-19. The benefit from income taxes was approximately $21.9 million in the quarter, and there were no cash taxes paid during the quarter.

Net loss was approximately $23.2 million or $0.51 per share compared to a net loss of approximately $3.1 million or $0.07 per share for the first quarter 2019.

First quarter CapEx were approximately $1.4 million compared to $707,000 last year. During the quarter, the company executed a Stock Vest Tax Repurchase of 547,801 shares of Class D common stock in the amount of approximately $1 million.

For covenant purposes, pro forma LTM EBITDA was approximately $137.5 million. Net senior leverage was 4.6x against a covenant test of 5.85x. Net debt was approximately $839.3 million. This compares to $138.1 million of LTM reported adjusted EBITDA for a total net leverage ratio of 6.08x.

I'm going to go into a little bit of detail on what we're seeing in Q2, just to follow on from Alfred's point. So on a same-station basis, April radio revenues finished down approximately 58%. And the second quarter overall is pacing down by around 58% as well. In order to combat the steep and sudden revenue decline, primarily in our Radio division, the company has taken swift actions to protect the company and ensure continuous liquidity and debt compliance, including drawing the $27.5 million from the asset-backed line of credit and aggressively cutting or delaying costs.

We have reduced second quarter expenses by almost $30 million since the beginning of March. $9 million of that is a result of delaying the Tom Joyner Fantastic Voyage cruise. Another $2 million is from the cancellation of radio station events. $8 million of those savings is employee expense reductions through a combination, unfortunately, of layoffs, furloughs and pay cuts, about $4 million of which are expected to be temporary in nature. $4.5 million is for reduced or delayed marketing spend. $2.5 million of savings is lower commissions and rep fees. About $1 million of those Q2 savings is in TV programming content, $1.5 million is in travel and office expenses. And we expect to continue these cost-saving measures through at least the third quarter, depending on the return of normal advertising revenue.

Alfred had mentioned the radio ads in May. What he was speaking to there was back in April we were -- the cancellations on a daily basis were outweighing the amount of revenues booked in radio. And so far, since coronavirus hit, we've had roughly $14 million of cancellations across the radio properties. But we saw in May positive adds for 15 out of 16 days where the advertising sales outweighed the cancellations. So to Alfred's point, I think we've found a floor, and we're actually managing to add advertising dollars.

Thank you, Peter. Operator, let's open it up for questions. And hopefully, this call, we will actually get...

Have some questions.

Have some questions, and we apologize about the access code snap-through on the last conference call. So here goes nothing. Operator?

(Operator Instructions) We have a question from [Ben Briggs].

I have got a few that I want to run through here really quickly. So, first of all, just kind of -- I know we are probably putting -- probably looking out a little bit here, but just on eventfully you guys are going to have to address the capital structure and refi. And assuming that the revolver that comes due in '21, is it going to be

too much of an issue to stand out? The next one coming up is the 7.375 notes due in '22. I know typically, Alfred, it has been your preference to not have things become current obligations on the balance sheet. Is it safe to guess that that's going to be your preference here as well? Or are you going to wait possibly until like mid '21 to address those? Just because of all that's going on in the world right now.

Yes. You want to...

Yes. Look I think obviously we are thinking about it, and this is a pretty big bump in the road from a timing standpoint of refinancing those out. Specifically, I don't think the revolver/ABL is going to be an issue to renew, given that's asset-backed, and those assets are significantly ahead in value in terms of the draw and the capacity there. So I don't think that's an issue. I think what gets to be an issue is the 7.375. And so by the end of Q1 next year, it would be good to have taken care of that. To your question, if we had to -- if we get to that point and for whatever reason, market conditions are not favorable, we could go current with that. We've had those conversations with the auditors. And providing they are happy that we have a path ultimately to refi it, don't think that in and of itself is the issue. Look, we're a long way out from it. And to answer your question, Alfred, you can jump in. Our preference is not to have that go current. But we have explored that in case...

Yes. Look, we spent a significant amount of time with our auditors going through our growing concern this last go around. And we laid out a plan that says we're going to be in compliance. So we feel good about that. So we were actually going to go and do a refi after our year-end print. I mean, literally, we were weeks away from teeing up a refi when COVID happened. So we were going to go early, right, because the market was favorable. So now, my biggest issue is we're going to have this COVID hole in our earnings. And look, my experience has been that markets don't really -- if they can take advantage of you in a position of weakness economically, they do it, right? And so quite frankly, and I get it, we want to give ourselves as much runway as possible to get off a refi that is reasonable, right? And so if we don't have to, we're not going to go and print a desperate refi and hang the company with an even more onerous capital structure, right? We've done -- as a management team, we've done everything that we said we were going to do. We've been paying down debt. Even through this, we've managed our expenses, et cetera. So the answer to your question, as Peter said, I reiterate, we prefer not to go current, but I'm more concerned about not having a qualified audit opinion, and we work through that with the auditors. And we know how much runway we're going to have, and that runway would push us into -- further into '21. So...

Yes. No, that reasonably makes lot of sense.

So talk to your fellow investors and they'll start to say, "Hey, look, that's a good management team, did what they're supposed to do, let's give them a COVID reprieve."

Yes. I'll send you guys over a few of my reports. I hope you like what you said.

All right. Thank you.

Yes, of course, of course. I've got a couple more here, if you guys don't mind. So just touching on the Cable TV. So I know that previously, you provided a little bit of guidance on what the contracted affiliate fee rates were going to be, whether it increases or decreases. Can you just refresh my memory on how it works?

They increase every year at a mid-single-digit clip.

Okay. All right. And that is still the case and there's -- what I want to make sure is that there...

That's still the case. But unfortunately, and everybody who invests in cable networks knows, that gets offset by the higher churn that kind of nobody had expected 5 years ago. But look, it's better than not having it and still having the churn. So our affiliate line stays reasonably stable, which is a good thing.

Yes. Yes. No, it's definitely a good thing. And then what about -- are there any contracts that are -- that you guys have with cable providers that are going to be coming up for renewal in the near term?

Our next one is Verizon that happens later in this year.

Okay. And then what about after that?

Not until '23. Is that right, Jody?

'21.

'21. Well, MTC, which is super small for us, it's '21, but Charter doesn't come up until '23. And then Comcast and AT&T don't come up to '25 and '26.

Okay. Okay. That's very helpful. And then the next thing here is -- so you had talked about the consolidation a little bit, was that more like, hypothetically speaking, you guys are always...

Look, look, I mean, one, we're always looking for -- we have been -- we try to be rational actors, and we have been buyers, and we have been sellers depending on what made sense to rationalize the portfolio. Are there enough prior to COVID, I got to tell you, investors that we talk to were more bullish on radio as an industry than on Cable TV, right? And more bullish than I've seen in a long period of time. And quite frankly, I would argue that investors are still kind of bullish on radio even with the idea that a lot of the pure-play radio companies are going to be levered extremely high with -- this year with COVID because people's stocks have been holding up reasonably well, in fact, moving up significantly, right?

And so -- but the fact of the matter is once COVID happens, and I'm just going by what I've seen in the analyst report, people are predicting higher levels of leverage in the radio industry this year and next year. It just kind of makes sense that -- if possible, people consolidate and reduce expenses. Now whether folks get religion on that? I mean I don't know, but that, to me, is sort of the rational outcome of the situation that we're in. But it's typically been difficult to get radio folks to see eye-to-eye on value. But we'll see. This is a different scenario.

But look, leverage goes -- excuse me, the world becomes more normal again. I think what people like about radio is that the disruption, the digital disruption in it has largely happened already, right? And so there's a level of stability, even if you view that stability as a slow melting ice cube, at least it's a slow melting ice cube, right?

And so yes, I mean, we're open to looking at that as we always have been. And we're always looking for an opportunity to delever and increase value.

Okay. That's very helpful. And then I've got just a couple of real quick ones, I'll rattle them off all at once. So first of all, can you give me a cash from ops number? I know you gave $1.4 million of CapEx. Can you give us a cash from operations number? Just so we can calculate free cash flow for the quarter.

And then second one is, can you just -- what was the total amount of cost savings that you provided in the scripted portion? And then finally, any...

Sorry, Ben, what was the second one?

The second one was what was the total cost savings number that you guys provided in the scripted portion? And then the third one is -- go ahead.

Go ahead, sorry, finish it. Finish, I'll circle back.

Okay. And then the final one was, what is -- if any second quarter EBITDA guidance you can give would be helpful. I know you may not want to give guidance just considering all that's going on. But any guidance you could give would be helpful.

I mean things are moving around. We don't want to do that. I mean, I will put it this way, we're going to have ample covenant cushion. But we don't -- put it this way, it's not going to do anybody any good for us to give guidance, it's not going to mean anything to anybody because it's going to be an ugly number compared to last year, and so I think the thing that investors should know is that we are not going to have a covenant issue in Q2. And it won't be by a little bit.

Yes. And then second question, the number I mentioned was -- it's just under $30 million of savings for the second quarter that we've taken out since the start of March. And then we're going to put our 10-Q out, which will have the cash from operations in there. I don't have that finalized number in front of me, Ben. But we'll put that out, you'll see it. And if you want to circle back, we'll be happy to talk through that.

Our next question is from [Solomon Alexander].

I wanted to ask, are there any other internal risk assessments that have been done because if COVID-19 resurges for the end of third or the beginning of fourth quarter will we have different -- will the company function in a different manner going forward? And are there any -- and second part to that question is, do we have any other [Lords in London] policies or things of that nature to help us in this catastrophic type of environment we're in?

Yes. We do not have any policies that I believe. We've asked the question. Our business interruption policies don't cover this pandemic in any significant way. Is that correct?

Well...

Kris, do you want to?

So there is some possibility of coverage under some state legislation, but what we're seeing most of it is going to be targeted towards smaller businesses, i.e., under 250 employees. So at this point, we're planning -- we're acting on the assumption that won't be covered.

Yes. So that's where a state is going to basically tell insurance companies that they've got to cover these guys?

Correct. And there are actually some issues there. There's some hair on that. There are actually some constitutional issues that could be implicated. So even if that legislation is passed, if not there's no guarantee that would work out.

We're operating assuming that we won't be covered, right?

Correct.

Although we are tracking everything that would allow us to make a claim, we think that the losses resulting from viruses are generally excluded from policies. That may get challenged in the courts. And if it does, we will at least have all of our numbers ready to go in.

And look, I mean, and no, we don't really -- I mean, we've stressed test Q4 down to some numbers, but if you have a repeat in Q4 of what Q2 looks like, no, today, we're not prepared for that, but I don't think anybody is. I mean all I do is watch the news these days and read business information and stuff, and everybody is expecting some sort of bounce back. I mean I just don't -- I mean, I have no idea what a repeat of what happened in April looks like, right? So...

Yes. I mean, look, to your question, we're obviously able to operate remotely. And I've been doing so since mid-March. We're obviously operating with significantly less people. And so I guess we proved that we can weather a minus 60 quarter in Radio. And if that starts to look like it may happen again in the fourth quarter, we would take whatever appropriate measures we need to take.

I mean look...

Yes, go ahead.

So look, we've stress tested a great deal in the back half. And I don't know what a second wave looks like. I'm not a doctor, I'm not an epidemiologist. My sense though is that as we get closer to a vaccine, which people are saying could be here in Q1, I would also say that governments are more adept now at managing sort of the hospitalizations and things of that nature. So there would not be as much of a panic, and it also would not be widespread and wholesale in every jurisdiction in America that even if there was a second wave, it's going to look very different than what we got hit with the first time, which was unexpected, and we weren't ready for it.

And second question, last time, presidential term, we didn't see the advertising numbers from certain candidates. I believe this year, it should be a big uptick in that, and I hope you're able to capture as much as that as possible as far as advertising dollars. But going into it further, how can we make sure that we prevent that from ever happening again and have a downtick in those political ads not going faster?

Actually, we've been doing -- we actually punch above our weight on political. We forgot which year it was. It wasn't last year. What year we do like $8 million? Was that...?

We did -- the high amount was $9.1 million in 2012. Then we did $7.9 million in '16.

Yes. We did $8 million in '16.

Yes. And then in '18, we did $7.4 million.

Yes. So look, we were expecting a big political year, and we were doing great. We were particularly sad to see Bloomberg give up so fast because he was spending an awful lot of money. And what -- the political game has changed this year. Now they have been moving primaries to (inaudible). It depends on how open the country is and what people's perception of radio is. I had a conversation yesterday with the person who handles our political and that person actually was pretty bullish on what they thought that they could do. Not holding that person to it, but she thought that she could get to at least 85% of what our budgeted number was. But you all know that the game has changed, right? And radio is about people being out and about and in cars. And television is about people being in home, and in the work-from-home environment, that helps TV. Now one of the things that's also going to happen, I suspect that TV is going to be oversold like it never has been before and so that could push money -- that generally pushes money to radio. And that could end up being very helpful. TV does not have the same flexibility that radio does to add units to their load because they carry networks and things of that nature. So we're hopeful.

And we have no other questions, you may continue.

Great. Well, thank you, everyone. I'm glad we got the technology squared away this going around. We look forward to talking to you next quarter.

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