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Edited Transcript of ROIAK earnings conference call or presentation 7-Nov-19 3:00pm GMT

Q3 2019 Urban One Inc Earnings Call

LANHAM Dec 12, 2019 (Thomson StreetEvents) -- Edited Transcript of Urban One Inc earnings conference call or presentation Thursday, November 7, 2019 at 3:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Alfred C. Liggins

Urban One, Inc. - CEO, President, Treasurer & Director

* Peter D. Thompson

Urban One, Inc. - Executive VP & CFO

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Conference Call Participants

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* Matthew Sandschafer

Mesirow Financial - Senior Vice President

* Nicholas Brown

Zazove Associates, LLC - Partner, Convertible Bond Analyst & Senior Research Analyst

* Traci Hodges

St. Louis Prosperity Club - President

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Presentation

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Operator [1]

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Ladies and gentlemen, thank you for standing by. Welcome to Urban One's 2019 Third Quarter Earnings Conference Call. (Operator Instructions) And as a reminder, your call today is being recorded.

I've been asked to begin this call with the following safe harbor statement. During this 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 you that certain factors, including risks and uncertainties referred to in the 10-Ks, 10-Qs and other reports it periodically files with the Securities and Exchange Commission, could cause the company's actual results to differ materially from those indicated by its projections or forward-looking statements. This call will present information as of November 7, 2019. 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 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.urban1.com.

A replay of this conference call will be available from 12:00 p.m. Eastern Standard Time on 11/7/19 until 11:59 p.m. Eastern Standard Time on 11/9/19. Callers may access the replay by calling 1 (800) 475-6701. International callers may dial direct (320) 365-3844. The replay access code is 472686. Access to live audio and replay of the conference will also be available on Urban One's corporate website at www.urban1.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?

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Alfred C. Liggins, Urban One, Inc. - CEO, President, Treasurer & Director [2]

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Thank you, operator, and welcome, everyone, to our third quarter results call. Also joining us are our General Counsel, Kris Simpson; the TV One CFO, Jody Drewer; and our Chief Administrative Officer, Karen Wishart, so if we need to drill down on the TV One specifics, we can get there as well.

You obviously all got the press release today for our third quarter results in line with kind of how we guided, pretty happy with the performance of our Radio division and also our interactive division, even though revenues were down, yes, they've made big strides in reducing and reengineering their cost bases.

So as we look at our 2019 results for our interactive business, we should have a big swing in terms of EBITDA there. We are continuing to march towards our goal of continuing to delever and to position ourselves for a refi of our capital structure next year, which we're going to really start to focus in earnest on it after April of 2020. We're positioning ourselves now to talk about strategies because there is a number of different ways to get at it. But the marketplace should expect that after April when the last of our call premiums, for the most part, drop substantially, we're going to be poised and ready to take advantage of any positive market momentum that might be there to get the refi done. I think the biggest thing from my perspective that we did with this release is we've given year-end guidance for 2019, close enough to the end. We feel comfortable doing that. And that's adjusted EBITDA in the range of $138 million to $140 million.

And with that, I will turn it over to Peter, who'll go into details in the numbers, and then we'll take some questions.

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Peter D. Thompson, Urban One, Inc. - Executive VP & CFO [3]

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Thank you, Alfred. Net revenue was up 0.3% for the quarter ended September 30, 2019, at approximately $111.1 million. And as usual, breakout revenue by source can be found on Page 5 of the press release and a breakout by segment can be found on Page 7.

Radio segment net revenue was up 1.1% in the third quarter. National ad sales were up 4.3%, while local ad sales were down 2.1%. On a same station basis, third quarter revenues were up 4.2% year-over-year or up 5.5%, excluding political.

Retail, entertainment, financial, food and beverage categories were all up in the quarter; with automotive, health care, services and telecoms flat; and then government and public was down. Our radio stations currently pacing down low single digits in the fourth quarter, excluding political on a same station basis.

Net revenue for Reach Media was up by 0.9% in the third quarter, and declines in ad revenue were offset by revenue from the Tom Joyner One More Time multi-market event, which added approximately $1 million of revenue in the quarter.

Adjusted EBITDA was down slightly by approximately $100,000 year-over-year. Net revenues for our digital segment decreased by 6.6% in Q3, driven by lower direct sales at iOne Digital. However, adjusted EBITDA for the digital segment increased by approximately $890,000 due to lower costs of revenue, particularly lower traffic acquisition costs and other ongoing cost control measures.

We recognized approximately $46 million of revenue from our cable television segment during the quarter, an increase of 1.3%. Cable TV advertising revenue was up 7.8%, including approximately $500,000 for the new CLEO network. We had a 10% average CPM increase, a 7% average delivery decline and a 6% increase in DR rates. Cable TV affiliate revenue was down by 3.5%, with rate increases of approximately $1.3 million, offset by churn of approximately $1.7 million and also nonrecurring prior period true-up in Q3 of last year of approximately $0.5 million.

Cable subscribers, as measured by Nielsen, finished Q3 2019 at 54.3 million down from 55.0 million at the end of Q2. We recorded approximately $1.8 million of cost method income for our investment in the MGM National Harbor property for the quarter, up 5.7% over last year.

Operating expenses, excluding depreciation, amortization, impairments and stock-based compensation, increased by $5 million or 7.2% to approximately $74.1 million in the third quarter. Noncash expenses were up by $7 million due to onetime adjustments and are excluded from adjusted EBITDA. Additionally, as a result of the adoption of ASC 842 for operating lease accounting, operating expenses decreased by $1.35 million. However, this is a change in P&L geography and not a reduction of expense.

Radio operating expenses were down 1.9%. Radio SG&A expense line was flat with increased events expenses for the Tom Joyner multi-market event being offset by lower expenses from the change in lease accounting and also other nonrecurring station events. Radio programming and technical expenses were down 6%, including a favorable accounting impact for the tower lease expense.

Reach operating expenses were up 2.2%. Program and technical expenses were down 4.6%, driven by savings in talent costs. Reach SG&A expenses were up 22.3% due to the higher expenses for the Tom Joyner event. However, the increase in the event revenue exceeded the increase in event expenses. Corporate SG&A expenses at Reach were down 48% due to lower staff incentive compensation expense.

Operating expenses in the digital segment were down by 20.3% or $1.9 million. We had lower internal labor costs and reduced third-party inventory costs, making up most of those savings. Cable TV expenses were up by 3.9% or $890,000 year-over-year. Content amortization was up by about $930,000 year-over-year.

Operating expenses in the Corporate and Eliminations segment were up by $6.3 million, including a noncash variance of $7.4 million related to the CEO's employment agreement award liability, where we booked a nonrecurring favorable adjustment in Q3 of 2018, which was excluded from adjusted EBITDA. Net of these adjustments, corporate SG&A expenses were down by about approximately $1.1 million. Staff compensation costs were lower due to ongoing cost savings efforts, and there was a favorable impact from the insurance claim reimbursements related to the cyberattack that we had earlier this year.

For the third quarter, consolidated broadcast and digital operating income was approximately $44.8 million, up 3.2% from $43.4 million in 2018. Consolidated adjusted EBITDA was $40.0 million, an increase of 5.8% year-over-year. Interest expense was approximately $21.6 million for the third quarter compared to approximately $19.0 million for the same period in 2018, an increase of $2.6 million. Of that, $1.35 million of interest expense was recorded for operating leases under the adoption of ASC 842. The company made cash interest payments of approximately $11.7 million in the quarter.

The new senior unsecured term loan was paid down by approximately $7.1 million, and the Term Loan B was paid down by approximately $824,000. The asset-backed line of credit was paid off in the quarter. The senior secured term loan balance increased by PIK interest of approximately $526,000. The provision for income taxes was approximately $6.5 million in the quarter, and there was a net cash tax refund of approximately $16,000. Net income was approximately $5.4 million or $0.12 per share compared to net income of approximately $23 million or $0.51 per share for the third quarter of 2018. For the third quarter, capital expenditures were approximately $1.8 million compared to $1.6 million last year.

On August 31, we sold our Detroit, Michigan radio station, WDMK FM and 3 translators to Beasley Broadcasting Group for $13.5 million. We will continue to operate WGPR FM in Detroit under its current local marketing agreement until the end of the year. The sale represents a reduction of approximately $1.1 million of adjusted EBITDA on an LTM basis.

The company repurchased 6,345 shares of Class A common stock in the amount of $14,000 and 448,742 shares of Class D common stock in the amount of $975,000. The company also executed a Stock Vest Tax Repurchase of 13,264 shares of Class D common stock in the amount of approximately $25,000.

For covenant purposes, pro forma LTM EBITDA was approximately $140.9 million. Net senior leverage was 4.56x against a covenant of 5.85x. Net debt was approximately $862.4 million compared to $145.4 million of LTM reported adjusted EBITDA for a total net leverage ratio of 5.93x.

And with that, I'll hand back to Alfred.

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Alfred C. Liggins, Urban One, Inc. - CEO, President, Treasurer & Director [4]

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Thank you, Peter. And again, I just want to reiterate the company is super focused on next year's refi at the front end of the capital structure, which is approximately $700 million, give or take. We'll need to be refinance -- need to be refinanced by April of 2021 so we've got some time to do it. But just, again, we want to get ahead of it. And obviously, we're looking at all scenarios for that refi, including a complete global refi of everything in our capital structure.

So with that, operator, I would like to open it up for questions from the lines.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question will come from the line of Matthew Sandschafer with Mesirow Financial.

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Matthew Sandschafer, Mesirow Financial - Senior Vice President [2]

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I was -- just wanted to ask if you could bridge a little bit from your year-to-date adjusted EBITDA number of $110 million to the full year number of $138 million to $140 million. It's obviously a pretty significant step down in kind of the numbers we've seen on a quarterly basis recently.

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Peter D. Thompson, Urban One, Inc. - Executive VP & CFO [3]

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Yes. I mean 2 big things there. Obviously, the single biggest is political, will be nonrecurring. We did $4.3 million of net political in fourth quarter last year in the Radio segment, and that's not coming back. So that's probably the single biggest impact.

And then the second is at TV One. We've guided, if you've been listening -- for those folks who've been listening for several quarters, that we needed to reinvest or re-up in TV One programming to some extent. And so the other big variance will be TV One amortization line in fourth quarter, which will be higher than in fourth quarter last year. And those 2 are really the key variances for the upcoming fourth quarter.

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Operator [4]

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And for our next question, we'll go to the line of Traci Hodges with St. Louis Prosperity.

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Traci Hodges, St. Louis Prosperity Club - President [5]

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Yes, I have a question. I believe you said your CIO was going to attend this meeting. You mentioned the cyberattack, and I was curious about the financial impact of the cyberattack. And also what corrections have been made from a controls perspective to prevent future cyberattack risks? BDO was involved, though, in helping you to reconcile the issue.

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Peter D. Thompson, Urban One, Inc. - Executive VP & CFO [6]

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Yes. So obviously, we've done a ton of work since the attack. To answer you -- the first part of your question first, I think we incurred just north of $1 million of losses, if you want to call it that. Somewhere between $700,000, $800,000 of expense and maybe $0.5 million-ish of lost revenue. The lost revenue was very difficult to quantify, to be honest, but we think that's about where it was. And then we were able to claim back, I think, roughly $600,000, $700,000 of that through insurance. So net-net, it was not a material financial loss to us at all. In fact, we got through it pretty well.

To the second part of your question, what have we done to remediate. The answer is a heck of a lot. So the initial stages outside of doing all the analysis and diagnostics was to rip out a whole bunch of malware and cyber protection systems that we had that were obviously insufficient to catch the virus that was put into the system and replace them with a whole kind of next-generation detection and monitoring systems. So we did that over the weeks that ensued from discovering the attack. And that then enabled us to bring back up our networks and get back to relative normalcy, which is where we're operating from now. The second stage then once we dealt with that was to look at more permanent upgrades and longer-term upgrades in a kind of 2.0 fashion, and that work is going on.

And so going back to the attack itself, it was a day zero virus. It would be modified in a way that it had never been seen before. And that's kind of the root of the issues that we've been solving for subsequently.

So with that said, we are pretty well remediated. The remediation is going to continue through the first half of next year. BDO have not been -- have been involved, obviously, as our auditors, and we kept them appraised every step of the way. But we've taken specialist advice from other third-party IT companies. And obviously, we have hired a CIO who has a ton of experience in this area. And we've also hired another guy into the organization who previously was a CISO, a Chief Information Security Officer. So we have beefed up our capabilities, both in terms of infrastructure, software, monitoring and the personnel we have onboard to handle this.

And then the only thing I would say is, you're never safe from this, no company is safe from this. We're constantly in an environment where people are trying to do bad things to us and a lot of corporate America. So we're just being vigilant and improving our capabilities as we move forward.

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Operator [7]

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(Operator Instructions) We'll go next to the line of Nick Brown with Zazove Associates.

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Nicholas Brown, Zazove Associates, LLC - Partner, Convertible Bond Analyst & Senior Research Analyst [8]

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A question about your comment regarding the need to refinance your debt by April 2021. Can you sort of elaborate on why that date is so important?

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Peter D. Thompson, Urban One, Inc. - Executive VP & CFO [9]

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It really is just due to the timing of the maturities, and we never want to get within a year of that because we don't want to be in a discussion with auditors about things turning current within 12 months, and therefore, going concern issues. So if you look at our maturity stack, that's a year inside of the nearest maturity coming due. And so we want to have it all dealt with ahead of that date.

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Operator [10]

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And at this time, we have no further questions in queue.

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Alfred C. Liggins, Urban One, Inc. - CEO, President, Treasurer & Director [11]

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Great. Well, thank you, everybody. Please feel free to reach out to us off-line, if you have any additional questions. Talk to you next quarter.

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Operator [12]

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And ladies and gentlemen, that will conclude your conference call for today. Thank you for your participation and for using AT&T's Executive TeleConference Service. You may now disconnect.