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Edited Transcript of ROIAK earnings conference call or presentation 7-Mar-17 3:00pm GMT

Thomson Reuters StreetEvents

Q4 2016 Radio One Inc Earnings Call

LANHAM Mar 7, 2017 (Thomson StreetEvents) -- Edited Transcript of Radio One Inc earnings conference call or presentation Tuesday, March 7, 2017 at 3:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Alfred Liggins

Radio One Inc. - CEO

* Peter Thompson

Radio One Inc. - CFO

* Unidentified Company Representative

Radio One Inc.

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Conference Call Participants

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* Davis Hebert

Wells Fargo Securities - Analyst

* Lance Vitanza

Cowen and Company - Analyst

* David Farber

Credit Suisse - Analyst

* Patrick Fitzgerald

Robert W. Baird & Company - Analyst

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Presentation

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Operator [1]

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Ladies and gentlemen, thank you for standing by. I've been asked to begin this call with the following Safe Harbor statement. During this call, Radio One will be sharing with you certain projections or other forward-looking statements regarding future events or its future performance.

Radio One cautions you that certain factors, including risks and uncertainties referred to in the 10-Ks, 10-Qs and other reports it periodically files with the Securities and Exchange Commission, could cause the Company's actual results to differ materially from those indicated by its projections or forward-looking statements. This call will present information as of March 7, 2017. 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 this conference call will be available from noon Eastern Time today until midnight on March 10. Callers may access the replay by calling 1-800-475-6701. International callers may dial direct at 1-320-365-3844. The replay access code is 416422.

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, please go ahead.

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Alfred Liggins, Radio One Inc. - CEO [2]

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Thank you very much, operator. And thank you, everyone, for joining our 4Q results and year-end conference call. As you can see from the press release, we did post EBITDA on the upper end of our guidance of $133 million to $137 million, coming in at approximately $136 million and some change. So we're happy about delivering as promised.

Q4 political was a good tailwind for us. And we also saw a rebound at TV One that we were happy with and we expected. Our ratings in Q4 have come up off of a trough from the loss of Martin, and that momentum is continuing into Q1.

TV One distribution deals are all now complete as well. In the quarter, we signed the DirecTV extension of the new eight-year deal that actually started from the middle of 2016 and goes eight years out from that. Cablevision is done through the end of 2018, and Cox is also done. They folded into our NCTC agreement, which I believe is a four- or five-year deal. And so we're all done on all of those distribution deals, which we ended up being very happy with our ability to navigate the environment as an independent network, with some really positive results.

We are also monitoring the credit markets and looking at a potential refi of our term loan, given the opportunities and the strength of the credit market at this point in time. We wanted to get through the year end, and then we're focused on that. Peter is going to go into the details of the numbers, and then we'll talk a little more about the different areas of the Company during Q&A.

We'll talk more about also MGM National Harbor, which is open and operating. In fact, we booked a little bit of revenue at the year end for December. They were open about three weeks in December, but have now been operating in January and February. And it looks like that investment is going to come in about where we thought it was and be a good investment for us, so that's exciting as well. So Peter, with that?

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Peter Thompson, Radio One Inc. - CFO [3]

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Thank you, Alfred. So net revenue was up 3.8% for the quarter ended December 31, 2016, at approximately $113.6 million. A breakout of revenue by source can be found on page 5 of the press release, and a breakout by segment that we found on page 7. Our Raleigh, Indianapolis, Cleveland, Charlotte, St. Louis, Cincinnati, Columbus and Detroit -- caused us to show positive revenue growth in Q4. This was partially offset by declines in other clusters, most notably Houston, Washington, DC and Dallas.

For the fourth quarter, local revenues were down 4.1%, and national was up 7.3% for our radio stations. For the year, local revenue was down 3.7% and represented 61% of the total. And national was up 4.1% for the year, and that was 35% of our total net revenue for the Radio segment. According to Miller Kaplan, the radio markets in which we operate were down by 0.9% for the quarter, while we were up by 0.1%. Net political revenue was approximately $5.7 million compared with approximately $1.2 million last year.

Looking by category, sales were up 51% in the government public sector, which was driven by the political advertising. And then, in order of volume, the retail category was down 2.5%, telecommunications were down 1.2%, entertainment was down 0.4%, and healthcare was up 0.3%. Automotive category was down 17%, food and beverage was down 4.7%, services were down by half a point, financials down 25%, and travel and transportation was up 5%.

Our radio ratings were down 3% in the 12-plus demo in the fourth quarter. Our Baltimore, Charlotte, Cincinnati, Columbus, Raleigh and Washington, DC showed 12-plus ratings growth in the quarter. For the full-year 2016, ratings were up, with 12-plus ratings up 6%, and persons 18-34 range 10%, and persons 25-54 were up 8%.

For Q1, our radio stations are pacing down mid single-digits, which is down low single-digits, excluding the effect of political. Reach Media has tough comps in the first quarter and is currently pacing down double digits, part of which relates to the time in some advertising spend versus 2016 for two large clients, Wal-Mart and CarMax. Both of those had significant campaigns in the first quarter of 2016 that did not recur in the first quarter of 2017, although Wal-Mart's will normalize over the rest of 2017.

Net revenue for Reach Media was down by 5.5% for the fourth quarter. Net revenues for our Internet business increased 20.9% in fourth quarter. Direct Internet advertising sales grew by approximately 56%, which is our highest direct sales quarter on record. Declines in indirect and alliance revenue offset some of that growth. We recognized approximately $48 million of revenue from our cable television segment during the quarter, compared to approximately $44.7 million for the same period in 2015, an increase of 7.3%.

Advertising revenue was up approximately 18%, driven by improved rates, delivery, and audience deficiency unit true-up from the third quarter of 2016. Affiliate sales were flat year over year for the quarter as a result of higher volume discounts earned by AT&T, DirecTV and Comcast. Cable subscribers, as measured by Nielsen, finished the quarter at 59.5 million versus 59.9 million at the end of September.

Operating expenses, excluding depreciation, amortization, impairments and stock-based compensation, increased by 2.2% to approximately $85.6 million in Q4. Radio operating expenses were flat overall, with SG&A expenses up 2.1%, due to higher event costs in our Indianapolis market. A new event there generated approximately $650,000 in revenue in the quarter, with costs of approximately $460,000. Reach expenses were down 8.9% due to lower talent costs and lower variable expenses on revenue.

Operating expenses at Interactive One were up 22%. That was driven by higher traffic acquisition costs associated with delivering political campaigns, and also delivering a millennial audience. TV One expenses were up 2% year over year, primarily due to higher content amortization costs. For the fourth quarter, consolidated broadcast and Internet operating income was approximately $43.1 million, which was up 5.9% from 2015. Consolidated adjusted EBITDA was $30.6 million, an increase of approximately 6% year to year, with TV One and Radio One driving that growth.

Interest expense was approximately $20.1 million for the fourth quarter, compared to approximately $20.4 million for the same period in 2015. The Company made cash interest payments of approximately $18 million in the quarter. Net loss was approximately $3.4 million, or $0.07 per share, compared to a net loss of approximately $24.3 million or $0.50 per share for the same period in 2015. The fourth-quarter capital expenditures were approximately $1.1 million compared to $1.5 million in Q4 2015, and the Company received a net tax refund of $21,000 in the quarter. There were no stock repurchases during the quarter.

As of December 31, 2016, Radio One had total debt net of cash and restricted cash balances and original issue at discount of approximately $959.5 million. For bank covenant purposes, pro forma LTM bank EBITDA was approximately $134.1 million, and net debt was approximately $976.8 million, for total leverage ratio of 7.29 times, and a net senior leverage ratio of 4.85 times.

During Q4 2016, the Company invested $35 million in the MGM National Harbor project. Our resort had a strong opening in December, producing approximately $42 million in gaming revenue in that month. And the Company is anticipated to receive its 1% share of net gaming revenue by April 2017.

The Company has signed an agreement for the sale and leaseback of 14 FM towers for approximately $25 million, subject to any adjustments arising from ongoing due diligence. We expect to close this sale in late March or early April, and we'll provide more details at that time. With that, I'll hand back to Alfred.

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Alfred Liggins, Radio One Inc. - CEO [4]

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Thank you, Peter. As Peter articulated, Radio and Reach are going to be seeing headwinds, particularly due to political and some one-time Q1 advertiser flows that came in. But despite those headwinds, we believe that TV One and also the MGM investment are going to offset that, such that we'll be able to grow our adjusted EBITDA again in 2017 for the Company.

MGM right now is currently tracking, if you annualize the December, January and February numbers at about $600 million of gaming revenue. So our take on that should be close to $6 million-ish, if you will. Now, obviously it could fluctuate. I don't know this business well enough to know how a new resort ramps up and how you increase market share. But it's roughly in line with what we've been projecting, so we're pretty happy with that so far.

We're also going to continue to look at areas where we can find cost synergies across the Company. Our primary focus continues to be de-levering -- and in particular, refinancing our debt. We're really focused on the term loan, which comes due at the end of 2018, but it's something that is probably addressable in the near term, and should be addressed.

And then shortly after that, towards the end of the year, we're really focused on refi-ing our 9 1/4 sub-debt notes. They're expensive. The call premium steps down in February of 2018, making it much more attractive to us to take them out. And so figuring out a way to continue to grow our EBITDA and get our leverage down, and then refinance those notes as well, and try to reduce our overall interest burden and improve our free cash flow profile, is job number one.

We continue to look at any potential acquisitions or bolt-ons to our existing business that would be highly accretive in de-levering. So we're really selective and picky about what we're considering. You know, you've seen, our M&A activity over the last five years has been minimal, but strategic, when we have done it. And we continue to look for those opportunities.

So I think the management team is focused on the right things, and we listen to the investor community and what they think our priorities should be as well. And I think that we're all aligned at this point in time. So with that, operator, I want to open it up to Q&A to the audience.

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Questions and Answers

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Operator [1]

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(Operator Instructions)

Your first question comes from the line of Davis Hebert from Wells Fargo. Please go ahead.

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Davis Hebert, Wells Fargo Securities - Analyst [2]

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Good morning, everyone. Thanks for taking the questions. I just wanted to come to the EBITDA guidance first, in terms of year-over-year growth. Does that include the contributions from the MGM property?

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Alfred Liggins, Radio One Inc. - CEO [3]

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Yes, it does.

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Davis Hebert, Wells Fargo Securities - Analyst [4]

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Okay. So would that be the driving factor of the EBITDA growth, or would it be improvement across the other businesses as well?

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Alfred Liggins, Radio One Inc. - CEO [5]

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Yes, I think that's what, at least what I tried to just say. Between TV One and MGM -- look, Radio, I'm not sure exactly where Radio and Reach are going to end up. That's the wild card. But even if Radio is down, as it is in Q1, there's enough growth in TV One and the $6 million-ish of MGM contribution, we believe, to deliver a positive EBITDA growth story for 2017. And we're actually going to be making more investments in our digital business, which will be a negative swing as well, but necessary for us to continue to try to make headway in that business.

So we're not we're not in a point where we want to give any sort of 2017 EBITDA guidance. But suffice it to say, we are extremely focused on making sure that there's growth, and to the point where we're articulating that today. So we think there's going to be enough upside on those -- on TV One, MGM -- to offset any radio and digital negative swings.

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Davis Hebert, Wells Fargo Securities - Analyst [6]

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Okay, that's fair. And that definitely helps with the EBITDA side, and appreciate the commentary on leverage coming down. I guess the second part to your leverage outlook would be free cash flow. Just wondering if you could walk us through some of the pieces and parts on the free cash flow side, whether it's CapEx or any other cash outlays you might expect this year?

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Peter Thompson, Radio One Inc. - CFO [7]

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Yes, I mean, we controlled CapEx pretty well last year, and we plan on doing the same. I think, plug in a number of $7 million-ish, that would be probably the run rate. You know, shouldn't be any worse than that. Obviously the interest expense in terms of cash runs roughly $75 million.

So then what else are we going to do with cash? Obviously the tower sale we have signed up for. We're towards the very tail-end of the diligence on that, and we should have that closed either end of March or very early into April, the way it's looking. So $25 million will come in. Against that, it's going to cost us obviously, in EBITDA terms, somewhere between $1.6 million, $1.7 million. So that will be somewhat helpful on leverage.

Then in terms of other cash inflows and outflows, there's really nothing major that we are planning to do. So I mean, that can change. There's always opportunities. But I would say there's nothing particularly big that we've signed up for.

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Davis Hebert, Wells Fargo Securities - Analyst [8]

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Okay, that's helpful. And then on the TV One side, just curious, what's been driving the ratings growth this year? And then secondly on TV One, there's a lot of talk about over-the-top bundles, skinny bundles, what we have seen from YouTube and Amazon and DirecTV Now and others. Where does TV One fit into that picture? I know it's small in the grand scheme of things, but probably dominating the conversation in terms of the video environment right now.

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Alfred Liggins, Radio One Inc. - CEO [9]

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Sure. So I would say -- look, after we lost Martin in, I think at the end of September of 2016, we're trying to figure out what our new sort of scheduling strategy was. And I think we started running a lot of -- repeating more of our original programming. Which, quite frankly, just -- it didn't repeat as well as Martin did. That's the game, right? You know, so even though it's original and advertisers like it, and they'll pay you a premium for it, it just didn't deliver the numbers and close the gap, and it hurt us financially. And so we need to retool it.

So what's driving the current ratings growth is a strategy that is aligned more on our acquired programming library that is -- and we still are, we've got some original programming that's doing well. Our Monday nights are phenomenal, our true-crime night. Our Rickey Smiley For Real reality show is doing well, and morning news program NewsOne Now is having a strong year, and we're looking to expand on that.

But at the end of the day, we were running Martin -- I don't know, what was it, 40% of our prime --? You know, we were on 40% of our primetime schedule. And so we really needed to refocus the right mix of the acquired programs that were in our library, to get our delivery up. And that's what we did. It's great to make really interesting and creative television programs, but there's a mix to familiar-and-consistent with new-and-exciting.

Because at the end of the day, we need to deliver a larger audience than we did last quarter or last year. And so it's fine in that right balance. I try, whether it's the radio business or whether it's the TV business, I try not to run these businesses banking on, waiting on, hoping for some breakout monster hit that's going to program us to Nirvana. Because 90% of the things that you put up on television don't work. And I think we have been able to do that, and so that's what's driving it.

Skinny bundles -- so two things. One, they call them skinny bundles because they're skinnier than the big bundles. And so they start with the big networks, the broadcast networks, the ESPNs, the top 20 or 25 networks must have to be in the skinny bundle, things that people want. And I think TV One is a great asset, and I'm really proud of it, and it's performing well, but it's a niche network targeting African-Americans, and so it's not on the top-20 list to be in the skinny bundle.

However, in our DirecTV deal, we did get a commitment to be included in DirecTV Now. We are in conversations with some of these other providers of skinny bundles too, talking about TV One. We haven't made deals yet, but the conversations are starting. I think as the skinny bundle offering starts to also develop and evolve, then it will open up more conversations for us. But DirecTV Now is the only one that we're in thus far.

But I like the idea of seeing more paid TV providers come to the table. Because we think that, that's ultimately going to be more opportunities for us to be able to sell our content. It has been in the past. So when Verizon came, they were a new distributor for us. When AT&T came, they were a new distributor for us. DirecTV Now. And we're talking to the other likely players as well.

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Davis Hebert, Wells Fargo Securities - Analyst [10]

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Great. Thanks so much for the time.

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Peter Thompson, Radio One Inc. - CFO [11]

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Hey, Davis, let me just circle back on the cash question Just following up on what Alfred said earlier, we probably do need to spend a little bit of money on our digital business this year. So we're going to invest in some additional video capabilities, some additional data analytics. There are a couple little brand-type deals that we may want to do.

So we're probably going to earmark $5 million, $6 million, $7 million of additional investment that will go into the digital business. I wanted to mention that, so as people aren't surprised as the plan rolls out over the course of the (multiple speakers)

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Davis Hebert, Wells Fargo Securities - Analyst [12]

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And we'll see that flow through the Internet P&L?

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Peter Thompson, Radio One Inc. - CFO [13]

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Yes.

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Davis Hebert, Wells Fargo Securities - Analyst [14]

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Got it, okay.

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Alfred Liggins, Radio One Inc. - CEO [15]

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And again, we want to lower our leverage and get more favorable refinancings done. And so we're balancing that with the investments that we have to make, with also a missing $8 million of political revenue in the radio business. But we know the direction that the leverage and the EBITDA needs to go in order to accomplish what we want. So super-focused on that.

The good thing about our business today being so much more diverse -- over half the business is now cable TV -- is that there are a lot of levers to pull in the business to move it forward. So that's a real benefit of the diversification strategy that we undertook. So operator, can we go to the next question?

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Operator [16]

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Your next question comes from the line of Lance Vitanza from Cowen. Please go ahead.

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Alfred Liggins, Radio One Inc. - CEO [17]

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Hey, Lance.

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Lance Vitanza, Cowen and Company - Analyst [18]

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Thanks for taking the questions. Just first question, a housekeeping item -- could you give us the full-year 2016 political versus 2015 political for the full year? I'm sure that's in the release, but I don't have it at my fingertips, I apologize. And I guess I'm just trying to get a handle on how much revenue that we have to make up just to the extent that core ad revenue is flat? Thanks.

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Peter Thompson, Radio One Inc. - CFO [19]

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Yes, so net political across the whole organization -- so net agency commissions for 2016 was, call it, $8.6 million. And that compares to $2.1 million in net political in 2015. So yes, you're looking at $6.5 million.

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Lance Vitanza, Cowen and Company - Analyst [20]

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Right, okay. So not inconsequential. The investments that you mentioned into interactive brings up the larger question, which is, when do we envision that unit scaling to profitability? Is 2017, I guess, probably not the year, given we're making these investments? But when do you expect to see that actually contributing favorably to EBITDA? Is that 2018, 2019, 2020?

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Alfred Liggins, Radio One Inc. - CEO [21]

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I am going to punt on that right this second for primary reasons -- we're working on something. Not large in scale or hugely large. But coupled with this investment that we're making, this video investment, there's some other stuff that we're working on that could change the profile of that business substantially in the near term, and would not be a major investment of capital, at the same time. So I need to punt because we're in the middle of it. And so in a couple weeks, I will be able to answer your question more definitively.

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Lance Vitanza, Cowen and Company - Analyst [22]

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And I understand that, I can appreciate that. In the meantime, I'm wondering, should we also be thinking about, are there synergies between that business and the cable business and the radio businesses that would be important to consider, above and beyond the fact that it's been EBITDA breakeven for the past few years?

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Alfred Liggins, Radio One Inc. - CEO [23]

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Yes, and that's what the video investment is about. The video investment is actually going to be across the entire platform. One of the things that we're doing -- I don't know if you discussed how you're going to report?

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Peter Thompson, Radio One Inc. - CFO [24]

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We have not. Which is fine, we can.

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Alfred Liggins, Radio One Inc. - CEO [25]

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So we are consolidating all of our back office, our platform-oriented digital expenses and operation, into a digital hub. And then each division is going to be responsible for their individual revenue generation and their content costs. And back office technology delivery, data analytics, will all be housed in the digital hub, and everybody will get their share of that expense. And then we're going to report the entire segment as one digital segment. So you'll see all of our digital revenue -- are we going to report it by entity?

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Peter Thompson, Radio One Inc. - CFO [26]

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No, it's going to -- at the moment, if a digital sale is made on a radio asset, part of that revenue is shown in the radio column, and part of it is shown in the Interactive One column. And we're going to change that. We're just going to have one segment that captures 100% of that digital revenue. Which we think, for the first time, will show the true digital performance of the business.

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Alfred Liggins, Radio One Inc. - CEO [27]

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And you'll have 100% of our digital expenses in one bucket as well. As part of this, each division is getting additional investment, largely in video. There's some investment in data analytics and stuff like that. But Interactive One is going to be making more video and is hiring video producers. Radio One is doing it for their local business, and TV One is doing it as well.

And part of the strategy is also, where can we leverage video that each of the units make to be able to monetize nationally at I1? And involved in this, there's a potential small acquisition that could add scale to our business and change the profile of it this year.

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Lance Vitanza, Cowen and Company - Analyst [28]

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I appreciate that. I just had two other quick questions, if I could. The first is, could you talk a little bit more about the pipeline for investments into new ventures? And I know you can't be real specific. But just in general, do you feel as though you might be able to deploy, $10 million, $20 million, over the next 12 to 24 months? Or how should we be thinking about that? And do those opportunities exist for you to find the next MGM investment, so to speak?

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Alfred Liggins, Radio One Inc. - CEO [29]

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There are opportunities that exist that we are exploring in serious ways. But what has to match up, is seller expectation, entry price and likelihood of success on execution. Because our primary motivation is to figure out a way to grow our cash flow and de-lever.

In my view, the platform doesn't need to be any bigger. We've got a great cable network, we've got a national platform in radio, we've got a syndication business. We reach over 80% of Black America. We don't need to be any bigger to have a conversation with the very largest advertisers in America about working with us.

What we need are strategic, synergistic opportunities to build scale and cash flow. But you know, everybody who sells something wants you to pay them for your synergies, right? Nirvana is: I operate a business, and that business doesn't make much money, but I sell it for $1 billion -- i.e., the unicorn. And everybody wants to be a unicorn, even if you're in the radio business.

You've got radio guys that have assets that we should own because we compete with them, but they still think those assets are worth $150 million, when they have $5 million of cash flow. But to that point, the reality is that they're not. In fact, these assets are worth significantly less. The dam has holes in it, and there's water coming through it. And so you've got to pick through those opportunities, and we're going to find one or two of them. And if we can find one or two of them and be assured that we've got a high level of execution success, then we'll pull the trigger.

So we're sifting through a number of them now. Don't have anything yet that we feel comfortable with. But I would say that there are holes in the dam, and I see the water coming through, and I think the dam is going to break. The dam has to break, I mean, at some point in time. And hopefully, we're going to be the recipient of it, if we're smart about it.

We don't need to take any more risk to build the strategic position of the business. And our risk tolerance is low right now. But you can create a lot of value from the right M&A. And I tend to think that it's smaller, more for bolt-on-oriented than it is larger and transformative M&A.

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Lance Vitanza, Cowen and Company - Analyst [30]

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Thanks. Why don't we leave it there for now? I appreciate your time.

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Alfred Liggins, Radio One Inc. - CEO [31]

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Yes.

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Peter Thompson, Radio One Inc. - CFO [32]

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Let me just follow up on the digital segment. The way we're thinking of our reports in 2017 and forward is to consolidate Radio and Reach into one segment. If I think you look at the other radio companies, they don't differentiate between their core broadcast operations and their syndicated operations, they put it all in one.

I think we'll have a Radio and Reach segment combined, a cable television segment, and then a digital segment. Which, as we talked about, will have all of the digital dollars and all of the digital expenses consolidated in one place, rather than pieced out across the other divisions. And then obviously, we will have -- corporate and eliminations will be the other segment.

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Operator [33]

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Your next question comes from the line of David Farber from Credit Suisse. Please go ahead.

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David Farber, Credit Suisse - Analyst [34]

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Hey, guys, how are you?

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Alfred Liggins, Radio One Inc. - CEO [35]

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Good. How are you?

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David Farber, Credit Suisse - Analyst [36]

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Good. I had a couple of questions that haven't entirely been asked. First, on the sale leaseback, I just want to confirm. I think that was previously announced, but you're just suggesting it's closer to closing? And then in that vein, I'm curious, it sounds like it's a 6% to 7% cap? And then, is the $25 million earmarked for anything in terms of the term loan, or how should we think about that? And then a couple follow-ups. Thanks.

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Peter Thompson, Radio One Inc. - CFO [37]

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Yes, we have previously talked about it. We have moved closer. We have a signed agreement. The buyer has done a bunch of diligence. We're at the tail-end of that. And yes, I think that cap rate is about right. So $1.65 million of EBITDA, call it, for $25 million of cash.

In terms of what we have earmarked that cash for -- at the moment, we haven't. The priorities we keep saying is, reducing that leverage. So we will figure out what to do with that. We are looking at some smallish acquisitions, as Alfred just talked about. But there's no plan for that cash as of today.

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David Farber, Credit Suisse - Analyst [38]

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Okay, very good. And then more of a housekeeping question. Where is the MGM income coming in at as far as segments? And then secondarily, would you guys consider potentially monetizing that to de-lever, now that it's open? Any thoughts? And then I just had a final question on the balance sheet. Thanks.

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Peter Thompson, Radio One Inc. - CFO [39]

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It's early to think about that, and we should keep our powder dry, I think, on that part of the conversation, in terms of monetizing that early. I mean, obviously as Alfred said, deleveraging is a priority. If there was an opportunity to do a great deal, we would have to think about that.

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Alfred Liggins, Radio One Inc. - CEO [40]

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The only way to monetize it is to sell it back to them, because we don't have a put until year-three. You could sell it back to them early, or you could somehow -- we have had people talk to us about securitizing it, and then using that money to pay down leverage. Although we have had a number of people tell us it's possible, we have yet to find the illiquid steak in a regional casino store where we can walk in and get it done. But we hear it's possible.

I mean, yes, if there was some way to monetize the revenue stream in some favorable way that was more lucrative than just leveraging the incoming cash flow, or more cost-efficient than just leveraging the incoming cash flow on our traditional capital structure, we would love to have the conversation. But that hasn't become clear to us just yet.

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Peter Thompson, Radio One Inc. - CFO [41]

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And in terms of where that MGM revenue income is showing up, it's in a few places. So it's in the corporate segment. If you look on page 7 of the press release, corporate-other income, it's part of that $473,000, and then included as part of the adjusted EBITDA there.

And then also on page 3 of the press release, it's included in the other income which rolls forward there, $852,000. And then further down the page, the $419,000 of cost method investment income is essentially where it's added in and calculated in the adjusted EBITDA. So that's where it is, and it's in the corporate segment.

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David Farber, Credit Suisse - Analyst [42]

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Okay. And then the last question was just a little bit more on the credit facility. You talked about it in the prepareds. I'm curious if you could give us a little bit more color, if there's any large gating factors that are to be considered? Are you thinking perhaps of another A&E, or perhaps bonds, to term out some of the size? I'm just curious if we can get a little bit better understanding of how you're thinking about the credit facility maturity? And then that's it for me. Thanks.

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Peter Thompson, Radio One Inc. - CFO [43]

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Obviously the maturity is relatively near term, and if the 2018 market is hot, we would like to do it. The thing that has probably been holding us back is, there's a make-hold on that, which drops away April 17. That's been a gating item which is going to fall away in the next month or so.

In terms of how we think about it, I think that's somewhat fluid, but most likely term loan. Rates are good, we've got a bunch of fixed debt. So I think some floating is fine. And we think the term loan market is probably the place where we can get the best execution right now, is what our advisers are telling us.

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David Farber, Credit Suisse - Analyst [44]

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That makes sense to me. I would agree with that. That's it for me, thanks.

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Peter Thompson, Radio One Inc. - CFO [45]

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Thank you.

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Alfred Liggins, Radio One Inc. - CEO [46]

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Next question, operator?

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Operator [47]

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Your next question comes from the line of Patrick Fitzgerald from Baird. Please go ahead.

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Patrick Fitzgerald, Robert W. Baird & Company - Analyst [48]

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Hi, guys. On MGM, are you done with your investment in that business?

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Alfred Liggins, Radio One Inc. - CEO [49]

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Yes.

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Patrick Fitzgerald, Robert W. Baird & Company - Analyst [50]

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Okay. And what was the -- you made a $5 million investment, and then what was the final amount?

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Alfred Liggins, Radio One Inc. - CEO [51]

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$35 million in December of 2016, so total of $40 million.

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Patrick Fitzgerald, Robert W. Baird & Company - Analyst [52]

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Okay. And sorry if I missed this. But how is the calculation of what you're going to use that $600 million? You expect to hit $600 million. Is that just a percentage of profit or gaming revenue?

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Alfred Liggins, Radio One Inc. - CEO [53]

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It's just 1% of the gaming revenue that's reported to the State of Maryland.

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Patrick Fitzgerald, Robert W. Baird & Company - Analyst [54]

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Okay. And then could you give me a brief recap of your TV One agreements with the cable satellite operators, at this point? Like, what's the average remaining contract length, if you have that?

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Peter Thompson, Radio One Inc. - CFO [55]

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Well, we have all that. Do you want to go through it, Jody or should I? Jody, do you mind walking through, and just the bigger ones?

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Alfred Liggins, Radio One Inc. - CEO [56]

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Yes, just give him the expiration dates on all our contracts.

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Unidentified Company Representative, Radio One Inc. [57]

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So for AT&T DirecTV, it's June of 2026. For Comcast, it's January of 2025. For Charter, it's March of 2023. Verizon, September of 2020. Altice, end of 2018. And then NCTC is in September of 2021.

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Patrick Fitzgerald, Robert W. Baird & Company - Analyst [58]

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Okay, thanks. And those are escalating by contracts already signed? Or does it depend on your ratings how those sub-fees could escalate?

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Alfred Liggins, Radio One Inc. - CEO [59]

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There's no ratings performance benchmarks in any of our deals. They escalate on average of about 5%. But you can't just take the 5%, because there's some subs that are in there that are free subs, and some subs are paying. So the average escalation on the affiliate revenue over time, is going to be about 3% or 4%.

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Patrick Fitzgerald, Robert W. Baird & Company - Analyst [60]

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Okay, great.

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Peter Thompson, Radio One Inc. - CFO [61]

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And I think we said previously, for this year, the volume discount is balancing out, to some extent. The kicker is the escalator. So it's more like a 2%-ish growth net on (multiple speakers) for this year. We will recycle through the adjustments to Comcast, AT&T, DTV, and then we should get back to that growth rate.

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Patrick Fitzgerald, Robert W. Baird & Company - Analyst [62]

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Thanks, that's really helpful. And then Alfred, on terrestrial radio, iHeart obviously making more bullish comments than it sounds like you're making with your pacings and just -- you sounded a little less certain. How are you feeling about terrestrial radio currently?

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Alfred Liggins, Radio One Inc. - CEO [63]

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Look, I think the terrestrial radio business has been the shining star in the traditional media business. I mean, these other traditional media platforms have just gotten devastated, right? And radio has hung in there, being kind of flattish. And even if it's down one or two, that's way better than newspaper and magazine. I mean, even if you look at the broadcast television advertising numbers, my understanding is, broadcast TV success has been largely driven by [retrans], and their actual advertising number is flattish to up a bit.

So with that said, I'm really bullish on radio. However, as you have probably seen in the research world, when you talk about iHeart, there is iHeart and then there's other folks. And because of the current structure of the industry, iHeart has an advantage on national business that they're currently exploiting.

You know, my personal view is that the industry needs to get restructured, and they can't have one guy controlling that much national revenue on all of our stations. And so at some point in time, maybe the rest of the guys in the industry get together and figure out how do you offset that. But I've talked to a number of the other radio guys in terms of their Q1, and their Q1s -- I haven't talked to iHeart -- but their Q1s were all in the same position that ours were.

And so I think, as an industry, from a macro level, the health of the industry, I think radio is in as good a place as any traditional media business. I think the current structure, given iHeart's dominance, is problematic for those of us that are smaller. And something needs to happen, because they do take a lot of money off the table early, at lower rates -- grab share. And CPMs aren't growing in the business, and that's a problem.

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Patrick Fitzgerald, Robert W. Baird & Company - Analyst [64]

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All right. Thanks a lot for the color.

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Alfred Liggins, Radio One Inc. - CEO [65]

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Yes.

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Operator [66]

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(Operator Instructions)

And at this time, there are no further questions.

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Alfred Liggins, Radio One Inc. - CEO [67]

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Thank you very much. As usual, we're available offline for any additional questions. Talk to you next quarter.

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Operator [68]

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