Urban One Q1 & Q2 2023 Earnings Call Transcript

There are 8 speakers on the call.

Operator

Ladies and gentlemen, thank you for standing by, and welcome to Urban One's First Half twenty twenty three Conference Call. During this conference call, Urban One will be sharing with you certain projections or 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 10ks, 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 December 7, 2023. Please note that Urban One disclaims any duty to update any forward looking statements made in the presentation.

Operator

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 the conference call will be available from 12 noon today running through midnight at December 14. Callers may access the replay by dialing 1-eight 66 207-1,041. International dialers may call 402970-0847.

Operator

The replay access code is 3,718,185. Access to live audio and a replay of the 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.

Operator

Liggins, Chief Executive Officer of Urban One, who is joined by Peter D. Thompson, Chief Financial Officer.

Speaker 1

Thank you very much, operator, and welcome everyone to our first half conference call for 2023. With me also, in addition to Peter D. Thompson, is Chris Simpson, who is our General Counsel And Jody Drewer, who is our Chief Financial Officer at TV One. We've released our earnings. We got The Q1 and Q2 commentary, radio in the first half of the year Was decent and is showing softness in the second half of the year.

Speaker 1

The cable television business struggled in the first half of the year due to ratings and churn in ADU, Q1 in particular. However, that has actually stabilized going into The back half of the year. So they flip flopped. Our digital business is actually Moving along as planned and is surprising to the upside in Q4. And with all of that, we are comfortable continuing to reaffirm our full year EBITDA guidance of the range of guidance of the range of $125,000,000 to $128,000,000 of EBITDA.

Speaker 1

This is also The first call we've had with our investment in MGM being fully monetized, and it's shown in our cash balance and we have been to 1 large investor referendum for the casino investment failed to pass for a second time. And so we're thinking through all of those things now. And certainly, Debt pay down is something that is a top consideration. And so we're going to be happy to talk More about that in Q and A if anybody wants to get a bit more granular on it. With that, I want to turn it over to Peter, so he can go into the specifics of the numbers and

Speaker 2

then we'll open it up to

Speaker 1

Q and A and

Speaker 2

Thank you, Alfred. So for the 1st 6 months, consolidated net revenue was up 3.8% year over year. The Indianapolis Radio acquisition added approximately $7,600,000 and the Reach Cruise event generated 10,100,000 dollars in the Q2, but was absent from 2022. So normalizing for those two items, net revenue down 3.9% or down 3.2% excluding political advertising. Net Revenue for the Radio segment increased 8.3% year over year but decreased 1.3% on a same station basis.

Speaker 2

Excluding political, net revenues increased by 1% on a same station basis. According to Miller Kaplan And on a same station basis, our local ad sales were down 4.6% against a market that was down 2.7%. National ad sales were down 2.4% against the market that was down 7.7%. The radio spot markets were down 1.6% in Q1 and down 6.8% in Q2. Spot markets were down 7.5% in Q3, and we finished Q3 down 0.6% overall, Down 14.4 percent on a same station basis and down 12% on a same station basis, excluding political.

Speaker 2

For Q4, we're currently pacing down 11.6% all in, down 21.2% same station and down 10.1% same station ex political, with national down 26%, local down 2.1%. So we definitely experienced some softening in market revenues for the second half of the year, although Q4 local has improved segments sequentially over Q3. Net revenue for Reach Media was $31,000,000 for the first half of the year, That included the $10,100,000 for the Tom Joyner Fantastic Voyage Cruise event compared to $21,100,000 last year. Adjusted EBITDA was $8,100,000 including $1,750,000 from the cruise and was down from $8,600,000 last year. Advertising revenue was down for the first half of the year and affiliate station compensation expense was up.

Speaker 2

Net revenue for the Cable Television segment was $102,100,000 for the first half of the year, decrease of 6.8%. Cable TV advertising revenue was down 5.8 percent or $3,500,000 with an unfavorable rate volume impact of $2,000,000 And an additional $1,300,000 of ADU deficiency. PE-two thousand five hundred and fifty four prime delivery was down 31 7.8 percent or $3,900,000 with favorable rate increases of $2,200,000 more than offset by 5 $300,000 of net churn and $800,000 of increased launch support. Net revenue for our digital segment increased by 1.8% for the first half of the year, which includes $1,000,000 of revenue from the Indianapolis acquisition. Direct sales from our National New York office were down As advertisers pulled back somewhat on marketing budgets due to recession concerns and fewer advertisers committed to Black History Month and the Juneteenth efforts compared to a year ago.

Speaker 2

Streaming revenue from our radio station inventory was up. However, increased traffic acquisition costs, sales and marketing expenses offset those revenue increases. And adjusted EBITDA was $9,900,000 for the first half compared to $12,300,000 for the same period last year. For the 6 month period ended June 2023, consolidated adjusted EBITDA was $67,800,000 down $21,700,000 or down 24.3 percent from last year. Dollars 4,100,000 of the decrease is from the sale of MGM.

Speaker 2

The Indianapolis acquisition added about $1,800,000 Radio and Reach segments were down by $1,100,000 combined. Digital segment was down by $2,400,000 and Cable TV was down $15,800,000 due to the advertising revenue decrease, subscriber churn and some increased content amortization costs. Cable subscribers for TV 1, as measured by Nielsen, finished Q2 'twenty three at $45,100,000 compared to $46,500,000 at the end of 2022. CLEO TV had $42,500,000 Nielsen Subs. Operating expenses, excluding depreciation and amortization, stock based compensation and impairment of long lived assets, Increased to approximately $172,800,000 for the 6 months period ended June 30, up 16.2% for approximately $148,700,000 incurred for the comparable period in 2022.

Speaker 2

There was an increase of approximately $8,300,000 related to Reach's cruise event, dollars 1,200,000 in other radio event expenses, $4,600,000 in cable TV content amortization, dollars 5,000,000 in employee compensation expenses, $3,800,000 in contract labor, talent costs and consultant fees, dollars 2,700,000 in corporate professional fees, $2,200,000 in variable expenses and $1,000,000 in travel, entertainment, marketing and office expenses. These increases were partially offset by a decrease of approximately $3,300,000 in the employment agreement award expense and also a decrease of $1,600,000 for corporate business development costs. Approximately $5,900,000 of those increased expenses related to the Indianapolis Radio acquisition, and that's included in the total that I just mentioned above. Radio operating expenses were up by $6,400,000 with the Indianapolis plus adding about $5,400,000 of that increase. Atlanta's birthday bash event added about $1,000,000 of expense.

Speaker 2

Reach operating expenses were $10,400,000 with $8,300,000 of that from the crews $1,200,000 of additional affiliate station compensation by $3,000,000 driven predominantly by variable expenses related to traffic acquisition and audience extension, Which were up by $1,300,000 and also ad production and marketing, which was up by $1,600,000 Cable TV expense was up by $6,400,000 with the content amortization, The largest part of that up by $4,600,000 Operating expenses in the Corporate and Elimination segment down by $2,200,000 including a favorable variance of $3,300,000 for the non cash TV One employment award charge $1,600,000 for reduced corporate business development, which was offset by increases in professional fees and some employee compensation. Impairment of goodwill, intangible and long lived assets was $38,900,000 services, primarily in the Philadelphia market. On April 21, 2023, Radio 1 Entertainment Holdings closed on On the sale of 100 percent of the MGM National Harbor interest, company received approximately $136,800,000 at the time of the settlement of the put interest, representing the book price. Other income net was $96,500,000 for the first half, primarily as a result of the gain on that sale. The company repurchased $25,000,000 of its 20 28 notes $7,400,000 Total gross debt balance is now $725,000,000 down from $825,000,000 at the start of 2022.

Speaker 2

Interest expense decreased to approximately $28,000,000 for the 4th quarter, down 11.8% from last year due to the debt paydowns. The provision for income taxes was approximately $22,000,000 for the first half and the company paid cash income taxes in the amount of $1,300,000 Net income was approximately $67,400,000 or $1.42 per share compared to $32,800,000 or $0.64 per share for the first half of prior year. Capital expenditure was approximately $4,100,000 in the first half. The company repurchased 274,901 shares Class D common stock in the amount of $1,400,000 As of June 30, 20 23, gross debt was $725,000,000 ending unrestricted cash was $230,700,000 resulting in net debt of approximately $494,300,000 compared to 100 and $43,500,000 of LTM reported adjusted EBITDA. Pro form a for the MGM sale, LTM adjusted EBITDA was $139,100,000 giving a total net leverage ratio 3.55 times at the end of the period.

Speaker 2

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

Speaker 1

Operator, can you open up for questions.

Operator

Certainly. Thank you. At any time by repeating the 10 command. Time. And one moment here.

Operator

We'll go to Brad Kern with Fort Baker. Please go ahead.

Speaker 3

Hi, thanks for the call and for taking my question. First one I had was, How do you think about the IRR on open market debt purchases versus other use of cash proceeds? Do you think that Sort of a 12% -ish IRR is a high enough return to justify cash deployment there. And when you think about your cost of capital, How do you think about the way that you would deploy that cash when you think about returns?

Speaker 1

Yes. Historically, we have looked at just sort of what that yield to worst is and that's where you're seeing that 12%. But In today's environment, the fact of the matter is we're earning about 5% on our cash right now. So it's the delta between that 5% and that 12%. It's not quite the double digit return, but a couple of things.

Speaker 1

First of all, finding places to put money to work at a 20% IRR is hard, right? And we've done 2 radio acquisitions in the last year. And we like to pencil out our cash investments in the 20s and we feel Good about that, particularly the Houston one, in particular, was really strong. However and we think that our casino investment would have been something in the 20s, albeit that would have been a long return to capital process. We wouldn't have been seeing cash Coming through the door off the bat like you do from a radio acquisition.

Speaker 1

So that's kind of how we look at it. But irrespective of that, we want to get our debt down, Yes. I think that we're not we're probably looking at We've historically done our open market purchases in like kind of blocks of $25,000,000 authorizations, right, Yes, and kind of weighted into it. I suspect that we'll probably do take a similar approach. Yes.

Speaker 1

But we're going to pick a quantum that we'd like to to pay down and go after it and continue to look for other opportunities to own excuse me, to earn 20% plus

Speaker 2

on our money.

Speaker 1

But I've talked to a lot of people out there that are investors, professional investors, Yes, finding those opportunities in today's environment. It's tough. So, but we keep looking.

Speaker 3

Yes, that makes sense. I appreciate that perspective. I mean, how committed as you look around for those types of 20% plus return or whatever it is, I teamed up in

Speaker 1

it. How committed.

Speaker 3

Opportunities, how committed are you to the Media business to radio and TV versus other diversifying ventures, and clearly you've shown

Speaker 1

a I mean

Speaker 3

Gaming, like what are you considering?

Speaker 1

Yes. I mean, look, we were in the radio business only, right? And then we got into the syndicated business when we bought Reach Media. Then we created TV 1 Yes, and got into the cable television business, and we created Urban One excuse me, the Interactive One, and we got into the digital business and we're a publisher for the most part, right? We're not like the other radio companies where the bulk of our business is podcasting Our streaming.

Speaker 1

And then we got into the gaming business. And so we generally like to look for businesses that Are tangential to the assets that we have, meaning that the assets that we have Have the ability to make us be more successful or can help us enter those businesses or actually be successful in those businesses than we might otherwise be. And it's worked out, right? We got into the gaming business within GM because we were a media company based in Washington, D. C, and they were building a resort casino here.

Speaker 1

So that's kind of the stuff that we look at. So we're open to looking at other businesses, but We like to have a competitive advantage in some skill set. Yes. I generally do not want to I wouldn't want to do anything where we're just out of our depth of knowledge, Right. To me, that's high degree of execution risk, you're gambling, etcetera.

Speaker 1

And So that's kind of how we look at it and But they could be some consumer based businesses. I mean, if there was a I mean, if you had a One line digital urban apparel retailer opportunity, right? That's something it's And I'm just talking off the top of my head now. That's something where our marketing platform could be helpful, Even though we're not in that business. I'm not saying we're not looking at any business like that, but that's an example of something that's not in our core business where We would probably take a long hard look at.

Speaker 1

But I can also tell you though, as it relates to our other our core businesses, We have to figure out what we're doing strategically in an ever changing environment, Right. How do we get some advantages, some scale advantages, some programming content advantages on our TV business? The radio acquisitions that we've made were very synergistic because we're consolidating in markets. So I think you got to continue to How do you fortify those businesses As the ecosystem continues to change because we're going to be in those businesses, right? And so you got Yes, figure we got to figure out how to flourish.

Speaker 1

But we try to be really careful about what we do. I would say that our number one priority Is to be in a defensive posture From the standpoint of making sure we continue to delever. And if we can get an opportunity where We think we can earn a 20% return pretty confidently, Then we'll take a hard run at it. The casino investment, even though it didn't pay back for a while, We're pretty confident that if we spent $560,000,000 building it, That it would return $100,000,000 of EBITDA and we would get that kind of return based on what we knew about The Central Virginia market, so.

Speaker 3

Got it. And so you just touched on this, but you've mentioned in the past that You're looking for efficient opportunities to achieve more efficiency on the in the linear television business given the challenges there with sort of melting subs. So how are you thinking about that?

Speaker 1

I don't have the answer yet. We were one of the 4 or 5 parties that were in the BET Media Group when it was being shopped in a process. We made an offer. Our offer was not at the level that Paramount wanted to transact that. And I don't evidently, nobody made an offer at That's the reason they stopped the process.

Speaker 1

But there would have been a great deal of synergy there, right, Yes, from a programming cost standpoint, advertising sales standpoint. And so we looked at that. Quite frankly, we also then kind of just pivoted our attention to This Richmond referendum. And yes, that election was November 7, and now it failed. So we're now Coming up for water I mean, excuse me, coming up for air.

Speaker 1

We're in the middle of doing our budgets for next year. We haven't we didn't have a bunch of M and A idea projects just sitting on the sideline that we were considering simultaneously As we were doing the during the referendum effort. And so now we're getting our budgets done, Look at paying down some debt and then figure out what the opportunities are. So that's so there's nothing on deck at this moment.

Speaker 3

Makes sense. Maybe just a higher level question. You have 4 different classes of shares. I think that when you're looking at the overall capitalization of the business and declining multiples in their core businesses. The enterprise value multiple and it's tough to even See what those are in the space right now given all of the stress across some of your peers.

Speaker 3

You guys are in a pretty nice position relative to them. But How do you think about that? I mean, is there value in having that sort of controlling Voting shares or do you think that you could potentially achieve a higher valuation where you just Collapse those to just one share class and simplify that. Like is that a remnant of maybe a prior outlook on the world or is that something that you view as important going forward to have that sort of 4 different share classes with different voting rates? Yes.

Speaker 1

So look, I you say does that have value. The answer is yes, it does have value, particularly in this environment. We're We're a minority certified African American controlled company. At times, we've been African American owned, which is also a different designation because identifiable African American ownership has been over 50%. The family controls about Owns about 50% of the economics of the company.

Speaker 1

But we've benefited greatly from the minority certification Being out there, and we've been certified for a long time. So I do think that there's absolutely value there. There Lots of companies that want to do business with minority owned companies and minority controlled companies, for their diversity efforts. But here's what I can also tell you. If we flatten the share Sure and had one class of shares.

Speaker 1

I've got zero confidence that investors are going to pile into our stock And give us any sort of multiple uplift. It's just not going to happen, right? I'm not seeing it in any companies across The sectors that we're in, whether it's radio companies or whether it's cable network companies. I don't think The mid single digit multiples of radio and cable television programmers has anything to do with Their share structures, right? It has everything to do with people's view on those industries.

Speaker 3

Okay. That's interesting. I just think it's from a defensive stance, when you think While the equity multiple may not be exclusively higher on that alone, I mean, there's been a lot of research on discounts for controlled businesses. And when you're a levered business that people are looking at LTV, I I think you'd want to do anything you can to keep as much create as much cushion as possible. And then lastly

Speaker 1

Yes, we trade cushion by paying down our debt or issuing equity, and we've never had any problem issuing I mean, we don't have them in place now, but in the past, we've had our ATM programs into place And in place and I forgot was it 2020 or 2021? It was 1 year No. In 'twenty one, we're fairly active issuing I think we share almost $50,000,000 worth of equity. Yes. When our stock got Some significant lift from being an African American focused and controlled company because of the whole sort of mean from there was a moment in time wherein Our stocks, companies like ours were running.

Speaker 1

We took advantage of it. And so if we need more equity capital, we're willing to issue shares to give ourselves more cushion.

Speaker 3

Okay. And then on so then the financial question. For 2024, do you have expectations yet for what the contribution of political advertising might be and your expectation and your ex political EBITDA kind of range for looking a year ahead?

Speaker 1

Yes. We're going through it right now. We're in the middle of our budgets. It won't be as robust as 2022 because We had the Georgia Senate runoffs there, and we got a lot of money for that. But

Speaker 2

We think

Speaker 1

political for our radio business will give us probably some sort of double digit 1,000,000 of, let's call it, dollars 10,000,000 of revenue. And again, that's the early start on our budget. And it was kind of like 18 In 2022, but we got literally $6,000,000 in Atlanta alone in 2022, largely Due to the Senate races.

Speaker 2

That was in 'twenty. 18 and 'twenty, of which 6 was in Atlanta, and then we did 13 in 'twenty two.

Speaker 1

13 and 'twenty two. Which 4.5% was in Atlanta. So we still 1 half

Speaker 2

was in Atlanta and 6% in the previous cycle.

Speaker 4

Yes. Great.

Speaker 3

Okay. Thanks for taking my questions. Appreciate it.

Speaker 1

Yes. Appreciate it.

Speaker 4

All right.

Operator

And next we can go to Matt Swope with Baird. Please go ahead.

Speaker 4

Yes. Good morning, Alfred and Peter. Maybe just to continue on some of the same themes. Alfred, where would you like your leverage to be? You've given us some numbers in the past, but where are you comfortable where you think you're sort of Out of harm's way regardless of what the economy does.

Speaker 1

I don't know because harm's way keeps changing, Right. I would say that I like our leverage with a 3 handle on it. I think we're probably going to finish the year at, call it, 3.8, something like that. And I'd like us to march get down into the low Yes. So but I don't I've got no interest in levering up the company Yes, to take a swing

Speaker 4

at

Speaker 1

something that I think is Good. There was a time when you could lever up these companies and make the assumption that your leverage is going to come down really quickly And therefore, you can take some execution risk on something. But that's when you're dealing with businesses that are growing on a consistent basis, meaning that the macro economic profile of these businesses. The market is growing. And that used to be the radio business, and that used to be the TV business, and you could count Yes.

Speaker 1

Those aren't those businesses these aren't those businesses any longer. So We have a mindset that we wouldn't do that. So that's the reason I kind of started off the conversation today talking about we are looking at debt paydowns.

Speaker 4

No, I appreciate that. And you guys have definitely done about as good a job as anybody in the industry at that.

Speaker 1

No, I appreciate it. I mean, look, we got a lot to lose. The family has a lot to lose If you have a misstep, right, And we're 40 plus years old. And so we're sometimes The equity holders aren't aligned with the debt holders, but we are aligned with the debt holders in this instance because it's really about being safe and preserving your viability, right?

Speaker 4

Sure. No, that makes sense. And as you think, Peter, about the buyback part of this, I guess a couple of questions. With all the cash, I guess, one would be, could you give us a cash update as of where it is today? But then 2 would be, What's the minimum cash you need on the balance sheet?

Speaker 4

At times, it's been like $5,000,000 or $10,000,000 right? Do you need to have more cash on the balance sheet than that?

Speaker 2

Look, we were talking about that a week or so ago. I think probably $50,000,000 is a decent number. Could it be lower than that? Yes. We got some lumpy payments from a coupon standpoint.

Speaker 2

That goes down if we buy back debt, but obviously, the semiannual coupon is chunky. And then some of the TV One Programming deals can be somewhat chunky. Probably, a range is 30 to 50 In terms of what we really need on the balance sheet. So obviously, we've got a lot more than that. Cash on hand today, I think, is $227,500,000 Approximately.

Speaker 2

And that is obviously after we've made the Houston acquisition, which was $27,500,000 So that's where we're at on that.

Speaker 4

Sorry.

Speaker 2

Go ahead.

Speaker 4

I was going to say, as you think about the bond buyback possibilities, given that kind of that you You could do something like $150,000,000 or $175,000,000 or even just going off the numbers you just said. Does it make any sense just to do A broader tender for a much bigger number? Are you restricted at all by the fact that you haven't put your You have to get some figures out before you can do some of this?

Speaker 2

Yes. Look, we if we were doing open market repurchases, I think we would need to do it after Q3 unless we transacted with someone who signed a big boy lab. So we were protected in that sense. So there may be an opportunity to go and find a block And sign up with a big boiler and do some sooner than later. Failing that, we'll file Q3 before the end of the year, and then we'll put a plan in place.

Speaker 2

I think as Alfred was saying, our kind of Our historic MO has been to authorize blocks $25,000,000 and have Beavae go out in the market Finders and finders blocks. So I think we probably take that path. To your point, If we were going to do $150,000,000 then I think we would probably look at the tender. I don't think we're going to go that route. Not decided yet, but I think Alfred's directional direction is saying blocks of up to 25 And see where we're at.

Speaker 4

Got you. No, that's certainly helpful. And then, and then, Alfred, is the casino idea Dead, dead at this point? Or I know at times you look at places other than Richmond. Would you look at something else again?

Speaker 1

Yes, absolutely. I mean, we it's a great business. We made a lot of money On our MGM investment, we made like 4.5 times our investment. There's risk, right? You can overbuild.

Speaker 1

Interest rates are higher now. So that Was going to put pressure on the returns. And it's a political process, right? And we think that when Gaming in fact, getting gaming licenses are is a political process And we think we have some advantages There, as I mean, I think we're really the only sort of African American owned organization that's Really focused on investing in this industry that I know of on a significant level. So yes, we would absolutely look at other stuff.

Speaker 1

I don't know what's going to happen. That 5th license is going to go somewhere in Virginia. We haven't gotten focused yet to see if there's any way that we can participate on any level. I don't know which city it would go to and who the players would be. There's Potentially iGaming that's going to come to the State of Maryland.

Speaker 1

It's been it's public knowledge That legislators there are looking to try to move a bill out of the General Assembly this session. And that's very different than sports betting, yes, because sports betting is not but iGaming has no idea how they're planning to Administer the iGaming structure and licenses. So what I'm seeing is that They'll probably do is send out a bill that would actually put the question on the ballot. So pass a reference, if the referendum could get passed and then figure out what the structure would be. By the way, our deal with MGM Didn't give us access to any online activities or revenue.

Speaker 1

So no online sports betting. If iGaming came, We wouldn't have participated in it. Only the bricks and mortar operation, would we did we have any sort of like claim. And so that was yet another reason to go ahead and monetize. So yes, we would look at other stuff, but they're not those opportunities don't grow on trees.

Speaker 1

And

Speaker 4

Got it. And then maybe just a last Quick one for Peter. With the Houston radio sale that's in your divestiture trust to Spanish Broadcasting, We saw that you extended the timeline on that. Is there any pressure on that deal? Does that Have any other impact on anything else you're doing in Houston or any other issues?

Speaker 1

There There's a finite amount of time that the trust is authorized by the FCC, but it was they gave us a 2 year window to get that done. So the extension that we so one station has already been sold and closed on with EMF. And the timeline that we extended for the 2nd station for Spanish Broadcasting, I think The schedule is for it to all be wrapped up by July or something like that. So well within the It's well within the 1st year, right? So but there is a 2 year window that we have with the trust, but we suspect that it'll be Yes.

Speaker 1

Closed out well in advance of that.

Speaker 4

And theoretically, you could extend it a little more if you wanted even?

Speaker 1

Yes, you could.

Speaker 4

Got you. Great. Okay. Thanks guys. Appreciate the questions.

Speaker 4

Yes.

Speaker 2

Thanks, Matt.

Operator

And next we can move to Kent Westromojo with Wellington. Please go ahead.

Speaker 5

Good morning and thanks for taking my questions. And not to rehash Matt's question, but appreciate you're Still digesting the Richmond outcome. I'm just kind of curious if you have any thoughts as to timing for that 5th license or any kind of milestones or mile markers that investors should be looking for in terms of When that gets revisited?

Speaker 1

I mean, it's a process that's going to probably play out in the general assembly this year. Again, We're nowhere in terms of whether or not we're looking into it, right? We haven't We really just kind of came up, like I said, for air after and so But I assume that something will happen in this session. I do know that there is a group of folks that want to propose and I know that there's a state senator that is going to propose a bill to put it somewhere in Northern Virginia like Tysons. So you got the Northern Virginia.

Speaker 1

There's going to be a push for Northern Virginia. I'm hearing that the city of Petersburg is interested again and would We wanted a second vote in Richmond, and so we lobbied against that. So I just don't have I don't have any information of what the state of play is other than people are positioning themselves, for this legislative session. And I don't know what's going to happen. But I suspect that you'll see a direction One way or the other coming out of this legislative session.

Speaker 5

Appreciate that color. And then just thinking about the Jason investment opportunities or the perspective opportunities to invest further afield from radio and even gaming that you alluded to.

Speaker 1

Do you

Speaker 5

have any additional constraints that you'd be putting on yourselves in terms of like size or maybe a higher IRR threshold or leverage cap just given the sort of additional risk of moving further afield?

Speaker 1

We don't think about that. I mean, like, I items. If you look

Speaker 2

at these deals and it's not

Speaker 1

a Yes. I mean, I can tell you that, I mean, we're not a venture capital fund. We're not sitting here making a bunch of early stage investments In startup companies that we think are going to be 10 baggers, right? We generally have Kind of wanted to invest on things that we thought were going to deliver a cash return EBITDA that we could ultimately bring into the company and count, right? I mean, because you could look at investment.

Speaker 1

Lots of people in the investment business make money on companies that actually don't make money, right, like And just increase in value because of whatever reason. We've never because we come from cash flow Generative businesses, we have a bias towards cash on cash returns. And So my sense is, if you're going to look for a much higher return than 20 plus percent on something, you're probably going into something that's more speculative and newish in early stage, and that's just never that's just not how our mindsets have worked in Yes, around here because of the nature of the businesses that we're already in.

Speaker 5

Yes, fair enough. 4 Bagger will do. So last one for me. There were a few recent instances of asset sales in the broader industry where non commercial operators came And kind of picked up pops at pretty interesting multiples. I'm just kind of curious if you have any sticks that are non core to you that might be seen as strategic to the few noncoms that are out there.

Speaker 1

Yes. I mean, I've gotten approached recently for one of our markets. I've actually gotten pushed for a couple of our markets. The problem is and we've said no, and one of the and we thought about it. And one of the problems is, does it weaken our position in that market versus Something that we might want to do that's going to get us a bigger return, not mentioning the market.

Speaker 1

But

Speaker 2

in one of them,

Speaker 1

it would make us weaker against the competitor there. And ultimately, we think there's an opportunity to buy the competitor and do really, really well. So I don't really want to take the pressure off of that competitor Before they sell. And the money is not enough. It's not big enough, right, to make a To make a huge debt, it's kind of like $7,000,000 $8,000,000 or something And we have cash flow already in that market.

Speaker 1

So if we peel that asset off, it's also going to Degrade the cash flow in that market, maybe run it to 0. And so you got to Lot that value. Even if you just use a 5 multiple for radio, which is probably low, if you lose $1,000,000 of cash flow And somebody gives you $8,000,000 like you're netting $3,000,000 It's not worth it, right? So I mean, if we needed the cash for something, Then that's a different story. But today, we don't need the cash for it.

Speaker 1

So but yes, We've got a couple of those inbounds. But nobody we've got nothing that somebody wants to pay $20,000,000 for.

Speaker 5

Understood. Thanks so much for your time Alfred and Peter.

Speaker 3

Yes.

Operator

Next we can move to Marlene Ferraro with Bank of America.

Speaker 6

Hi, Alfred, Peter. Hope all is well. You've answered most of my questions, but just a quick follow-up. The 3.55 leverage that you mentioned, that's for 3Q. Is that correct?

Speaker 2

Correct.

Speaker 6

Okay. And then by end of the year, you'll be around 3.8%. Is that actually in summary maybe some incremental debt reduction or just some moving around in cash? I mean

Speaker 2

Well, the fact

Speaker 6

that it's With the EBITDA, yes.

Speaker 2

Yes. Sorry, the fact that it's moving upwards between where we're at now and between Q2 and the end of the year, was that the Question or no?

Speaker 6

You're right. 3.55 for 3.2 and I was just asking if the around 3.8 by year end considers any incremental debt reduction or is it just cash moving around a bit?

Speaker 2

No. It's cash moving around. And obviously, the back half, as we said, is going to be soft Because of the lack of political. So Q4, when you LTM it and then we roll into Q4, we're going to be missing $8,000,000 of political. So we'll just have a lower LTM EBITDA by the time we roll into Q4.

Speaker 6

Got it. And then, I think it was the last call you had mentioned free cash flow maybe in the mid-sixty million area And that depended kind of where CapEx comes out to, obviously with a number of moving parts, whether it be Richmond or anything else. Are you Still thinking about it in that context for the year. And then any comments on CapEx potentially for next year that you'd be willing to share?

Speaker 2

Yes. I think it's lower than that now. I'm going to say there was $5,000,000 of referendum costs. And then as part of Cleaning up all the material weaknesses we've had to hire a bunch of consultants, and that's kind of $4,000,000 and rising at the moment just to remediate Bunch of the stuff there. So that's so those two things have eaten $9,000,000 $10,000,000 of cash.

Speaker 2

So I think it's Slightly less. Although both of those are one time only, right? So that's worth pointing out. And CapEx, We don't know. We're going through the budgets, as Alfred said.

Speaker 2

The one so we have a couple of big things. We need to consolidate in Indianapolis, and that's going to cost low Some 1,000,000 of dollars to put those facilities together and buy new equipment. So I think at the moment, we might be looking at a Kind of $10 ish million CapEx next year. We normally run at $7,000,000 So that would be a little higher for next year, but it's preliminary. And we tend to Managed the CapEx in a very tight manner.

Speaker 2

So there may be some other things that we choose not to do next year if we need to spend the money on the Indianapolis Got

Speaker 6

it. Great. That's all I have. Thank you.

Speaker 2

Great. Thank you.

Operator

And Next we'll go to Hal Steiner with BNP Paribas. Please go ahead.

Speaker 7

Hi guys. Thanks for taking my question. I was hoping, could you just spend a little bit time talking about The TV network side of the business and maybe just run through like what the I guess focusing really on like the affiliate fees in terms of The timing of any like carriage renewals, if there's any big ones and just maybe what your strategy is heading into all that?

Speaker 1

Carriage renewals, we just renewed Verizon. They were up in October, and we just renewed them for another couple of years. Our next carriage renewal is not till the end of 'twenty five, Right, Jody?

Speaker 3

In the Q3 of 2025.

Speaker 1

In the Q3 of 2025. So, we got a small one. We got one small streamer that we did a 1 year extension on that we got to come up, It's small, but our big deals don't come up The first one is the end of 2025 and then the next one is the end of 26 beginning of 27.

Speaker 3

Yes. 97% of our sub base was locked up through the Q3 of 25%

Speaker 7

Got it. Got it. That's great. Okay. That's very helpful.

Speaker 7

I guess, just could you maybe give a little color about how you think about sort of just what like your sort of positioning is and sort of the bundle, right? I mean, there's just a lot of Talk about that and concern about that and how the bundle sort of evolves. And just if you could give any color about what you think your position is and ability to stay in there would help.

Speaker 1

I mean, we feel good about it. I mean, we've always been an independent network. I mean, we've never been part of a big group. And Yes. I mean, I think that the environment has changed, but there has also been a move Towards more diverse content, which we have.

Speaker 1

I do think that the fact that An African American owned entity is important. And so, I mean, we've got great relationships With all the operators except for we're not on DISH. And then we're not on YouTube TV or Hulu at point in time. So we got to try to figure that out. But I mean, I'm not going to BS you.

Speaker 1

I mean, I know The environment's changed dramatically, but we nothing has led us to believe that Operator still don't see TV One and now CLEO as valuable, including the renewal that we just did 2 weeks ago.

Speaker 4

Got it. And I mean a

Speaker 7

lot of what you said is what I would have imagined. So I really appreciate that color and

Speaker 1

then sort of affirmation. I guess on the digital side

Speaker 7

of the business, I guess obviously slowing a little bit with some of the cyclical pressures. But could Could you maybe speak a little bit more about just your ability to kind of grow that business? And if there's maybe properties out there that could be more targets to easily add in? Any color you could give me there would be helpful.

Speaker 1

Look, I'm happy that it's profitable, full, right? And yes, you're right, there's ad revenue pressures. And so Yes. Digital is so tricky, right? So right now, you got to add revenue pressures, but I think we've been doing decently in that slowing environment.

Speaker 1

The tricky part about digital and particularly with acquisitions is that the audience sizes change So dramatically depending on how the big platforms of Google are meta Decide to prioritize people's content and change their algorithms, so you could go out and buy something. Very few of these digital platforms have their own natural organic gotothere.com traffic, right? Like they're getting their traffic From some other source or platform. I think I read something in Buzzfeed last conference call when they

Speaker 4

were talking about their ad revenue being down significantly and

Speaker 1

why and that's call when they were talking about their ad revenue being down significantly and why. And I think I remember the number one thing they pointed out was that The big platforms are prioritizing their own content or their own verticals over 3rd party, and it's Reduce their ability to monetize their content. So what does that mean for acquisitions? You go out and you buy something that you has whatever 10,000,000 unique visitors and 500,000,000 page views. And then 6 months later, an Algorithms change, then that's been cut in half, right?

Speaker 1

That happens. It's happened to us on a smaller scale. But And so you've got to be really, really, really, really careful. When you look at digital acquisitions, We look at something every year. In fact, we were nosing around a public company this year Yes, that ended up doing a deal somewhere else.

Speaker 1

So yes, we want to figure out how to do to scale it, but it's tricky. So

Speaker 7

I understand. Thank you. Thank you for that color.

Speaker 1

And lastly and then operator, we're going to

Speaker 3

just open it up with one

Speaker 1

more question. But And lastly, a lot of these digital acquisitions, these guys don't make any money, right? So they want you to yes, they want Remember, I said earlier that we tend to be cash flow buyers, right? So they want you to give them a value and they don't make money, Right. It's a problem.

Speaker 1

Buzzfeed bought this company complex, which was like Yes. When the top urban content publishers In the space, had a big brand for a long time, was doing $100,000,000 of revenue. They lost $11,000,000 and Buzzfeed paid $300,000,000 for them. Yes. And I just like we just can never do anything like that.

Speaker 7

Yes. No, I understand. If you mind if

Speaker 4

I could just ask one before you switch to the last question. I was just going to ask on the for

Speaker 7

the terms of the indenture, I You needed to make an offer to repurchase the bonds with the amount of excess proceeds. But I guess your belief would be through doing debt buybacks and maybe any other sort of investments you'll be able to you'll fulfill you You have no excess proceeds back excess proceeds left by the time it is you would have to make that repurchase offer. Is that correct?

Speaker 1

We don't know, But there's a number of things that we've invested in that count towards those investments that aren't just buying radio assets, right? Like our Houston transaction counts. There's some programming investments that we make that count. So we're not sitting there right now with $137,000,000 of investable basket that we Got to deal with it, something significantly less than that already. But as Peter said to me yesterday, we're not going to go out and make a stupid acquisitions just so we don't have to offer to buy back bonds at par.

Speaker 1

That's not going to happen. But to your point, We're probably at something close to $80,000,000 of the $137,000,000 already like sheltered, if you will, through stuff that we invest Yes, on a regular basis. And I don't know what's going to happen between now April.

Speaker 7

Thank you guys so much for the questions.

Speaker 2

Yes.

Operator

Thank you. And our last question here will come from Brad Kern with Fort Breaker. Please go ahead.

Speaker 3

Hi, thanks for going to me again. Just what so on the use of cash, you brought in Churchill Downs As a partner, would you be open to being sort of a minority partner in another, whether it's Another gaming endeavor or some other sort of minority partner where you're not like you're not in control of the investment, but you're sort of either Capital solutions provider, maybe there's even something strategic. Yes, are you thinking about those types of opportunities?

Speaker 1

Yes. Yes. We would look at something like that. However, we are a bit spoiled because our MGM deal gave us like a cash return off the bat, off the top of gaming revenues. So that was one of those unique situations where we put money in and we got money out like Kind of like the 1st year.

Speaker 1

And we looked at one deal with A small public gaming company. They wanted us to invest like $20,000,000 or $25,000,000 in it. But Yes. They had it subordinated under a whole bunch of stuff and it was like a really traditional equity investment and It was they were upvaluing it from what their value was. And so We didn't like it.

Speaker 1

And so we're spoiled. So we would like yes, we would look at being a minority investor. I think that would be one of those situations where if we ended up making a real equity investment and we're sitting behind debt And when it's got to be paid down and there's no dividends or restricted payments going out to Yes, the equity for a significant period of time where you'd want not a 20% return. You'd want something Much higher. But we've seen 2 investments like that, and we passed on them both.

Speaker 3

Okay. I appreciate it. Yes, the discipline makes sense.

Speaker 2

Thanks, Brad. Thanks, everyone.

Operator

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

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Earnings Conference Call
Urban One Q1 & Q2 2023
00:00 / 00:00
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