Urban One Q4 2022 Earnings Call Transcript

Quartr
Provided by Quartr
July 7, 2023

There are 8 speakers on the call.

Operator

Ladies and gentlemen, thank you for standing by, and welcome to Urban One's 2022 Year End Earnings Conference Call. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions will be given at that time. During this conference call, Urban One will be sharing with you certain projections and other forward looking statements regarding future events or its future performance. UrbanOne 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.

Operator

This call will present information as of July 7, 2023. Please note that Urban One disclaims any duty to update any forward looking statements made in the presentation. In this call, Urban One may also discuss some non GAAP financial measures in talking about its performance. These measures will be reconciled to GAAP either during the course of this call or in the company's press release, which can be found on its website at www doturbanone.com. A replay of the conference call will be available from 12 pm Eastern Time, 7/2023 Until 11:59 p.

Operator

M, 714, 2023, callers may access the replay by calling 866 207-1,041 within the U. S. International callers may dial direct 402970 847. The replay access code is 8,019,907. Access to live audio and a replay of the conference call will be available on Urban One's corporate website at www.urbanone .com.

Operator

The replay will be made available on the website for 7 days after the call. No other recordings or copies of call are authorized or may be relied upon. I'll now turn the call over to Alfred C. Liggins, Chief Executive Officer of Urban One, We're joined by Peter D. Thompson, Chief Financial Officer.

Speaker 1

Thank you very much, operator. And we also have Jody Drew, the Chief Financial Officer of ATV1, with us and Chris Simpson, who is the General Counsel of the company, is also joining us. Finally, our year end earnings report in the middle of the year. Thank you everyone for Bearing with us as we got through an unexpected delinquency audit, but we're Happy to report that the year ended as expected with us right on top of our year end guidance of $165,600,000 of EBITDA. Leverage is below 4 times, which was a great outcome and we've indicated that That was our goal and that's where we landed.

Speaker 1

Couple of things, just to give you highlights before I turn it over to Peter. You probably also know and seen in the press release, we monetized our MGM National Harbor investment. We did that in April. It ended up being a fantastic investment for us. We invested $40,000,000 of cash in the project.

Speaker 1

We ended up pulling that $40,000,000 out In dividends over the length of time that we held it. And then our equity investment in the end is worth $137,000,000 So It's probably roughly a 4.5 times, yes, our money investment. Why did we do it? We did it because we That their 2022 performance was, number 1, a high watermark for the property That was not expected. It was well ahead of where we had expected it to be.

Speaker 1

We also felt that given the macroeconomic environment And a number of other things that it probably was not particularly likely that we were going to do better Going forward, things can happen. We don't know for sure, but that was our calculus. The third thing is that on that $137,000,000 we were earning approximately $8,800,000 of dividends, Which is about a 6.4% return on the value of it since the tremendous return on $40,000,000 but on 137 dollars. It's just a 6.4% return, and we thought that we could do better than 6.4% investing that Capital and other things. And first place we started was even though we're not doing better is With U.

Speaker 1

S. Treasuries, where we're getting about 5% on that money. So fact of the matter is, is we're not giving up A ton of current income right now holding that, in treasuries and we're sitting on a bunch of cash right now As we live through an uncertain economic time, hoping that the uncertainty actually moderates, feels like Maybe there's not going to be a recession, but who knows. And we've got a number of things coming up, where We may need to deploy that cash, whether it's debt continued debt buybacks, which we haven't been doing, particularly Since we hadn't filed our financial statements, but I haven't checked in a minute, but last I checked, our bonds are yielding like 10%, North of 10%, 10.3%. So even that now is a better investment than just continuing to hold the equity and get a 6 4% return, we are in the process of gearing up to run another referendum In Richmond, for our casino project with our new partner Churchill Downs, we believe that there is an Exceptionally high likelihood that we will be running that referendum.

Speaker 1

We've got Some assurances and public assurances by the Virginia Senate budget negotiators that Richmond referendum or this casino, referendum being blocked to potentially move to Petersburg is a non negotiable item For them, that was recently in the news press in Virginia. So we've got some real support there. City Council has voted it out. We're at the Virginia Lottery now for approval. And then we'll go to the Circuit Court to get the Early vote would start September 22, 2023 Friday, September 22, and Election Day Would be November 7.

Speaker 1

So if we're successful with the referendum, we'll obviously need cash in order On that, although the partnership in Richmond is different now, we are not the sole equity provider at this point in time. It's a fifty-fifty equity investment With us in Churchill Downs, they're a great well capitalized company. The CEO is very engaged in this. We couldn't be luckier to have them as a partner. We also recently I want to say recently, a few months ago, announced the acquisition of 4 Houston radio stations from Cox Media Group, we expect for $27,500,000 we have also signed agreements to spin off Two stations that we can't own because we'll be over the limit for a total of $10,500,000 So we're going to be into that acquisition For about $17,000,000 and some change, we expect that cash flow from that acquisition There's multiple that we were able to acquire that once you factor in the amount of money that we've got for the spends.

Speaker 1

We also think that there are a number of other potential radio acquisitions that are out there that Right now, radio, the radio companies are trading kind of like in the fives in terms of an EBITDA multiple. And so if you were to buy radio in a 5.5 times multiple, you're talking about Close to a 20% return, which is also better than our 6.4% that we were getting on the MGM Investment. So there are a number of things that we think that we can do going forward that will ultimately net us A better return. So whether it's paying down debt at 10%, whether it's buying radio in the fives, That nets you at 20%. Getting our Referendum 1 and investing And the Richmond Casino is another.

Speaker 1

There is a process going on that You guys have probably seen in the business press where Paramount is looking to sell The BET Media Group, which includes BET and VH1. Our name is not never mentioned, but we are involved in that process With a number of other parties, still doing our diligence on it. Don't know where we land, but We're engaged and we think that we have exceptionally complementary assets with the TV One and CLEO assets that could Potentially create a lot of value. However, we remain disciplined from an acquisition standpoint. We're fully aware Of the challenges that the pay TV ecosystem has, one of the reasons why we think that finding scale And this business could make a lot of sense as well.

Speaker 1

So we're doing our work and staying engaged on that. 2023 guidance, we are expecting 2023 EBITDA to Better than our 2019 pre pandemic EBITDA if you go ex MGM dividends. So that's our goal. We feel pretty good about being able to achieve that. We're thinking leverage will continue to be below 4x, call it 3.7 By the end of the year and given the macroeconomic backdrop, I think we'd all feel pretty Good about that as an outcome, should that come to pass.

Speaker 1

So with that, I am going to turn it over to Peter Thompson to go More specifically to the numbers.

Speaker 2

Thank you, Alfred. And before we get to numbers, let me talk a little bit about the delayed filing and the MGM restatement. Since the inception of the MGM deal, we've been carrying our stake in that as an equity investment Cost. However, once the put option that we had became exercisable, we should have reclassified the investment as a debt security So there really is some technical changes on how we should have carried it on the balance sheet. And once you end up in That bucket that is a debt security available for sale, you can then revalue it every quarter, and we didn't do that.

Speaker 2

Obviously, we knew what it was worth, and I think we've done a decent job of telling our investors what it's worth. But when the put crystallized that. So the end state value of $136,800,000 was known, but we have to go and hire an outside valuation specialist to appraise the asset for each Quarter of 2021 2022 using multiple methodologies, which took some time to work through. Separate from this, but also contributing to the delay in filing, our orders have required additional documentation around the company's ASC 606 revenue recognition policies. And that required us to bring in a consultancy firm to write a bunch of technical accounting memoranda.

Speaker 2

We're not a big shop. We didn't have the resort to do that internally. And so we had to go and find Someone to write those technical accounting memos for us. And then finally, there was significantly increased substantive order testing around journal entries and other things as a result of a lack of reliance on internal controls And in prior years had been deemed sufficient, but weren't this year. And all of that meant that it took many additional weeks of work Your patience and support.

Speaker 2

I've been speaking to as many of the investors as I can just to try and keep people appraised of what's going on. And we appreciate you being patient and bearing with us while we work through all of that. Turning to the numbers themselves. Consolidated adjusted EBITDA was $31,700,000 for the quarter, which was down 2.3% from last year. Full year consolidated adjusted EBITDA was $165,600,000 in line with the company's guidance and up 10.2% year over year.

Speaker 2

4th quarter consolidated net revenue was up 1.6% year over year. The Indianapolis radio acquisition added approximately $4,200,000 And there was the absence of the Beach Cruise event, which generated $7,000,000 last year in Q4 in 2021. Normalizing for those two things, net revenue was up 3.9% or down 1.4% Excluding $6,600,000 of incremental political advertising, net revenue for the radio segment increased 23.8% year over year and by 14.1% on a same station basis. According to Miller Kaplan and on a same station basis, our local ad sales were on par with the market at minus 1%, National ad sales outperformed. We were up 41.9% against a market that was up 17.4%, helped by heavy political spending and also our corporate sales effort.

Speaker 2

We recorded $8,100,000 in net political ad revenue, of which $7,200,000 was radio compared to $1,500,000 in prior year. Government and public was our Biggest radio advertising category for the quarter, up 97.6 percent. Healthcare was up 63.6 percent. Auto was up 86.3 percent, retail was up 12.7% and entertainment was up 8.9%. Services, Financial, Telecoms, Food and Beverage and Travel and Transportation were down in the quarter.

Speaker 2

Q1 of 2023 radio revenue, excluding digital, was up 2% on a same station basis Excluding digital on a same station basis, we're down 0.9%, excluding political. $11,900,000 in the 4th quarter compared to $12,300,000 last year, excluding the cruise event. Adjusted EBITDA was $3,100,000 down from $3,800,000 in prior year. Full year adjusted EBITDA increased by 13.3 percent to $15,400,000 Net revenues for our digital segment increased by 24.1% in 4th quarter to $24,200,000 The direct sales team had an exceptionally strong finish to the year, driven by continued demand $21,800,000 for the year, up 24.1 percent year over year. Our Radio, Reach and Digital segments, so our We recognized approximately $49,700,000 of revenue from our Cable Television segment during the quarter, a decrease of 8.2%.

Speaker 2

Cable TV advertising revenue was down 8.4% with a favorable rate of Cable TV affiliate revenue was down by 7.4 percent with a favorable rate increase of 1,200,000 Cable subscribers for TV 1, as measured by Nielsen, finished Q4 at $46,500,000 compared to $43,600,000 End of Q3. And CLEO TV had $41,800,000 of CLEO

Speaker 1

itself. We're having trouble hearing us.

Speaker 2

Oh, really? Okay. So I just heard that the sound quality is before we turn the air conditioning off here and move the microphones around. Hopefully, that will be better. We recorded approximately $2,600,000 of investment income from our stake in the MGM National Harbor property for the quarter, up 30% from prior year.

Speaker 2

Operating expenses, excluding depreciation, amortization, impairments and stock based compensation Approximately $104,200,000 in 4th quarter to $105,600,000 in Q4 2021. Event expenses decreased by $6,900,000 due to the absence of the Reach Cruise event, which returned in May of this year. Cable TV content amortization decreased by $5,300,000 and the non cash charge for the CEO's Yeal's employment award decreased by $3,500,000 Employee compensation increased by approximately $5,600,000 $4,000,000 Travel, entertainment and office expenses increased by $2,200,000 and outside services, including contract talent Consulting fees increased by $2,500,000 About $3,300,000 of those increased expenses were in relation to the Indianapolis Radio acquisition and is included in those totals. Radio operating expenses were up by $4,800,000 The Indianapolis cluster add in, just over $3,000,000 of that increase. Expenses related to Revenue increases such as sales commissions and bonuses drove the rest of the increase.

Speaker 2

Our Reach operating expenses were flat except for the cruise event. Operating expenses in the digital segment were up 36.9%, driven predominantly by variable expenses related to traffic acquisition costs, which were up $2,300,000 and production ad production and marketing, which was up $2,000,000 and content and streaming music royalties, which was up by $1,700,000 Cable TV expenses were down $4,900,000 with content amortization expense down by $5,300,000 Due to some write downs in prior years that didn't recur, operating expenses in the Corporate and Elimination segment were down by 4 0.7%. It was a favorable variance of $3,500,000 for the non cash TV 1 employment award charge, which was offset by increases in employee compensation, including annual performance bonuses, outside legal fees, 3rd party software license fees, T and E, Recruiting and marketing. For the Q4, consolidated broadcast and digital operating income was approximately $47,600,000 an increase of 7.9 percent. During the quarter, the company repurchased $25,000,000 of its 20.28 notes at an average price of Approximately 86.4 percent, resulting in a net gain on retirement of approximately $3,000,000 An additional $25,000,000 of the 20 28 notes was repurchased in the Q1 of 2023 at an average price Approximately 89.1 percent, bringing the total gross debt balance down to $725,000,000 Today, down from $825,000,000 at the start of 2022, so we've now paid down $100,000,000 of the debt.

Speaker 2

Interest expense decreased to approximately $14,600,000 for the 4th quarter, down 8% from last year due to the debt pay downs. Company made cash interest payments of approximately $625,000 in the quarter, including the accrued interest on the retired notes. And the semiannual interest payment was paid on February 1, 23. A non cash impairment of $10,300,000 was recorded for our radio market, broadcasting licenses in Cincinnati, Dallas, Houston and Raleigh and also for our Philadelphia market goodwill balance. Provision for income taxes was approximately $3,900,000 for the quarter.

Speaker 2

Company paid cash taxes in the amount of approximately $1,100,000 Net income It was approximately $856,000 or $0.02 a share compared to $5,300,000 or $0.10 a share for the Q4 of 2021. Capital expenditures were approximately $1,500,000 The company repurchased 13,577 shares of Class B common stock in the amount of $57,000 As of December 31, 2022, total gross debt was $750,000,000 The ending unrestricted cash balance was $94,900,000 resulting in net debt of approximately 655 $1,000,000 which compared to $165,600,000 of LTM reported adjusted EBITDA, On March 8, 2023, the company issued a put notice with respect 100% of his interest in the MGM National Harbor LLC. And on April 21, 2023, we closed on the sale of the put interest. Company received approximately $136,800,000 of proceeds at the time of settlement. During the quarter ended March 31, 2023, the company also received $8,800,000 representing the company's annual distribution from MGM National Harbor With respect to fiscal year 2022, pro form a for the MGM put, total net leverage It was 3.21 times, including $145,500,000 of cash receipts from MGM Excluding the LTM adjusted EBITDA for the MGM stake of $8,800,000 On April 11, 2023, the company announced it had signed an asset purchase agreement with Cox Media to purchase a Houston radio cluster.

Speaker 2

Ervin Wang will divest 2 stations to comply with FCC ownership regulations. Transaction is subject to FCC approval And as anticipated to close either late in Q2 or early in Q3 of 'twenty three. And until that time, we and CMG will continue to operate our respective stations. And then finally, with the MGM proceeds, our current cash balance Today is approximately $235,000,000 And for that, I will hand back to Alfred.

Speaker 1

Great. Thank you. Operator, I'd like to open the line up for Q and A, please.

Operator

Absolutely. We will first go to the line of Aaron Watts with Deutsche Bank, one moment while we open your line. You may go ahead.

Speaker 3

Hi, guys. Thanks for hosting the call. Good to I've got a couple. Peter, sorry to ask you to do this, at least for me, your line was a little choppy at the Beginning of your comments, could you repeat what on the radio side what your kind of same station core advertising Performance was in 4Q, 1Q and then also what you said 2Q was pacing at?

Speaker 2

Yes. So let me go back. Q1 of 23, excluding digital, which is what we report as the radio segment, was up 2% on a same station basis. Excluding political, it was up 3.1%. As reported, It's probably going to look it's going to look like it was up about 11% in the Q1 because of the Indianapolis acquisition.

Speaker 2

The Q2 is pacing down 5% at the moment on a same station basis, But obviously political. There was a fair amount of political last year, a couple of $1,000,000 So excluding that same station, We're pacing down 0.9% for 2nd quarter on radio. As reported, Because we'll layer in Indy on top of that. We're probably looking more like we're going to be up probably low to mid single digits.

Speaker 3

Okay, got it. Thank you for repeating that. And as you

Speaker 2

Sorry, and then on the radio Segment on a same station basis 14.1 percent up for 4th quarter.

Speaker 3

Great. And as you sit today guys, like how is the environment feeling to you as you enter you're entering July here Relative to what you felt in the first half of the year, any rays of light coming through in terms of advertising, Advertiser willingness to spend, whether it's on the local or national level or it feels relatively Steady with what you had been feeling in the kind of April, May, June timeframe?

Speaker 1

Yes. Look, there's definitely an advertising recession going on. I I was at the Cannes Lion Advertising Conference 2 weeks ago, and you hear it from the big holding companies and it's particularly taken root in national. So you're seeing that come through with people who have national ad platforms. Local feels stronger.

Speaker 1

But I mean, you watch the news, CNBC, the economic data is still really strong. And but just because advertisers are pulling back, Not sure they're pulling back because they're worried about something that's coming or exactly why, but there's definitely an ad recession going on. We're still feeling a level of strength due to interest In Diverse Home Media, yes, we're definitely still filling that. Doesn't mean that we're not seeing less demand, But we're doing better than our non diverse owned peers. One of the reasons why we also felt It would be good to be sitting on a lot of cash at this point in time.

Speaker 1

Don't know exactly what's going to happen. But I feel if there's a recession, it'll be a mild recession. I think we're already in an advertising recession. We may not be an economic recession at this point.

Speaker 4

And

Speaker 1

Our radio business is going against some significant political headwinds, right? We had $20,000,000 worth of political

Speaker 2

It was 13 last That was the prior presidential cycle of 2020. It was about 13. Yes. Still significant. Significant, excuse me.

Speaker 1

We're preparing to be okay regardless of what the economy does. But I would So I feel better about where things are going today than I did in January.

Speaker 3

Okay. That's helpful context. Thank you for that. Second question, and I'm sorry if you already disclosed this, But with the stations you're picking up from Cox, are you able to share what the multiple you paid was on that purchase?

Speaker 1

No. I mean, We paid $27,500,000 I think I just said that we think with add backs Things of that nature that will have at least $5,000,000 of EBITDA.

Speaker 2

Yes. So I don't know if you called out, but the NAV Spins?

Speaker 5

Yes, yes,

Speaker 2

yes. So

Speaker 1

let's say their EBITDA was less than 5,000,000 We think with add backs, we'll have at least $5,000,000 And when I say add backs, duplicate expense stuff that we can take out Day 1. And there's not a lot of it, right? We're not changing formats. But what was a surprise For us, to be honest with you, because we modeled something else, was We were able to get out of the 2 radio stations for an acceptable price, Right. And we didn't know what the marketplace was going to be like, yes.

Speaker 1

And we were able to find 2 buyers And got what we thought were not amazing prices, probably low watermarks for stations in Houston. But given the M and A activity in radio period is pretty tepid. We felt pretty good about The sales there and so we're going to be in to Houston for about $17,000,000

Speaker 3

Okay. Thank you for that. And One last question. You mentioned your liquidity a couple of times and it is a nice cushion to have given the uncertain economic backdrop. As you move forward here, you bought back bonds, but you also have this potential casino project.

Speaker 3

How should we think about the uses of those of that cash, whether it's debt pay down going towards a casino initiative or potentially more M and A activity, whether that's on the radio side or otherwise?

Speaker 1

Look, if When we win this casino referendum, we're going to have to write It's not certain exactly what the equity check will be. It's fifty-fifty right now. But let's assume that it's $80,000,000 for each us in Churchill and that's assuming you put some debt on it. We may not go that route depending on how expensive project financing is. We may need to write a slightly bigger check, but assume that that's going to be something We will spend cash on starting in Q4, beginning with closing on the land acquisition.

Speaker 1

And then I think we sit back and just look at stuff opportunistic. I mean, the good thing is that Our bonds trading at a discount, call it 90% and some change or whatever, 10.5%, right? So that's always Yes. That's a good use of capital at that point in time. And if we can make some radio acquisitions that Our better return than that, then we should look hard at that.

Speaker 1

But Paying down debt, I mean, we're also starting to get into a strike zone Of leverage in the 3s, you get leverage 3.5, low 3s, you're starting to get in the strike zone of what other Capital returns of capital do you look at? But we've got some significant projects On the plate right now that we need to see how they're going to turn out. Okay.

Speaker 3

All right, great. I appreciate the time as always.

Operator

We'll next go to the line of Ben Briggs with Stonex Financial Incorporated. Go ahead.

Speaker 5

Good morning, guys. Thank you for holding the call and taking the questions. So a lot of mine got answered, but I still have a couple of more here. So using your guidance and again, thank you for providing guidance. You said that you expect to come in above where you were in fiscal year 2019 While adjusting out the roughly $8,000,000 MGM dividend that you received.

Speaker 5

I just want to kind of sanity check that, make sure I'm doing my math right

Speaker 2

there. No. I have 133.5 with MGM in, and MGM, I think, was 6.6. So I think it's like high 120, 120, 120, 127.

Speaker 5

Okay. So 126, 127. And then if I subtract out, call it between $60,000,000 $65,000,000 of interest expense And some CapEx, it looks like you guys on an EBITDA minus interest minus CapEx basis Should still be comfortably free cash flow positive

Speaker 1

in fiscal year 2023. Is that a safe assumption?

Speaker 2

Yes. I've got a kind of mid-60s in free cash flow. But depending on where CapEx comes out, we've got a couple of huge projects Consolidating in Indianapolis and in Charlotte, but probably you don't get to spend all of that this year. So that's why mid-60s of free cash flow is We're kind of filling out for this year.

Speaker 5

Okay, perfect. That's right around where I was getting to. Thank you. And then the second question, so Churchill Downs, thank you for the clarity on what size the equity check might be And a little bit about what your thought process is there. Could you give a couple more details on what the operations of that might look like?

Speaker 5

So I know obviously with MGM Casino, that was very much you guys were essentially silent partners, not like you had a hand in operating the casino, You left that to them. Is the Churchill Downs project going to be similar or are you going to be taking a more hands on approach with this opportunity?

Speaker 1

They'll be the operator. We're just going to own it fifty-fifty with them and they'll be responsible for operating. However, they'll use their corporate expertise to Yes. Worked with us to build a management team locally at the property. They've got a number of partnerships with other people, including one with Rush Gaming in Chicago and Best Plains.

Speaker 1

I think they've got one in Miami with Delaware North, I think it's Miami. So they've got the thing about them, they've got experience with Having large partners, meaning not somebody who owns 7%, but somebody who owns 50% along with them, Right. Yes. So, but we will be relying on them to be the operator.

Speaker 5

Okay. Got it. Got it. Okay. Thank you.

Speaker 5

And then finally, and I'm hoping you can answer this. So obviously, you just released the fiscal year 202210 ks. Do you and I know this is officially the fiscal year 2022 conference call. Do you know when you might release The Q1 202310 Q?

Speaker 2

We haven't set a day. I think we'll know more next week. We're just working through some stuff there in terms of timing of that. And obviously, we're mindful of we got an extension From NASDAQ through ninetwenty seven, we don't want to take that length of time, but I think we'll put something out next week, which will shed some light on that In terms of time and the filing, no.

Speaker 5

Okay, great. Thank you very much for holding the call and answering the questions. Great day

Speaker 1

guys. Thank you. Thanks.

Operator

Our next question will come from the line of Matt Swope with Baird. Go ahead.

Speaker 3

Good morning, guys. Peter, could you give us a sense for Out of that large cash number you've mentioned, what the tax hit will be around MGM and any other sort of Unexpected or unusual uses that we should think of coming out of that cash number?

Speaker 2

Yes. You just went a bit out as you said it, but I think you're asking is there any tax leakage on the MGM sale, right?

Speaker 3

That's right, yes.

Speaker 2

Yes. Minimal, because we've got enough NOLs to cover it. So it's Roughly $100,000,000 gain. And what it will do, it will burn through our NOLs faster. So it probably accelerates us Becoming a federal taxpayer from 2027 to 2026, somewhere in that region.

Speaker 2

So the good news is We'll have the cash on the balance sheet and there will be minimal tax leakage.

Operator

We'll go next to the line of Brad Kern, a Private Investor. Go ahead.

Speaker 6

Hi, thanks for taking the call and appreciate all the Information today. First one is on the Richmond Casino. What's the likelihood in your view of a favorable vote? Are you doing Any polling yourselves or tracking any sort of local polling that you can maybe give us some color on? And for what work are you doing to improve Local sentiment for the project among likely voters, in addition on the casino, it's a 50 half partnership, but who Who's going to be controlling that the decisions should you decide it?

Speaker 6

I think it has your name on it. So who are you Who's going to be making the decisions when you get down to the tough ones?

Speaker 1

Yes, they'll be joint decisions. If we disagree, there's a dispute No resolution mechanism, but we're fifty-fifty partners and We got to agree, otherwise we go to our dispute resolution mechanism. We've got a fifty-fifty shot. The referendum, we lost it 50.85 to 49.15 Sentiment continues to be divided in the city, And we got to do a good better job of telling voters how the money that the casino will generate is going to be spent. We didn't do that last time.

Speaker 1

We got to work with the city on that. That's not our unilateral call. I think that we've got to articulate the other aspects of the resort, not just the casino park, their entertainment vehicle. We got to do a better job of getting out our voters, but it's fifty-fifty. I've always said that people should look at our company As a baseline and decide whether or not they're comfortable with our existing operations Yes.

Speaker 1

And our balance sheet and look at the casino as upside like gravy. And so that's where we sit.

Speaker 6

Okay. That's helpful. And what so Assuming that is approved, what do you anticipate the payback will be on the casino and sort of for modeling purposes In terms of number of tables and slots and gross gaming revenue across each of those, are there some preliminary figures you can throw out

Speaker 2

You

Speaker 1

should assume that the gaming revenue this is the state has its own Gaming analysis for each of the proposed casino licenses, there are 5 different jurisdictions. The one for Richmond, Virginia is a little better than $300,000,000 of gaming revenue

Speaker 2

A year

Speaker 1

and you can probably operate better than A 30% margin on that. So assume that the property do $100,000,000 of EBITDA, if not better.

Speaker 2

Yes. But as a minimum,

Speaker 1

I think you should assume it's $100,000,000 It could do better.

Speaker 6

Okay. That's really helpful. And then on the radio and TV side, are you do you anticipate any Potential slowdown in appetite for DEI Advertising, particularly given the Affirmative action ruling, what are you hearing from your advertising partners at

Speaker 3

this point?

Speaker 1

Everybody's asking that And so my general gut is That if the political climate changes significantly in the country, that Progressive and inclusionary politics Yes. We'll take a hit. However, I believe that many of the corporations That have committed to DE and I efforts, Believe in it and are doing it because it's good business in today's world. I mean, One of the things that you cannot run from is the changing face of America. That's just what's Happening, yes, black and brown and now Asian populations are growing at a considerably faster clip Then the traditional Caucasian population.

Speaker 1

And that's not a race war, that's just economics of the country, right? And so there will be different consumption patterns for those populations that and different Types of consumption for media and how you communicate with them and talk to them, etcetera, They will become more and more of a force from a consumer standpoint. And it's no different than any other customer. You got to cater to that customer. And so and that's the conversation that I'm hearing among advertisers now.

Speaker 1

But yes, if the government doesn't give Bah hoo! About diversity and inclusion, then I think there will be some corporations that We'll pull back on that. Because generally, government Pressure or fear of some sort of government regulation or retribution Cause is good corporate citizenship. Yes. But that's my general view, but you never know.

Speaker 1

I mean, I forgot who it was, but Donald Trump on his way out the door, pardon, I forgot a number of rappers or whatever. Like, I forgot who it was. It's like, who would have thought, right? Littling. Was it Littling?

Speaker 1

I don't remember what it was. So maybe he if he wins the presidency, maybe he all of a sudden decides it's a good business as well. Never know. But that's my view. I mean, look, the progressive wing of the Democratic Party right now has got A lot of people talking about fairness and equity and justice.

Speaker 1

And then in the traditional Fashion of the Democratic Party is yes, those are things that we believe in too, right? And so that helps with this way.

Speaker 2

Okay. I appreciate that. That's helpful response.

Speaker 6

On a related note, Your core audience, are you seeing the sort of existential time for Radio listenership and secular pressures there, are you seeing better Yes. Consumption trends or how can you can you just talk about consumption trends of your core audience versus

Speaker 1

Everything in traditional media is going down and seeing less consumption. And so but radio feels safer and better and less And in less of a free fall than the pay TV ecosystem Yes, it does. But I think what we're also seeing is with radio, We're dealing with less rating points right now. But if you looked at our revenue, Peter, you did that analysis. Our revenue is really kind of on par.

Speaker 1

What was the analysis you did? When you look at When you look

Speaker 2

at Audio, looking across the radio segment reach and digital audio, we're still Above pre pandemic levels of revenue and EBITDA despite the fact that the universe listeners, it has gone down fairly significantly post pandemic as you might imagine given different working patterns and commuting patterns.

Speaker 1

So I'm going to give some credit to 1 of the CEOs, premier CEO in the industry, Bob Pittman, I had a conversation with him In Cannes at this advertising festival, and we were talking about the radio business. And he hammers The point that radio still has 90% reach, even though the numbers may be smaller than 90% reach in America and reach In television, it continues to decline. Historically, advertisers have paid more for less in television. And I think Peter's analysis would say that we're doing pretty good on pricing versus where audience has gone. So that's a world we're living in.

Speaker 1

And I don't know what the answer is. Nobody except Netflix is making money in streaming right now. Maybe Discovery turns the corner here. I think they were supposed to turn the quarter I'm turning the corner this quarter and next quarter, but people are starting to dial back on their investments in streaming. Radio is kind of hanging in there, but I there was a time when I was a lot more worried about radio and I felt really good that we were in the cable television business.

Speaker 1

Today, I feel really good that we're diversified among all of these things and radio feels like it's hanging in there. And we're making our cable TV business Hang in there right now with the way that we're managing it. But I do feel like we need to do something strategic there, whether it's Picking up more distribution, programming investments, some sort of consolidation opportunity Because that landscape is changing, and so we got to figure that. But the good news is we're at a leverage level now where we're going Time to do that. We're going to have time to make those investments.

Speaker 1

We're going to have time we're not going to be under any pressure that will Make us have to operate in a non effective, non strategic way. I think that we're going to have the runway to make the

Speaker 6

Sure. On the balance sheet, I mean, we've talked about the you talked about the economics of the casino. So in a world where in the fifty-fifty shot where it doesn't go through, you mentioned on the call that It's leverage kind of leverage in the low 3s that there's other forms of capital return you might be looking at. So how do you How are you thinking about that versus potential strategic actions On the radio and TV side or other industries, whether it's gaming or otherwise?

Speaker 1

Look, we match everything for us is so strategy is often Very overused in terms of a rationale as to why you do something. Something Strategy has to be accountable to what your current return options are. I don't think you make a strategic decision and not match that up against what's the best use of capital, right? So I would not if we can pay if we can buy our bonds and get retire our debt and get a 10.5% return, there's no strategic decision That we would make that would net us a 5% return. We wouldn't do that.

Speaker 1

You just pay down your you can pay down your bonds, right? Because if it's strategic, then it should actually yield you an outside return, right? It should get you It should have you create value and the value that it creates needs to be better than what else you can do with the That's how that's the lens under which we look

Speaker 5

at South and it's worked for us.

Speaker 2

Does that make sense?

Speaker 6

I guess I'm just wondering is there at some point is there a leverage level that you I know the stock isn't terribly liquid. Is there a leverage level that you start to think about You shift from debt reduction to whether it's share buybacks or Maybe Whatever it is to return that cash

Speaker 2

to Yes.

Speaker 1

Maybe, I mean, we were buying back shares last year. Yes. We bought back $25,000,000 worth of shares at $5.30 And I go up, we said

Speaker 2

it come down, but it's kind of Given the macro that we're just we got some It's easy options ahead of us. That will be on the place at some point, but it depends on how revenue goes, how EBITDA goes, how we

Speaker 1

And the share buyback analysis goes through the same return, rigor that Buying a radio cluster does, us buying more cable assets, us investing in the casino. We're not going to buy back our stock and earn a 5% return over paying down our debt and then 10.5% return.

Speaker 6

Okay. Thank you. And last question for me is just a housekeeping. When you mentioned the 3.7 times leverage by end of year, is that I assume that's net call

Speaker 1

We said 3.7.

Speaker 6

Right. 3.7% that's on a net basis? Yes. And that's is that pro form a for any other uses of cash or what is inclusive what are are the underlying assumptions in the 37?

Speaker 2

It assumes that we win the Richmond referendum and we buy the land that Alfred referred to in Q4. So that Cash goes out the door, and it assumes that we close on the acquisition in Houston. So that net $17,000,000 goes out the door as well, but we pro form a in, call it, dollars 5,000,000 of EBITDA from that transaction.

Speaker 6

Perfect. And no additional debt buybacks in that number?

Speaker 2

No. Modeled into that number? Okay. Thank you. That's all my questions.

Speaker 2

Appreciate it.

Operator

We'll go next to the line of Matthew Sandschaefer with Massaro. Go ahead.

Speaker 4

Hi, guys. Thank you for sneaking me in here near the end. Just a couple of housekeeping questions. Are you guys planning to

Speaker 1

spend on content this year? That number was obviously pretty high in 2022.

Speaker 2

Yes. It was high in 2022. I was just looking, I think, mid-50s. Jody is here with us. He can speak to it if he'd like.

Speaker 2

But I think we're looking at cash. I've got On my sheet, at least, cash spend in the kind of mid-50s. Does that sound right, Jody? Say again, Matt.

Speaker 4

Did you say mid-50s? I'm sorry, I'm having a little sound issue.

Speaker 2

Yes, mid-50s.

Speaker 4

Okay, great.

Speaker 2

I think it normalizes that than last year, right from a cash standpoint.

Speaker 4

Okay, Great. Thank you. And were there any unusual cash expenses in the radio or digital segments in the 4th quarter Specifically, those margins took a little bit more of a

Speaker 1

hit than I might have been expecting. And I'm sorry, I've been up through

Speaker 4

that during the first part of the call when R and

Speaker 2

D was on, but I missed it. Yes. There were a few things, Matt. There were some noise in the numbers. So obviously, we had the high watermark year, so bonuses were higher than they otherwise Normally would be so.

Speaker 2

So there was some of that. In margins in digital, We talked a little bit about the fact that those were impacted by higher traffic acquisition costs. That was $2,300,000 also higher Content costs at digital and ad production costs. So those margins compressed. Other than that, there wasn't anything particularly material.

Speaker 4

Okay, great. And then the that mid-60s free cash flow number you mentioned, does that include the MGM dividend this year or are you rolling that up into the sale price?

Speaker 2

That is in the sale price. So that's not So that mid-60s hang on a second. Good point. Let me just double check before I speak on that. Shouldn't have Yes, we have actually, no, sorry, that does include it, Mike.

Speaker 2

That is rolled up into The $8,700,000 of receipts is in the mid-60s. Okay.

Speaker 4

And I guess just generally on the digital side of things, you mentioned the higher traffic acquisition costs. There's some guidance for what looks like kind of Persistent lower margins going forward. What do you think about that competitive landscape overall? It feels like As you guys know, it feels like every radio station and not just radio obviously, but every radio station company has been trying to get into that business In a significant way,

Speaker 2

what do you think is

Speaker 4

driving the higher capital acquisition costs?

Speaker 3

Yes, go ahead.

Speaker 1

Yes. Our digital business is different than everybody else's radio business digital business. Our digital business is largely as a content publisher, where we sell Video ads and display advertising, probably roughly 40% of our revenue. This year, it would be digital video. We've got some streaming revenues, forgot what it was.

Speaker 1

I know it's at least 5%. I don't

Speaker 2

know if this is excuse me,

Speaker 1

at least $5,000,000 I don't know if it's going to be a little higher.

Speaker 2

It's 5.7000000. It's in the 5. Yes.

Speaker 1

And we've got a bit of podcast business, but the Qumulus and Odysee models and Our podcast driven, iHeart has got They're Iheartmedia streaming platform and they've got a big podcasting business. We're much more of a publisher. Yes. And then Townsquare does digital services, right? So they act as a local small Digital advertising agency for small, medium sized clients in the markets that they operate in.

Speaker 1

So our digital business is different With that said, it's benefiting from still demand. We've got the Largest African American targeted audience in the space. So we're the scale player in that space, and I don't know what the prognosis is going for. I hope it continues to remain profitable. We got to figure out how to see if we can grow that margin.

Speaker 1

Digital Publishing is a Business, you can see from Buzzfeed and Box and a bunch of these other and BICE, they're having a tough way to go. We've been doing better. We've got to figure out how to manage through that. But it's a better business than the podcasting business. Yes.

Speaker 1

So in my viewpoint. Okay.

Speaker 2

Yes.

Speaker 3

Great. Thank you.

Speaker 2

Thank you, Matt.

Operator

We'll go next to Pardon me?

Speaker 1

Yes. So 11:0:6, I was going to say we got time for 1 more. Can we do one more? Yes. One more question, operator.

Operator

We'll go to the line of Marlene Pierro with Bank of America. Go ahead.

Speaker 7

Thank you for taking my call and squeezing me in. Most of them have been answered. But quick question, you had mentioned BET at the top of the call. Any other information on that or thoughts or what that could potentially look like in terms of the impact on leverage?

Speaker 1

I mean, it's a competitive process. We're under an NDA. I just figured some people ask us if we're interested in it. So I just figured I'd mention that we are in the process. I couldn't yes, we're not far enough along on anything at this point in time To comment and we wouldn't be allowed to comment anyway, but I just get tired of people asking me, hey, are you guys looking at this?

Speaker 1

And so I decided to admit that we were, but that's All the information I can give.

Speaker 7

Got it. And then just a quick kind of reframe. Given the current environment Overall, secular and cyclical, how high would you be willing to have your leverage in the current environment Or what you kind of see the environment to be over the next year?

Speaker 1

Look, we like our leverage 4 or below. We like it here. If we have to write $100 plus 1,000,000 check at the Over the next 12 months for the casino, that could change our leverage profile. I'm sure Peter has the numbers, but we $100,000,000 goes out the door No cash flow coming in for, call it, 24 to 30 months It's going to raise your leverage, but I'm also assuming that we win a casino referendum that We're probably going to get some credit for that in our equity value and who knows, maybe we'll raise some more equity, don't know how we'll think about that. But I would suffice it to say, we sleep good at night when our leverage is 4% below 4%, we like that.

Speaker 2

Yes, look, it probably pops up above 4% in Q1, excluding The pro form a for Engenca, the cash wasn't received till Q2. So I guess we'll give pro form a numbers in Q1. But excluding the pro form a, it's probably north of 4. And it drops down, hopefully, Mid-3s. And as Alfred said, we hope it can finish about 3.7 times this year.

Speaker 2

And then if I look at our long range plan, It's out in the low 3s and eventually in the mid 2s, so assuming we can hit our plan.

Speaker 7

Got it. And sorry, if I could just squeeze in one last one. Early on the top of the call, you also had said kind of more generally that radio multiples are like 5x, If I heard you correctly,

Speaker 1

what's the I mean, there's lots of comps out there. Last I looked, I thought the average radio multiple was kind of like 5.5 Something like that. So again, that's what I think I remember saying Abbott.

Speaker 2

It's variable within that, right, depending on who you look at. Yes. I think that was about the meaning.

Speaker 7

Fair enough. Great. Well, thank you very much.

Speaker 1

Thank you. Thank you, everybody. We look forward to talking to you at a point in the near future.

Operator

Ladies and gentlemen, that will conclude your conference call for today. Thank you for your participation and for using AT and T event teleconferencing. You may now disconnect.

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Earnings Conference Call
Urban One Q4 2022
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