Urban One Q2 2024 Earnings Call Transcript

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August 8, 2024

There are 6 speakers on the call.

Operator

Ladies and gentlemen, thank you for standing by and welcome to Urban One's Second Quarter Earnings Call. Participants are in a listen only mode and this call is being recorded. 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. Irvin 1 cautions you that certain factors, including risks and uncertainties referred to in the 10ks, 10 Qs and other reports that periodically filed 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 August 8, 2024.

Operator

Please note that Urban One disclaims any duty to update any forward looking statements made in the presentation. In this call, everyone may also discuss some non GAAP financial measures in talking about its performance. These measures will be reconciled to www.urbanone.com. A replay of this conference call will be available from 5 p. M.

Operator

Eastern Time today, August 8, 2024 until 11:59 or midnight on August 15, 2024. Callers may access the replay by calling 866 207-1041 from the U. S. International callers call direct at 402-nine70-0847. The replay access code is 1,733,886.

Operator

Access to live audio and a replay of the conference call will also be available on Urban One's corporate website at www.urbanone.com, and a replay will be made At this time, I'll now turn the call over to Alfred Liggins, Chief Executive Officer of IRWIN 1, who is also joined by Peter D. Thompson, Chief Financial Officer. Please go ahead.

Speaker 1

Thank you very much operator and welcome everybody to our Q2 results conference call. Also joining Peter and I are Karen Wishart, our Chief Administrative Officer Jody Drewer, who's the Chief Financial Officer at TV One and Christopher Simpson, who's our General Counsel. We sent out the press release on our Q2 results largely in line with how we've guided in terms of the different segments. Radio coming in at minus 3 with political minus 5.6 on a same station basis ex political that's not including the acquisitions that we made with Houston, Texas. It's been a challenging environment in our cable television segment, mostly because of churn and audience delivery, something that's happening throughout the pay TV ecosystem.

Speaker 1

Peter is going to go into more detail about those results in Q2 in his comments. Q3 Radio currently is pacing down 6.9% on a same station basis. It's going to be up 7% as reported. If you include political, it's pacing down mid single digits. However, we are feeling pretty optimistic about the strength of political and we're starting to see registrations and orders coming in on hold.

Speaker 1

We actually think it's going to be much more robust than we have currently forecasted. It's real time action right now in terms of getting it laid in the new political landscape and the closeness of the current race, I think is going to bode well for us given our audience. So that is yet to be determined. We're not forecasting a big beat on our political budget as of yet, but we're very optimistic. But even with the optimism in political ad spend coming, there's still softness in our cable television segment, which we have to address.

Speaker 1

Ultimately, we've got to find more impressions to offset the churn that we're experiencing. And we've got upside coming in terms of our connected TV offering as we switch ad servers that will allow us to better monetize the CTV inventory that we have on some of the new over the top platforms that's not in place yet. We haven't had the benefit of that so far this year, but we will in the second half of this year. But given the softness in the cable TV segment, I think that we are more likely to finish 2024 at the lower end of our EBITDA guidance, which was 110 to 120. And again, we're not sure exactly what we think that the upside on political is yet.

Speaker 1

We think there is some. But we just want to give an indication that we feel at this point that we're more likely to finish on the lower end of the guidance than the upper end of the guidance. So we can talk more about that during the Q and A. And so at this point, I'd like to turn it over to Peter to go into the details of the numbers and then we can switch to Q and A. Peter?

Speaker 2

Yes. Thank you, Alfred. I'll just walk through the press release numbers. So consolidated net revenue was down by 9.2% year over year for the quarter ended June 30, 2024 at approximately $117,700,000 Net revenue for the Radio Broadcasting segment was $42,000,000 which was an increase of 7.2% year over year, but was down 3% on a same station basis. Excluding political, net revenue was up by 4.7% year over year, but down by 5.6% on a same station basis.

Speaker 2

According to Miller Kaplan, our local advertising sales were down 8.5% against a market that was down 7.1%. National ad sales were down 1.6% against a market that was up 7%. Net revenue for the Reach Media segment was $18,900,000 in the 2nd quarter, down 5.6% from the prior year. And adjusted EBITDA was $3,700,000 for the quarter, down from $4,600,000 last year. Net revenues for the digital segment decreased by 16% in 2nd quarter to $15,900,000 Direct national sales were down driven by decreased advertiser demand, but Connected TV and podcast revenues showed growth compared to last year.

Speaker 2

Adjusted EBITDA was $2,900,000 down 52.5 percent. We recognized approximately $41,500,000 of revenue from our Cable Television segment during the quarter, a decrease of 20.9%. Percent. 30% in total day persons 2,554, resulting in an increase of $4,700,000 to our audience efficiency reserve. Increased volume through promo conversions partially offset the delivery shortfall.

Speaker 2

Cable TV affiliate revenue was down by 12.9% with contractual rate increases being offset by approximately $3,300,000 in net subscriber churn impact. Cable subscribers for TV 1 as measured by Nielsen finished 2nd quarter at €39,800,000 compared to $40,700,000 at the end of Q1. And CLEO TV had 38,000,000 Nielsen subscribers. Operating expenses excluding depreciation and amortization, stock based compensation and impairment of goodwill intangible assets and long life assets decreased to approximately $93,300,000

Speaker 3

for the quarter ended June 30, 2024

Speaker 2

down 0.4% from the prior year. Radio operating expenses were up 6.4 percent or $1,900,000 The Houston Radio acquisition, which was effective August 1, 2023 added approximately $2,000,000 expense year over year. On a same station basis, event expenses were up $700,000 driven by 2 of the company's tentpole events, which is Birthday Bash in Atlanta and Women's Empowerment in Raleigh. While variable expenses related to revenues such as sales commissions, bonus compensation, bad debt and national rep fees were all down and marketing costs were also down. Reach operating expenses were down by 1.3%, driven by reduced talent compensation and affiliate station fees.

Speaker 2

Operating expenses in the digital segment were up 1.5%, driven by increased cross platform marketing expenses and third party cost of sales on audience extension revenue for digital audio. Operating expenses in the cable TV segment were down 4.7% year over year, driven by about $800,000 favorable programming expense related to acquisitions that expired in 2023 and reduced sales and marketing expense, which was offset by increased operations costs associated with Connected TV and VOD support. Operating expenses in the Corporate and Elimination segment were down by approximately $900,000 primarily as a result of a $4,500,000 decrease for the CEO's TV 1 award, offset by a $3,000,000 increase in third party consulting and audit expenses. For adjusted EBITDA, we added back $4,100,000 for non recurring professional remediation and order efforts. However, the $6,300,000 non cash benefit for the TV One award is not added back for the current year when assessing adjusted EBITDA.

Speaker 2

Consolidation adjusted EBITDA was 28 $400,000 for the 2nd quarter, down 24.2%. Consolidated broadcast and digital operating income was approximately $34,200,000 decrease of 27.7%. Interest income was approximately $1,800,000 in the 2nd quarter compared to $1,900,000 last year. Decrease was due to lower cash balances in interest bearing investment accounts. Interest expense decreased to approximately $12,400,000 for Q2 down from $14,000,000 last year due to lower overall debt balances as a result of the company's debt reduction strategy.

Speaker 2

The company made cash interest payments of approximately $1,000,000 in the quarter related to the repurchase of the notes. During the quarter, the company repurchased $35,500,000 of its 20.28 notes at a price of 0 point 7 $8 per part. An impairment charge of $80,800,000 which was non cash was recorded in Q2 entirely from the broadcasting licenses in 9 of the 13 radio markets in the broadcast segment. The primary factors leading to the impairments were decline in projected gross market revenues and operating profits and an increase in the discount rate. The benefit from income taxes was approximately $18,500,000 for the 2nd quarter and the company paid cash income tax in the amount of $600,000 Net loss was approximately $45,400,000 or $0.94 per share compared to net income of $70,400,000 or $1.48 per share for the Q2 of 2023.

Speaker 2

During the Q2, the company repurchased 449,277 shares of Class A common stock in the amount of approximately $900,000 at an average price of $2.06 per share and 113,283 shares of Class D common stock in the amount of approximately $200,000 at an average price of 1.5 $7 per share. Capital expenditures were approximately $2,200,000 in the second quarter. As of June 30, 2024, total gross debt was $614,500,000 The ending unrestricted cash balance was $131,900,000 resulting in net debt of approximately $482,600,000 compared to $110,500,000 of LTM reported adjusted EBITDA for a total net leverage ratio of 4.37 times. And finally, we'll be filing timely filing the 10 Q tomorrow at some point. So good that we're back on track in terms of meeting our deadlines and filing timing.

Speaker 2

And with that, I will hand back to Alfred.

Speaker 1

Thank you, Peter. Operator, we can go to the lines for Q and A.

Operator

And at this time, we do not have any callers queuing up. Okay. I'll take that back. We're just a little bit late. All right.

Operator

We'll go first to Dominic Liav with Stifel. Please go ahead please.

Speaker 3

Hey, guys. Thanks for taking the questions. Sure. Yes, I just had 2 things a couple of things for me. One, could you just comment on digital has kind of been trending weaker for a couple of quarters now.

Speaker 3

Can you

Speaker 2

just kind

Speaker 3

of offer some guidance on what that market is looking like? Are you guys expecting that to pick up versus kind of like a national local area or kind of just what your thoughts on

Speaker 1

Yeah. We yeah, digital, there's been weaker demand in digital associated with the pullback in national advertising, but also a pullback in DE, Diverse and Inclusion, ad dollars that we felt that way was ultimately

Speaker 2

going to

Speaker 1

crest and be affected by the national ad pullback. However, the second half is looking better. And we're also optimistic there that we're going to see more political ad dollars than we had budgeted. So, yes, to date, we are still forecasting our digital segment to beat its budget, which is off of last year, but not that far off. So we're feeling decent about digital.

Speaker 1

Our TV business is really what's hurting us.

Speaker 3

Okay. Thank you. And based off the backdrop, are you guys keeping your EBITDA guidance, I think you gave a range of like $110,000,000 to $120,000,000 last call. Is that sort of still in line?

Speaker 1

Yes. Yes. As I said at the top of the call, we're more likely to be on the lower end of that guidance. But yes, we're maintaining our current guidance.

Speaker 4

Okay. Got it. Sorry, I

Speaker 3

joined a little late here. And then just a couple more things. The debt buyback, do you guys continue kind of continuing a similar cadence in terms of repurchases if prices come

Speaker 1

up? I don't want to commit to the cadence, because the cadence really kind of depends on the cadence depends on where we see the debt trading. But you can rest assured that our primary focus is to make sure that we're managing our leverage and looking to march that down. And it's challenging right now with EBITDA falling, right? So quite frankly, being able to buy debt back opportunistically at attractive prices is important.

Speaker 1

So very high priority for us. That's the reason you saw us buy $35,000,000 worth of debt right before our window closed. That ended up being a negotiation that to buy that piece of debt of $35,000,000 was probably a week long negotiation that only closed right before the window was happening. So we're trying to be opportunistic and smart about it.

Speaker 3

Okay. Got it. That makes sense. Yeah. And then just last one, I think you guys mentioned maybe you might have commented, the last quarter you guys mentioned you were under NDA to potentially purchase bounce from EW Scripps to the effect you can offer any commentary.

Speaker 3

Is there any update regarding those?

Speaker 1

No. There's a process going on. We're involved in it and no update at this point in time.

Speaker 3

Okay. Got it. Okay. Appreciate the answer to the question. That's it for me.

Speaker 1

Thank you.

Operator

Our next question comes from Hal Steiner with BNP. Please go ahead.

Speaker 1

Hey, guys. Good morning. Thank you for taking the questions. So my first one is, I was just do you have any early thoughts on some of the things you could try to do in TV to sort of improve audience and audience delivery? Is maybe like changing measurement providers a possible solution?

Speaker 1

And I think you also commented on sort of CTV ads upside. If you could just share a little more color or help quantify that at all that would be helpful? Thank you. Yes. So we are looking at different measurement solutions And we're in the middle of the upfront right now.

Speaker 1

So I don't want to have adjudication of our upfront strategy and our audience measurement strategy. But suffice it to say, yes, we are engaged in those kinds of conversations and looking at several different alternatives, one of which has more of a positive impact than others, right? So but that's an active negotiation right now. Because it's not just us switching audience measurement. It's getting the advertising holding companies and the clients to actually accept it as currency too.

Speaker 1

And so that's a real time negotiation as we speak. But the answer to your question is yes, we're looking at that. 2nd, on CTV, we basically were on an ad server that didn't allow us to transact on a programmatic level and had some other limitations that really severely limited our ability to monetize that inventory. It has taken us don't ask me all of the why. So it has taken 6 months actually for us to identify, negotiate and then ultimately get activated a new ad server that will allow us to more effectively monetize it.

Speaker 1

And we're at the we're almost at the end of that road. I think it goes live within the next 30 days or so. Jody, do you know when the new CTV ad server goes live by offhand?

Speaker 3

This month. This month. Okay.

Speaker 2

This month.

Speaker 1

Yes. So people advertisers like CTV a lot because they can do it programmatically and the ad server that we were on didn't allow

Speaker 3

us to do that.

Speaker 1

So that's just that's real just capability just moving to a system that allows us to monetize it the way the

Speaker 3

majority of advertisers

Speaker 1

want to do business is And obviously And obviously more and more ad dollars are moving to connected television too.

Speaker 3

Got you. Okay. That's helpful. And then I guess just on

Speaker 1

financial policy, with the operating environment being a little bit weaker, do you sort of feel like it's more prudent to maybe hoard more cash? Or is like sort of the minimum cash you want to hold in the business maybe higher than it was before? And I heard your comments on debt buybacks. But I maybe also just wonder how do you do M and A in the current environment? And I'll pull it up.

Speaker 1

We view M and A and I think I've said it before. Look in the current environment, you can't count on top line growth, right? Not in the media business, right? If we were a software company maybe. So M and A has got to be not only highly accretive, it's got to be delevering.

Speaker 1

And Peter and I were actually talking about it this morning before the call. And any M and A deal that you do that's delevering out the box, you've got to assume that there's going to continue to be downward top line pressure in the industry, right, whether it's radio or television. And so you got to take that into account when you're figuring out what that M and A does to you from a delevering standpoint. So very comfortable with our Houston acquisition last year and our Indianapolis acquisition in radio. And so that's how we think about it.

Speaker 1

You can expect us not to do anything that is contrary to that because that would be that'd be way too risky. And we are again conscious of the fact that it's not just is something delevering day 1. Is it going to continue to be delevering with a downward trend from an industry standpoint. Finding those deals is hard, but my sense is they will come about because everybody's kind of got the same problem. And I mean, we're substantially free cash flow positive.

Speaker 1

To date, the thing that reducing debt particularly reducing debt at a discount does is it also increases our free cash flow, right? And so we don't really have a cash flow problem such that we have to hoard a bunch of cash. And if we are looking for a deal that is substantially delevering, particularly at the levels that we're trying to get down to. Let's say, I think our leverage level we just reported was 3. 4.37 times, right, 4.37 times.

Speaker 1

So let's say we were looking for something that delevers us a turn, right? So it gets us down to 3.3 If the synergies are really there and it does that then that's probably in the strike zone is something that you can finance. So the point is I don't think we have to hoard cash for an M and A situation, the kind of M and A that we're looking for should produce a financeable scenario in and of itself. And we can look at that cash to delever and buy debt opportunistically. Does that make sense?

Speaker 3

Yes, it does. It does. Thank you, Alfred. Okay. That's all my questions for now.

Speaker 3

Thank you guys so much. Yeah.

Operator

We have a question now from Marlene Piero with BOA. Please go ahead.

Speaker 5

Thank you for taking the question. Hi Alfred. Hi Peter. Hi. Hi.

Speaker 5

Just wanted a quick sanity check on free cash flow. Just given the commentary you've given this quarter versus last quarter. So I think it worked out to roughly around $40,000,000 given some one offs related to PV1. Cash tax is around $3,000,000 I think CapEx around $9,000,000 So just wanted to sanity check if kind of the ballpark and that my inputs are correct.

Speaker 2

Yes. I think look, Alfon guided towards the lower end of the guidance. So you probably need to take if we were coming off at the midpoint, right, you'd probably take $5,000,000 off of that number and be in the mid-30s. And then obviously the other comment he made at the top of the call was we don't know where political is going to come out. It feels good, right?

Speaker 2

It feels like the developments on the demographic side are going to be really helpful to us. So yes, maybe there's some upside on that. To the downside, we're still going through all the remediation of the material and there's going to be incremental effort there from a consultant standpoint and also from an audit standpoint. So our old $2,000,000 audit fee isn't coming back this year. So there's some incremental one time remediation and audit costs.

Speaker 2

So I think we're somewhere in the 30th depending on where political comes out, I would say.

Speaker 5

Got it. But the cash taxes and CapEx that's still roughly that ballpark of 3 $1,000,000 in general effectively?

Speaker 2

Yes. And the other lever that's in there I say lever. The other thing that's in there is how much cash program we spend versus what we're amortizing. At the moment, we have a $10,000,000 cash usage in the numbers I just gave you. So if we can if we end up saving some of that then that would also boost free cash flow.

Speaker 5

Okay. And sorry if I might have missed this sooner, but have you disclosed if you bought any bonds back post the quarter?

Speaker 2

I'm sorry, Mariana. I couldn't hear the question. It's a bit faint.

Speaker 5

Sorry. I was just curious and apologies if I missed this, but have you have there been any bonds repurchased post 3Q?

Speaker 2

No. The last ones we did was a 35.5% in Q2. We haven't done any more since then.

Speaker 5

Got it. Thank you very much. That's all I have.

Operator

We have a question next from Kevin with PRV. Please go ahead.

Speaker 4

Yes. Hi. Thank you. I would like for you to expand if you can on the political advertising. I know you're very optimistic about it.

Speaker 4

Are you seeing interest with both parties? And

Speaker 2

at historic levels when you look at

Speaker 4

what you're seeing so far?

Speaker 1

The answer is yes, we're seeing interest from both parties. However, the ratio of what DIMMs spend against our audience to what ours spend is very, very, very, very wide, right? So an increase in interest from the R's is not a move the needle, right? But it's on a percentage wise off a low base, I think it's a substantial increase. I mean, but it still doesn't compare to what the DIMMs spend between the campaigns and the packs and all that, because the primary audience that we have is obviously So we've got a big Atlanta position, Georgia, So we've got a big Atlanta position.

Speaker 1

Georgia has been our most robust political market over the last two cycles. We are in Charlotte and Raleigh, so North Carolina is in play. Pennsylvania is in play. We're in Philadelphia. And so we've got some decent exposure.

Speaker 1

And then we've got a big digital business, right? And I would say over half of the spend that's going to come from the DIMMs this year is going to be in digital. So in comparison to others other cycle. Peter, what was the big year that we had?

Speaker 2

Yes. We've had 2, right? So the high watermark was in 2020 we did in radio alone we did $18,800,000 in 2020. So that was the biggest. And then in 2022, we did about $13,000,000 in radio.

Speaker 2

So they were our 2 biggest.

Speaker 1

Yes. And Peter, do you want to elaborate?

Speaker 2

Yes. I mean, look, I think you covered it. But yes, are it's not just the presidential race was the only point I was going to make. There are some races in the markets you mentioned, the North Carolina governor race, the Maryland Senate and the Ohio Senate and then some other issues, redistricting issues. So it's not all going to be presidential money.

Speaker 2

There are other things that we're participating in as well. Right. Yes. But obviously that change on the democratic side is going to help us in some of those markets that will probably may not have been play that now are like Georgia and Pennsylvania where we're well positioned.

Speaker 4

Just one follow-up.

Speaker 2

Will you update as these spends come in?

Speaker 1

I'm sorry, will we update as what comes in?

Speaker 2

As you get buys,

Speaker 1

advertising buys. We'll give an update when we do our next earnings call, just as we have here and it will flow into whatever our guidance is. So our next yes, we'll give the market a view of we always give a view on where we're pacing. And the last couple of years we've given guidance and we feel we'll have an obligation to continue to update that guidance as we report.

Speaker 4

Okay. Thank you.

Speaker 3

Yeah. And

Operator

we're going now to Ben Briggs from Stonex. Go ahead.

Speaker 1

Hi. This is James Dobbin on for Ben Briggs. Thank you guys for taking the questions. I was wondering can you provide any clarity on what the revenue and EBITDA impact of TV One and CLEO joining the Xfinity lineup will be? Actually, it's not the Xfinity lineup.

Speaker 1

It's TV Now, which is their over the top skinny bundle. It's a $20 a month service. And it will be positive, although we just launched, I think Jody, we just launched in August, right, beginning August? In July. We launched in July and it's a growing service.

Speaker 1

So it's a small number of subs now that we think will ultimately grow larger. So it's a positive impact, but it's not a hugely positive impact to our numbers. Awesome. Thank you. Sure.

Operator

And we have no more questions in queue.

Speaker 1

All right. Thank you, everyone. And we look forward to talking with you next quarter. And as usual, we're available offline. Thank you very much.

Operator

Ladies and gentlemen, once again a replay for this conference call will be available through midnight on August 15. To access the replay from the U. S, dial 402-970-0847,

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