Urban One, Inc. (UONEK) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by, and welcome to Urban One's Second Quarter Earnings Call. [Operator Instructions] 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. Urban One cautions you that certain factors, including risks and uncertainties referred to in the 10-Ks, 10-Qs and other reports it periodically files with the Securities and Exchange Commission, could cause the company's actual results to differ materially from those indicated by its projections or forward-looking statements. This call will present information as of August 8, 2024. 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.urbanone.com. A replay of this conference call will be available from 5:00 p.m. 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 402-970-0847. The replay access code is 1733886. 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 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. At this time, I'll now turn the call over to Alfred Liggins, Chief Executive Officer of Urban One, who is also joined by Peter D. Thompson, Chief Financial Officer. Please go ahead.

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've 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. 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'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. 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 broadcasting a big beat on our political budget as of yet, but we're very optimistic. But even with the optimism and political ad spend coming, there's still softness in our cable television segment which we have to address. 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 million to $120 million. And again, we're not sure exactly what we think that the upside on political is yet. 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&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&A. Peter?

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 $117.7 million. Net revenue for the radio broadcasting segment was $42 million, 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. According to Miller Kaplan, our local advertising sales were down 8.5% against the market that was down 7.1%. National ad sales were down 1.6% against the market that was up 7%. Net revenue for the Reach Media segment was $18.9 million in the second quarter, down 5.6% from the prior year, and adjusted EBITDA was $3.7 million for the quarter, down from $4.6 million last year. Net revenues for the digital segment decreased by 16% in second quarter to $15.9 million. Direct national sales were down, driven by decreased advertiser demand, but connected TV and podcast revenues showed growth compared to last year. Adjusted EBITDA was $2.9 million, down 52.5%. We recognized approximately $41.5 million of revenue from our cable television segment during the quarter, a decrease of 20.9%. Cable TV advertising revenue was down 26.7%. Delivery erosion continued down 30% in total day [ persons ] to $25.54, resulting in an increase of $4.7 million to our audience deficiency reserve. Increased volume through promo conversions partially offset the delivery shortfall. Cable TV affiliate revenue was down by 12.9% with contractual rate increases being offset by approximately $3.3 million in net subscriber churn impact. Cable subscribers for TV One, as measured by Nielsen, finished second quarter at $39.8 million compared to $40.7 million at the end of Q1, and CLEO TV had 38 million Nielsen subscribers. Operating expenses, excluding depreciation and amortization, stock-based compensation and impairment of goodwill intangible assets from long-life assets, decreased to approximately $93.3 million for the quarter ended June 30, 2024, down 0.4% from the prior year. Radio operating expenses were up 6.4% or $1.9 million. The Houston Radio acquisition, which was effective August 1, 2023, added approximately $2 million of expense year-over-year. On a same-station basis, event expenses were up $700,000, driven by 2 of the company's tentpole events, the Birthday Bash in Atlanta and Women's Empowerment in Raleigh, while variable expenses related to revenue 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. 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 an $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 Eliminations segment were down by approximately $900,000, primarily as a result of a $4.5 million decrease for the CEO's TV One award, offset by a $3 million increase in third-party consulting and audit expenses. For adjusted EBITDA, we added back $4.1 million for nonrecurring professional fees related to the remediation and audit efforts. However, the $6.3 million noncash benefit for the TV One award is not added back for the current year when assessing adjusted EBITDA. Consolidated adjusted EBITDA was $28.4 million for the second quarter, down 24.2%. Consolidated broadcast and digital operating income was approximately $34.2 million, a decrease of 27.7%. Interest income was approximately $1.8 million in the second quarter compared to $1.9 million last year. The decrease was due to lower cash balances in interest-bearing investment accounts. Interest expense decreased to approximately $12.4 million for Q2, down from $14 million last year due to lower overall debt balances as a result of the company's debt reduction strategy. The company made cash interest payments of approximately $1 million in the quarter related to the repurchase of the notes. During the quarter, the company repurchased $35.5 million of its 2028 notes at a price of 78% of par. An impairment charge of $80.8 million, which was noncash, 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 a decline in projected gross market revenues and operating profits and an increase in the discount rate. The benefit from income taxes was approximately $18.5 million for the second quarter, and the company paid cash income tax in the amount of $600,000. Net loss was approximately $45.4 million or $0.94 per share compared to net income of $70.4 million or $1.48 per share for the second quarter of 2023. During the second quarter, 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, an average price of $1.57 per share. Capital expenditures were approximately $2.2 million in the second quarter. As of June 30, 2024, total gross debt was $614.5 million. The ending unrestricted cash balance was $131.9 million, resulting in net debt of approximately $482.6 million, compared to $110.5 million of LTM reported adjusted EBITDA, for a total net leverage ratio of 4.37x. 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. And with that, I will hand back to Alfred.

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

[Operator Instructions] We'll go first to Dominic Laib with Stifel.

Two things -- a couple of things for me. One, could you just comment on that digital has kind of been trending weaker for a couple of quarters? Can you just kind 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 are your thoughts on the…

Yes. Yes, digital, there's been weaker demand in digital associated with the pullback in national advertising, but also a pullback in DE, the first-in inclusion ad dollars that we felt that way was ultimately going to 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 meet its budget, which is off of last year but not that far off. So we're feeling decent about digital. Our TV business is really what's -- is what's hurting us.

Based off the back up, are you guys keeping your EBITDA guidance? I think you gave a range of like $110 million to $120 million last call. That's sort of still in line?

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.

Sorry, I joined a little late here. Just a couple more things. The debt buybacks, do you guys continue kind of continuing a similar cadence in terms of repurchases if prices on...

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. It's challenging right now with EBITDA falling, right? So quite frankly, being able to buy debt back opportunistically at attractive prices is important. So very high priority for us. That's the reason you saw us buy $35 million worth of debt right before our window closed. That ended up being a negotiation that -- to buy that piece of debt of $35 million 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.

And then just last one. I think you guys mentioned -- maybe you might have commented this the last quarter, you guys mentioned you were under NDA to potentially purchase Bounce from E.W. Scripps. To the effect you can offer any commentary, is there any update regarding those?

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

Our next question comes from Hal Steiner with BNP.

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? And I think you also commented on sort of CTV ad upside. If you could just share a little more color or help quantify that at all, that would be very helpful.

Yes. So we are looking at different measurement solutions. And we're in the middle of the upfront right now. So I don't want to have a public 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. And so that's a real-time negotiation as we speak. But the answer to your question is yes, we're looking at that. Second, 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's 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, 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...

This month. August.

This month. 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 us to do that. So that's real -- just moving to a system that allows us to monetize it the way the majority of advertisers want to do business now is tangible upside just because we haven't been able to participate in that marketplace. So that's the elaboration and obviously, more and more ad dollars and moving to connected television, too.

And then I guess just on 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 view M&A in the current environment [indiscernible]?

We view M&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&A has got to be not only highly accretive, it's got to be delevering. And Peter and I were actually talking about it this morning before the call. And any M&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&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. 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 got -- kind of got the same problem. And I mean we're substantially free cash flow positive to date. The thing that reducing debt, particularly reducing debt at the discount does is that 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 4.37x, right, 4.37. So let's say we were looking for something that delevers us a turn, right, so it gets us down to 3.3s. If the synergies are really there and it does that, then that's probably in the strike zone of something that you can finance. So the point is, I don't think we have to hoard cash for an M&A situation. The kind of M&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?

Yes, it does, Alfred.

[Operator Instructions] We have a question now from [ Marlene Fiero ] with BOA.

Alfred, Peter, Just wanted a quick sanity check on free cash flow, just kind of given the commentary you've given this quarter versus last quarter. So I think it kind of worked out to roughly around $40 million given kind of some one-offs related to PD-1. Cash tax is around $3 million. I think CapEx is around $9 million. So I just wanted to sanity check if kind of in the ballpark and not my inputs are correct.

Yes. I think, look, Alfred guided towards the lower end of the guidance. So you probably need to take -- if we were coming off of the midpoint, right, you'd probably take $5 million off of that number and be in the mid-30s. And then obviously, the other comment you made at the top of the call was we don't know where political is going to come out. It feels good, right? 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 million audit fee isn't coming back this year. So there's some incremental onetime remediation and audit costs. So I think we're -- of course somewhere in the first is depending on where political comes out, I would say.

Got it. But the cash taxes and CapEx, that's still roughly cash tax [indiscernible] of $3 million [indiscernible].

Yes. And the other lever that's in there -- or I say lever. The other thing that's in there is how much cash programming we spend versus what we're amortizing. At the moment, we have a $10 million 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.

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

I'm sorry, Marlene, I couldn't hear the question. It's a bit fading.

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

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

We have a question next from [ Kevin Chapman ] with PRV.

Yes. I would like you to expand, if you can, on the political advertising. I know you're very optimistic about it. Are you seeing interest on it with both parties? And [indiscernible] at historic levels when you look at that what you're seeing so far?

The answer is, yes, we're seeing interest from both parties. However, the ratio of what dems spend against our audience to what Rs spend is -- it's very, very, very wide, right? So an increase in interest from the Rs 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 dems spend between the campaigns and the PACs and all that because the primary audience that we have is obviously critical to Democratic success. We also got some significant exposure in some key markets. So we've got a big Atlanta position. Georgia has been our most robust political market over the last 2 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. 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 dems this year is going to be in digital. So in comparison to others -- other cycle, Peter, what was the big year that we had?

Yes, we've had 2, right? So the high-water mark was -- in 2020, we did -- in radio alone, we did $18.8 million in 2020. So that was the biggest. And then in '22, we did about $13 million in radio. So they were our 2 biggest.

Yes. And Peter, if you want to elaborate -- well, I ...

Yes. I mean I think you've covered it. But yes, there are -- it's not just a presidential race was the only point I was going to make. There were some races in the markets you mentioned, the North Carolina government 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. There are other things that we're participating in as well, yes. But obviously, that change on the Democratic side is going to help us in some of those markets that were probably may not be in play that now are like Georgia and Pennsylvania and where we're well positioned in.

Just one follow-up. Will you update as these bids come in?

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

As you get buys, 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.

[Operator Instructions] Going out, Ben Briggs from StoneX.

This is [ James Dobbin ] on for Ben Briggs. I was wondering, can you provide any clarity on what the revenue and EBITDA impact of TV One and CLEO joining the Xfinity line will be?

Actually, it's not the Xfinity lineup. It's TV Now (sic) [ NOW TV ], 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 of August?

In July.

We launched in July, and it's a growing service. 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.

[Operator Instructions] We have no more questions in queue.

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.

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. Use access code 1733886. International participants use 4 -- scratch that. International callers use 402-970-0847. Domestic callers use 866-207-1041, and again, that access code is 1733886. That does conclude your conference call for today. You may now disconnect.