Urban One [UONEK] Conference call transcript for 2022 q3
2022-11-05 22:58:15
Fiscal: 2022 q3
Operator: 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 report 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 November 3rd, 2022. 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.urban1.com. A replay of this conference call will be available from 12:00 p.m. Eastern time today until 11:59 p.m., November 6, 2022. Callers may access the replay by calling 866-207-1041, international callers may dial direct 402-970-0847. The replay access code is 1399699. Access to live audio and a replay of the conference will also be available on Urban One's corporate website at www.urban1.com. The replay will be made available on the website for 7 days after the call. No other recordings or copies of this call are authorized or may be relied upon. I'll now turn the call over to Alfred Liggins, Chief Executive Officer of Urban One, who is joined by Peter Thompson, Chief Financial Officer. Thank you.
Alfred Liggins: Thank you very much, operator. Also joining me are Jody Drewer, who's the Chief Financial Officer for TV One; our General Counsel, Christopher Simpson and our Chief Administrative Officer, Karen Wishart. Thank you for joining folks. You've gotten our press release for our third quarter results. Very happy with the quarter, almost 9% net revenue growth, increase of adjusted EBITDA in the face of increasing headwinds. We thought this was a very solid performance. Even more importantly, our Q4 pacings continue to be strong, particularly relative to some of the other reports that we've seen coming from folks that have already reported our radio business, including political is going very well into Q4, political what we've done in 2018, we're expecting double digit revenue growth in the radio segment. We are experiencing very, very robust growth in our digital segment, this year that's also continuing from Q3 and into Q4. With that, we are going to update our full-year guidance. I think that we originally had at $145 million to $150 million and then we're going to do probably better than the top end of that range of $150 million. It's probably impossible to not update now that we have about 2 months left in the year. And so we feel pretty comfortable that our full-year EBITDA would end up in the mid 160s this year. There are a number of things that happen in the fourth quarter bonus accruals, true-up for TV One, programming amortization that will affect that. But even net of all that, we feel that it's safe that will be in the mid-160s. We had a great robust upfront for TV One and CLEO. And again, our radio pacings are doing better than many of our other brother. I think that we owe that to continued demand for our target audience and the move towards more diversity and inclusion in the advertising sector. We've had a long history, decades of building a brand that is serving the African-American community and that brand recognition is really proving to be very fruitful during this time period. A update on the Richmond Casino, it's -- if you've been following in the press, it's a battle. It will be a battle in the upcoming general assembly session starting in January as to whether the casino opportunity stays in Richmond, where we have been the chosen developer or if it moves to Petersburg, Petersburg has announced that they're working with the Cordish Companies, which is -- which was the runner-up in the Richmond process. The legislature is tricky and it will be highly political. I don't really have a good answer as to ultimately what happens. My position on the casino opportunity has been muted in previous conference calls, I think investors to really think of that as something that could be a positive, obviously, if it happens, but speculative because again, it's going to be all about politics and not about where the best place for this casino resort operation to go, but we continue to fight the good fight. We're most focused on the continued trajectory of the business. We're continuing to delever, we've been buying back our bonds in the open market, which is actually great. And when we first put this facility in place, we were going to have to pay 103 in order to take out bonds before the first call date and now with pretty much everything in the market trade at a discount, it creates an advantageous delevering opportunity for the company since we're sitting on a fair amount of cash and we've been taking advantage of that. So with that, I'm going to turn it over to Peter, so he can go through the numbers in more detail and then we'll come back for Q&A.
Peter Thompson: Thank you, Alfred. So the third quarter was another strong quarter for us with both consolidated net revenue and adjusted EBITDA up year-over-year and also significantly above pre-pandemic levels. Consolidated adjusted EBITDA was $44.3 million for the quarter, up from $42.7 million in 2021 and up from $38.7 million in pre-pandemic 2019. Net revenue was up by 8.9% year-over-year for the quarter, approximately $121.4 million. Net revenue for the Radio segment increased by 4.8% year-over-year and on a same-station basis by 1.4%. According to Miller Kaplan, our local advertising sales were down 1.7% against a market that was down 2.1%. National ad sales were up 19.7% against the market that was up 0.8% and that was helped by our corporate sales effort and the continuing demand for our target audience. While we outperformed the spot markets, particularly in national sales, we like the market in the NTR category, as a result of disappointing performances on events in Atlanta and Raleigh and that also impacted margins overall of the Radio division. Midterm election spending started in Q3 in earnest and we booked $2.7 million in net political ad revenue, of which $1.8 million was at radio compared to $711,000 last year. That meant that government and public was our biggest advertising category for the quarter, up 6.7% and Healthcare was up 35.5%, Auto was up strongly 57.3% and telecommunications was up 14.5% year-over-year, while services, entertainment, retail, financial, food and beverage and travel and transportation were all down in the quarter. Fourth quarter revenue, radio division is currently pacing up approximately 26.5%, including political and about 10.9% excluding political. $5.6 million of net political ad revenue is on the books for the fourth quarter, bringing the annual total to approximately $9.5 million, which is above the $6.6 million net that we did in 2018. On a same station basis, fourth quarter is pacing up 0.1%, excluding political, with national pacing up 4.1% and local pacing down 2.8%. Net revenue for Reach Media was $10.1 million in the third quarter, up 1.3% over prior year. Adjusted EBITDA was $3.7 million, up by 0.9% for the quarter. Fourth quarter ad sales are holding steady. However, we don't have a cruise event in the fourth quarter this year and that event generated approximately $7 million in revenue and $400,000 in profit for the fourth quarter last year, which is not returning this year, but we will have a cruise in 2023. Net revenues for our Digital segment increased by 40.1% to $21 million. The direct sales team continued to build on the momentum that began in the first half '22. The sharp revenue growth was really a result of the continued demand from advertisers to spend with black-owned and certified diversity publishers, also mid-term political revenue, as well as brands remaining committed to drive deeper engagement and reach with black audiences. Adjusted EBITDA increased for the quarter by $2.2 million, up 40.7%. Demand continues to be strong and fourth quarter digital revenue is expected to exceed our Q3 number. We recognized approximately $50.8 million of revenue from our cable television segment during the quarter, an increase of 4%. Cable TV advertising revenue was up 16.7% with a favorable rate volume impact of $3.4 million, driven by higher average unit rates, $0.4 million of free video on demand, $1 million increase for CLEO TV and then there was $1.3 million unfavorable or deficiency unit burn-off. Cable TV affiliate revenue was down by 7.6%, with favorable rate increases of $1.2 million, offset by $2.2 million of net churn and $1 million of increased loan support. Cable subscribers for TV One as measured by Nielsen finished third quarter at $43.6 million compared to $45 million at the end of Q2 and CLEO TV at $41.3 million Nielsen subs. We recorded approximately $2.1 million of cost method income for our investment in the MGM National Harbor property for the quarter, the same as last year. Operating expenses excluding depreciation, amortization impairments and stock-based compensation increased to approximately $80.5 million in Q3 compared to $74.6 million in Q3 of 2021. Employee compensation increased by approximately $1.9 million. Revenue variable expenses increased by $2.4 million. Travel, entertainment and office expenses increased by $525,000 and outside services, including contract talent and consulting fees increased by $1.2 million. Marketing promotional and event spending increased by $3.3 million. However, our corporate development cost decreased by $2.1 million and Cable TV content amortization decreased by $1.1 million. About $1 million of increased expense for the Indianapolis Radio acquisition is included in these totals. Radio operating expenses were up 9%. The Indianapolis cluster added $1 million of that increase. Event expenses were up in Cleveland and Raleigh, expenses relating to the revenue increase such as sales, commissions and bonuses were up as well and there were some increases in outside services and employee compensation and benefits. Reach operating expenses were up by 2%, talent costs drove the increase, but expenses remained mostly flat otherwise at Reach. Operating expenses in the Digital segment were up 39.7%, driven predominantly by variable expenses related to traffic acquisition, sales and integrated marketing. Cable TV expenses were up 4.8% year-over-year, content amortization expense was down $1.1 million, while employee compensation benefits were up by $855,000. And sales and marketing spend was up by $1.4 million. Operating expenses in the Corporate/elimination segment were down by $1.5 million due to a $2.1 million decrease in corporate development costs relating to the Richmond Casino venture last year. Employee compensation and recruiting fees increased slightly. For the third quarter, consolidated broadcast and digital operating income was approximately $50.8 million, an increase of 3.5%. During the quarter, the company repurchased $25 million of its 2028 notes at an average price of approximately 91.1% par, resulting in a net gain on retirement of debt of approximately $1.8 million. An additional $18,271 million of the 28 notes were repurchased in the fourth quarter at an average price of approximately 85.75%, bringing total gross debt to a balance of $756.7 million, down from $825 million at the start of the year. Interest expense decreased to approximately $15.3 million for the third quarter. The company made cash interest payments of approximately $29.9 million in the quarter, including the accrued interest on the retired notes. Next, semiannual debt service payment is due in Q1 '23. A non-cash impairment charge of $14.5 million was recorded for our Atlanta, Charlotte, Dallas, Houston, Philadelphia, Raleigh and Richmond radio market, broadcasting licenses. And that was really triggered by the overall market performance in these markets rather than our specific Radio One performance. The provision for income taxes was approximately $3.4 million for the quarter and the company paid cash tax -- income taxes in the amount of $247,000. Net income was approximately $4.2 million or $0.09 per share compared to $13.9 million or $0.27 per share for the third quarter of 2021. Capital expenditures were approximately $1.4 million. Company repurchased shares of Class D common stock in the amount of $439,000 and executed a stock vest tax repurchase of 325,872 shares of Class D common stock in the amount of $1.4 million. As of September 30, 2022, total gross debt was $775 million. Our ending unrestricted cash balance was $105.1 million, resulting in net debt of approximately $669.9 million, which we compare to $166.3 million of LTM reported adjusted EBITDA for a total net leverage ratio of 4.03x and pro forma for the Indianapolis acquisition, total net leverage was 3.9x. And with that, I'll hand back to Alfred.
Alfred Liggins: Thank you, Peter. Operator, could you open the lines up for questions?
Operator: [Operator Instructions]. Our first question comes from Ben Briggs with StoneX Financial Inc.
Operator: Our next question comes from Aaron Watts with Deutsche Bank.
Operator: And we do have a follow-up from Ben Briggs with StoneX Financial Inc.
Operator: [Operator Instructions]. And we have a question from Bradd Kern with Atalaya.
Operator: [Operator Instructions]. And we have a question from George Michaels with Barclays.
Operator: [Operator Instructions]. And there are no further questions.
Alfred Liggins: Thank you, operator. Thank you, everyone. We'll talk to you offline if you have any additional questions and we'll see you next quarter.
Operator: Thank you. Ladies and gentlemen, that does conclude your conference for today. Thank you for your participation and for using AT&T Event Conferencing Service. You may now disconnect.
