Urban One, Inc.

Ladies and gentlemen, thank you for standing by, and welcome to Urban One's 2020 year-end earnings call. At this point, all the participant lines are in a listen-only mode. However, there will be an opportunity for your questions, and instructions will be given at that time. If you need any assistance during the call, please press star, then zero, and an operator will assist you offline. As a reminder, today's call has been recorded. I've been asked to begin this call with the following Safe Harbor statement. 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 March 18, 2021. 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 1 p.m. Eastern Time, March 18, 2021, until midnight, March 21, 2021. Callers may access the replay by calling 866-207-1041. International callers may dial direct 402-970-0847. The replay access code is 185-4247. 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. The replay will be made available on the website for seven days after the call. No other recordings or copies of this call are authorized or may be relied upon. I'll now turn the call over to Alfred C. Liggins, Chief Executive Officer of Urban One, who is joined by Peter D. Thompson, Chief Financial Officer. Please go ahead.

Thank you, Operator, and also with us today is our Chief Administrative Officer, Aaron Wishart, CFO for TB1, Jody Brewer, and our General Counsel, Christopher Simpson. The fourth quarter year end results are out, a bit anticlimactic given that we've released much of this information already in association with that we did. repeating a good story is always fun and the kind of year that we experienced given the pandemic and the depths of despair and the uncertainty to have rallied in the fourth quarter amid playoffs and cost cuts rallied in the fourth quarter to actually host a year that was greater than 2019 is really testimony to our amazing management team that really sucked it up, worked hard, endured all kinds of unprecedented work conditions, and I'm truly grateful. I know our investors are also appreciative. They showed that appreciation with support of our global refi that put us in a much better position extending out our maturity significantly and seeing our cost of capital also significantly so with that I am going to turn it over to Peter to go into the details of the numbers and then I'm going to add a little color afterwards about a new initiative that we're working on and then we'll take some questions Peter

Thanks, Alfred. So net revenue was up 7.3% year over year for the quarter ended December 31st, 2020 at approximately $113.5 million. This is sequentially up by 23.5% from third quarter revenue. The radio segment net revenue was down 3.2% year over year in the fourth quarter, but was up 37.5% from third quarter revenue. This is a significant sequential improvement from second quarter, which was down by 58.4% year over year, and the third quarter, which was down by 31.9% year over year. This includes approximately $11.5 million of net political advertising revenue. Excluding political, radio segment net revenue was down by 27.7% year over year. National ad sales for the fourth quarter were up by 29.1% year over year, while local ad sales were down 13.7%. Driven mostly by historically high political advertising revenue, our Atlanta, Charlotte, Philadelphia, and Raleigh clusters had the most significant revenue growth in the fourth quarter. Our Washington, D.C., Baltimore, Dallas, and Houston clusters had the most significant revenue declines As previously announced, as part of the station swap with Entercom and the station sale to Gateway, we exited the St. Louis market. We gave up WTEM in Washington, D.C., and WPHI in Philadelphia, and we gained three new stations in Charlotte. Looking at categories, all the categories except for government were down year over year for fourth quarter. Entertainment, travel, automotive, telecom, and retail had the most drastic declines, followed by financial health care services and food and beverage. First quarter 2021 pacings are currently down approximately 17%, excluding political revenues, and minus 20% with political. Excluding political by month, January was down 28%, February down 20%, and March is down 2.5%. Obviously, these are tough comps against pre-COVID months, and also those months included significant political revenues, but we have seen a significant improvement in March pacings over the past week. Net revenue for Reach Media was up by 28.1% in the fourth quarter, and adjusted EBITDA was up by approximately $2.5 million year-over-year, including $1.6 million of political revenue. Demand for network radio targeting African Americans was more robust than either local or national radio demand. Lower operating costs are the result of lower talent and compensation expense in the wake of Tom Joyner's retirement at the end of last year. Net revenues from our digital segment increased by 70.7% in Q4, driven by the strength in direct advertising sales at I1 Digital. including $1.1 million of political revenue, and as a result of increased demand from brands to engage with African-American audiences on digital platforms. This contributed to adjusted EBITDA growth of approximately $5.6 million year over year. We recognized approximately $45.6 million of revenue from our cable television segment during the quarter, an increase of 1.8%. Cable TV advertising was up 5.4%, excluding $1.2 million of political ad revenue, and it was up 11.4%, including political. Cable TV affiliate revenue was down by 5.6%, with rate increases of approximately $700,000, offset by churn of approximately $2.1 million. Cable subscribers as measured by Nielsen, finished fourth quarter 2020 at $51.4 million, down from $51.8 million at the end of the third quarter. We recorded approximately $1.6 million of cost method income, less administrative expenses for our investment in the MGM National Harbor property for the quarter, compared to $1.7 million for the same period last year. Operating expenses excluding depreciation, amortization, impairments, and stock-based compensation decreased by $8.1 million, or 9.9%, to approximately $74.1 million in the fourth quarter. TV programming content expenses were down by approximately $2.6 million. We also incurred savings of approximately $1 million in radio station special event expenses, $1.1 million in contract labor, talent costs, and consulting and professional fees, approximately $800,000 in reduced travel and office expenses, and about $400,000 in reduced or delayed marketing spend. Radio operating expenses were down 22.6%. The radio SG&A expense line was down by 23%, mostly from the cancellation of station events and discretionary marketing and promotion expenses. Radio programming and technical expenses were down 21.7%, mainly from lower employee and talent compensation and reduced music royalties. Reach operating expenses were down 3.8%. Programming and technical expenses were down 17.8%, driven by lower talent and employee compensation expense as a result of the post-Tom Joyner morning show programming restructure. Reach SG&A expenses were up 29.4%, mainly due to a non-recurring favorable true-up of event expenses in the fourth quarter of last year. Operating expenses in the digital segment were up by 4%, driven by higher cost of revenues and sales commissions. Cable TV expenses were down 7.8% year-over-year. Programming content expenses decreased approximately $2.6 million. Operating expenses in the corporate and elimination segment were up by 11.6%. driven by partial bonus accruals for 2020. For the fourth quarter, consolidated broadcast and digital operating income was approximately $51.9 million, up 51.3%. Consolidated adjusted EBITDA was $41.7 million, which was an increase of 51.3% year to year. All of our operating segments posted double-digit or better percentage growth in adjusted EBITDA for the quarter. Full year adjusted EBITDA was $138.0 million, in line with the previous guidance that we gave around the refinancing. Interest expense was approximately $18.7 million for the fourth quarter, compared to approximately $19.8 million for the same period in 2019. The company made cash interest payments of approximately $23.4 million on its outstanding debt in the quarter. Benefit from income taxes was approximately $13 million in the quarter, and the company received a net cash refund of $395,000. Net income was approximately $26.4 million, or 58 cents per share, compared to a net loss of approximately $7.9 million, or 18 cents per share in the fourth quarter of 2019. Capital expenditures were approximately $622,000 compared to $1.2 million last year, Net debt was approximately $781.8 million, compared to $138 million of LTM-reported adjusted EBITDA for a total net leverage ratio of 5.66 times. On January 25, 2021, we successfully refinanced all of the company's existing debt with cash on hand and an $825 million secure note at a rate of 7.38%, which is due February 1, 2028. This transaction simplifies the company's capital structure. It significantly extends our debt maturities, and it also reduces the interest expense. Under the company's 2021 ATM program, as of March 17, 2021, the company had issued and sold an aggregate of 420,439 Class A shares and received net proceeds of approximately $2.9 million. And from the inception of our ATM programs to date, we've sold a total of 4,745,541 Class A shares and received net proceeds of $26.9 million. Also, on February 19, 2021, the company closed On a new asset-backed credit facility through Bank of America, the new ABL facility provides for up to $50 million in revolving loan borrowings, and the line of credit is currently undrawn. And with that, I will hand back to Alfred.

Thank you, Peter. So as far as Q1 is concerned, we're seeing robust growth. Minimum pacing across Reach Media, TV One, and digital continues to actually very, very well. And local radio, as Peter had called out to you, is steadily improving. Something that is in the press, but I don't think specifically called out because it's been mostly local press and we haven't really made a – an official company announcement about it is on February 22nd, the company submitted for an RFP for the Richmond, Virginia CINO license. And we submitted a proposal as the primary owner of that license. We did it. in partnership with a gaming company called Peninsula Pacific that has significant gaming experience, owns casinos across the country, and also already operates in Virginia. They own the Racetrack Colonial Downs and the Associated Gaming Emporiums across the state. So they've got significant experience in Virginia and resources. We're, you know, We're excited about this opportunity. We've done well with our MGM National Harbor investment. We actually created this opportunity by, over a year ago, successfully lobbying the Virginia General Assembly to put language in their casino bill that would actually spur minority investment But most importantly, making sure that the Richmond license would be an open process where you could actually make a proposal before it was actually going to be a SHEP process with a preference that was going to go to a state-designated, a federally-designated Indian tribe. Um, that Indian tribe actually had already had locked in, um, uh, Sino license as a preferred operator for Norfolk, Virginia. And so we wanted an opportunity to go, um, for Richmond. Um, you can actually go to, uh, our website and it's called one. Oh, any Sino resort.com. And you can see all of information, all about the project, uh, several videos. explaining what we're proposing, the impact that it would have on the community, renderings, et cetera. The company would own 80-plus percent of this entity versus the 7 percent we own of MGM. We're partnering also with more than 50 local minority investors in the Richmond, Virginia market, which is very important. This is about making sure that the indigenous communities also benefit from economic development opportunities. And this would actually be the only black-owned casino in the entire country. Continue to look for new opportunities to create value and also deliver value. And just to give you an idea of how big the opportunity could be, this particular opportunity, should we be chosen, could rival our radio and our cable TV business in terms of EBITDA scale. So it would be significant and considerably further diversify the company in a significant value. So the timeline is we submitted the proposal on February 22nd. There's a process that's going on locally now and a selection committee put together by the city administration and the city council. And they're gonna choose a preferred casino operator by the beginning of June. It's a competitive process. There's six bids, including ours. We're competing against Bally's, Golden Nugget, the Cordish companies which compete with MGM in Maryland, and two Indian tribes. We think that we got a decent shot at this, and it's just something to be mindful for on the horizon. People who participated in our refi, probably largely familiar with our effort here, because we explained it, you know, a lot to it, and our refi was actually designed to give us the ability to participate in this RF. So, things are, you know, moving in the right direction in terms of the economic rebound, strong, strong, continued strong interest in our demographic. We had a conference call yesterday with, ahead of investment from one of the big ad-holding companies, them talking about their commitment to not only multicultural targeted but minority-owned media. So I think we're continuing to see tailwinds from that whole movement. And the company will continue to look to lever, pay down debt, and grow shareholder value. So operator, I'd like to open it up to audience for questions.

Certainly. And ladies and gentlemen, if you would like to ask a question, please press 1, then 0 on your telephone keypad. You may withdraw your question at any time by repeating the 1-0 command. If you're using a speakerphone, please pick up the handset before pressing the numbers. Once again, if you have a question, you may press 1, then 0 at this time. And first, go to the line of Todd Morgan with Jefferies. Please go ahead.

Thank you. Good morning, everyone, and thanks for all the detail. That's some exciting news with the proposal. But looking back at the media assets, I don't know if you can talk a little bit about any sense of the political advertising displacement of your traditional local and national advertising. Is there any way to think about kind of a normalized sort of traditional advertising environment? And I guess secondly, if possible, could you talk about the sort of the operating expense drivers for 2021? You obviously made a lot of changes this year with the pandemic. How much of that kind of continues into 21, or how are you thinking about that? Thank you.

Peter, do you want to add on? I mean, I think his question was, all right, you had a lot of political last year. What do you think normalized? know, ad revenue is going to be. I wasn't quite sure.

Yeah. Yeah. And then and then on the expense drivers. So maybe start with the expense drivers. We took a question on that, I think, on the last call and probably on the previous one. And I said then and I guess I'll repeat it. It's a tricky one to answer. But on a macro level, some of the expense savings that we made in 2020 are not really sustainable. particularly when it comes to programming and marketing at TV1. When the pandemic hit, we couldn't make any programming. And then as we kind of worked our way through it, we were producing less original content as a deliberate savings strategy to offset the downturn in the radio business. And so some of that programming expense needs to be layered back in and is being layered back in. And associated with that, last year we were able to either eliminate or defer a bunch of marketing expenses. So we're going to have to layer those back in too. I would say on the radio business, as I mentioned earlier, Q1's tough comps, right? January and February were pre-COVID last year, and there was a couple of million dollars of political in Q1 radio. So looking at the first quarter radio, I think we see that those savings are are coming through quite strongly in first quarter, and they need to, right, because revenue is not as robust given what I just mentioned. So you're going to have a balance of TV1 had a banner year, an amazing year, but we're going to have to spend more resource there. So you should expect to see the TV1 EBITDA come back down this year for those reasons. But then radio, you know, the sequential progression of radio leads us to believe that radio will grow this year, certainly ex-political. We'll keep our foot down on cost savings there. And the radio division should be able to produce more EBITDA this year than last year, which will in turn offset some of the investments that we're making in the TV business. I know that's not really giving you any numbers, but it's tricky. And it's also tricky when you talk about political displacement and what do we think that that implies for a normalized kind of ad run rate. You know, when we get into Q2, I think we'll have a better feel for that. We were down 60%, essentially, in radio in second quarter last year. And we just don't know, you know, how that's going to pan out. It's too early to say. And so I... I would say it's just very difficult to give a normalized ad rate, you know, in terms of run rate. We had, when we set the budget, thought about, well, we think that we're going to be roughly halfway between 2020 radio advertising levels and 2019 radio advertising levels, and that's how we set our budget, and that's kind of how we built our cost structure around that. And then finally, You know, on the previous earnings call, we'd taken similar questions and people were really looking for, well, how does 2021 shape up from an EBITDA standpoint? And at that point, we had some previous guidance out there in the, you know, kind of 130-ish range. And we said, you know, the budget will be set not to go backwards from that number. And I think that's still true and valid today as we look at the business.

great that's all very helpful thank you and uh exciting just to watch as the rfp process unfolds thank you thank you next question please we'll go to patrick wang with voya investments please go ahead yeah hi thank you good morning uh could you talk a little bit about this rfp and it sounds like the uh the investment could be in the excess of one billion dollars And how do you plan to finance that? Is that going to be in the bond collateral group?

Yeah.

Or is it going to be done through permitted investment?

I'm not sure where you got a billion dollars from, but all of the press announcements, the all-in spend on it is actually going to be half that, right? It'll be, call it, 500 million-ish. 517, I think, is the headline number that we proposed to the city. That includes everything, all in, construction costs, interest carry, the whole nine. And it's also staged over a period of time. What the company is ultimately committing to is backstopping a $75 million common equity investment. Peninsula is going to put in $25 million of preferred and hold no common equity. Between you know, other investors, local minority investors, et cetera, you know, I suspect the company might ultimately write a check for like $60 million, you know, just give or take, right? You know, so, you know, and we will do that, you know, with cash from our balance sheet, you know, of which we're stockpiling, we're going to build a lot of cash this year. We continue to have access to our ATM equity program, and we continue to take advantage of that and build cash that way. We've got proceeds from asset sales from our St. Louis asset sale coming in, which is another $8 million. We've got another of other potential smaller asset sales opportunity. And it will be project financed. So that's the bigger thing, I think, that you're asking. There will be a common equity commitment, a preferred equity commitment, and there will be a separate project financing that will probably be $385 million or so for the construction of the casino. So nowhere near as big a project as sort of you – just outlined and outside of our existing capital structure.

Right. And then the $75 million equity check will be coming out of the permitted investment?

Correct. They come out of our baskets. And again, I suspect it will be smaller than that, but that's just what we're committed to because we've already raised money from local investors, etc., But, yeah, to come out of a permitted investment basket. Our projections also, quite frankly, by year end, you know, show on us being able to make that investment in addition to still having leftover to continue to cover and pay down debt.

Right. Speaking of paying down debt, all your debt is the first thing secure note. Do you intend to buy bonds off the market, or how do you pay down debt?

We have a call rate. A, we could buy bonds in the open market, I believe, if we wanted to. I think the last I looked at yesterday, bonds were trading at like 101.75 or almost 102. We have a right to prepay up to 10% of the tranche each year at 103%. So in the event that it's cheaper to just buy it in the market, we'll do that. If not, we'll just pay at the $103 premium.

Just a quick question on the preferred partner, Peninsula. Is this part of the Boyd Gaming entity?

So it's the same management team, but the first Peninsula Gaming, Boyd bought for $1.2 or $1.4 billion. I don't remember. It was a big number. And that management team created another entity called P2E, Peninsula Entertainment 2. and they own gaming facilities in New York, Louisiana, Iowa, and what I described to you in Virginia. So it's the same people, just a different entity, and not Boyd.

Gotcha. Congrats. Thank you. Thank you.

Ladies and gentlemen, just a quick reminder, if you do have a question, please press 1, then 0 at this time. And allowing a few moments, Mr. Liggins, no further questions coming in.

Thank you, Operator, and thank you, everybody, for your attention and support. Sorry I'm a little under weather today, but we appreciate it. Please reach out to Peter or myself offline if you have any questions that you think about for the conference call. Operator, that's it. Thank you.

You're welcome. And, ladies and gentlemen, that does conclude your conference for today. Thank you. for your participation. You may now disconnect.