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spk03: materially from those indicated by its projections or forward-looking statements. This call will present information as of August 5, 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 DAP either during the course of this call or in the company's press release, which can be found on its website, www.urbanone.com. A replay of this conference will be made available from 12 p.m. Eastern Standard Time today, August 5, 2021, until 1159, August 8, 2021. Callers may access this replay by calling the following number, 1-866-207-1041, or dialing 402-970-0847 with the access code of 618-0679. Access to live audio and a replay of the conference will also be available on Urban One's corporate website at www.urbanone.com. The replay will be 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 will now turn the call over to Alfred C. Ligon, Chief Executive Officer of Urban One, who is joined by Peter Thompson, Chief Financial Officer. Mr. Liggins, please go ahead.
spk06: Thank you, Operator, and thank you, everybody, and welcome to our second quarter results conference call. Also joining Peter and I is Jody Drewer, our Chief Financial Officer at TV1, and also Christopher Simpson, our General Counsel at Urban One. We have issued our results in the press release, and so... Hopefully, you've seen the good news. We had an outstanding quarter, a great bounce off the lows from COVID, happy to get the vast majority of the COVID effect behind us, although, as we all know, we're not out of the woods yet with potential reinfections and you know, mask mandates, but, you know, we are, you know, starting to, you know, really feel like there's light at the end of the tunnel. And in addition, there's been significant interest in our platform, African American targeted, African American owned platforms. from major advertisers all across the spectrum, which is considerably positively impacting our business. It's my belief that this is systemic change and not a moment in time, and it's great to see. I'm really proud of our management team all the way at the radio market level and through the different divisions for coming through this pandemic on the other side stronger than we went into it. The team really handled themselves extraordinarily well in the toughest of times and is now really poised to take advantage of the positive momentum that the business has and the environment has and the economy is clipping along at a very nice pace. So got a lot of wind in our sails. To that end, we decided to update our year-end guidance. We have been kind of guiding people to us doing about $130 million of EBITDA this year. We're very comfortable at this point in time of increasing that guidance to the mid-130s. A lot of what It's going to happen. The rest of the year is going to depend on Q4. We had an exceptionally strong Q4 last year, so we now need to see how that's all going to play out. So we know it's going to play out better than we thought. We just don't know exactly where it's going to land. So there could be more good news on the horizons. I'm going to turn it over to Peter to go into the detail of the numbers, and then after that I'll give you all an update on our progress in the Richmond Casino gaming efforts. We're making a lot of good, steady progress, so I'll give you an update there, and then we'll go into Q&A. So, Peter?
spk02: Thanks, Alfred. So net revenue is up by 41.6% year-over-year, quarter ended June 30th, 2021, at approximately $107.6 million. Net revenue for the radio division was up 73% year-over-year in the second quarter. Local advertising sales for Q2 were up 108.7% year-over-year, while national ad sales were up 36.8% compared to last year. All of the major advertising categories were up from last year. Government and public was the largest category, driven by COVID-19 vaccine outreach, followed by services, which was driven by law firms coming back, then telecoms and retail, and automotive was up by 83.9%. Radio continues to be a high-margin platform, with 83% of the revenue increase falling to adjusted EBITDA which is an improvement of $12.4 million year-over-year. The outlook for radio in the third quarter is also strong. Q3 2021 is currently pacing up by over 40%, and we expect Q3 core radio to finish up over 20%. Net revenue for reach media was up by 50.2% in the second quarter, driven by increased advertiser demand for the African-American audience. Adjusted EBITDA was up by approximately $1.9 million year-over-year. Net revenues for our digital segment increased by $9 million in Q2. Continued demand for black-owned and targeted brands drove growth in direct advertising sales at I1 Digital. And adjusted EBITDA increased for the quarter by approximately $6.1 million year-over-year in our digital segment. We recognized approximately $48.5 million of revenue from our cable television segment during the quarter, an increase of 10.7%. Cable TV advertising revenue was up 21.3%. Increased demand drove about a 35% average unit rate increase. And Clio TV ad revenue was up by $1.2 million. However, ADU partially offset these gains. Cable TV affiliate revenue was up by 3.2%, with rate increases of approximately $1 million, partially offset by churn. Cable subscribers for TV1, as measured by Nielsen, finished Q2 2021 at 45.5 million, down from 49.4 million at the end of Q1, and Clio had 28.8 million Nielsen subs. The reduction in Nielsen subscribers was not reflective of the underlying trend in paying subscribers, which were down by just 1.9% for the same period. We recorded approximately $1.9 million cost method income, less administrative expenses for our investment in the MGM National Harbor property for the quarter, compared to only $40,000 last year, and $1.7 million in 2019. Operating expenses excluding depreciation, amortization, impairments, and stock-based compensation increased to approximately $67.2 million in Q2 compared to $53 million in Q2 of 2020 and $84.9 million in Q2 of 2019. Employee compensation expenses increased by approximately $3.4 million mainly due to the reversal of temporary salary cuts in 2020. Marketing and promotional spending increased by $4.8 million, mostly at TV One. Revenue variable expenses increased by $2.3 million. Outside services increased by $2.2 million. And program content amortization expense at the cable television segment increased by $1.3 million in the quarter. all signs of a healthier business environment. The increase in corporate selling general and administrative expense is primarily due to an increase in professional fees related to the Richmond gaming opportunity, as well as a non-cash charge for the CEO's TV1 award, both of which are added back to adjusted EBITDA. Radio operating expenses were up 8.7%. Employee compensation and commissions were up, while bad debt expense and severance expense were down. REACH operating expenses were up by $1.1 million, mainly due to higher employee and talent compensation and higher affiliate station compensation. Operating expenses in the digital segment were up by $3 million, against a revenue increase of $9 million, driven predominantly by variable expenses related to traffic acquisition costs and sales. Cable TV expenses were up 39% year-over-year. Programming content expense increased by approximately $1.3 million. Sales and marketing expense was up approximately $5 million, driven by increased media campaigns to support programming. And we were also catching up on some contractual marketing spend commitments that were deferred from 2020. Operating expenses in the corporate and elimination segment were up by $1.6 million, due to an increase in professional fees for corporate development activities related to the Richmond Casino Venture and a non-cast charge for the CEO's Employment Agreement Award. For the second quarter, consolidated broadcast and digital operating income was approximately $49.6 million, an increase of 64.3%. Consolidated adjusted EBITDA was $44.8 million, an increase of 82.4 percent year-to-year, and $5.1 million higher than the second quarter of 2019. All of our divisions are significantly ahead of our operating budget for the first six months of the year. Given this strong performance, we've raised our full-year adjusted EBITDA guidance to the mid-130 million, excluding casino chase costs Obviously, a resurgence of the COVID-19 pandemic and subsequent business closures could, of course, have an adverse impact to this guidance. Interest expense was approximately $15.9 million for the second quarter compared to approximately $18.4 million for the same period in 2020. The company made cash interest payments of approximately $172,000 in the quarter, as semiannual debt service payments are due on February 1st and August 1st. Provision for income taxes was approximately $6.1 million in the quarter, and the company paid cash taxes of $814,000. Net income was approximately $17.9 million, or 36 cents per share, compared to $1.4 million, or 3 cents per share, for the second quarter of 2020. Capital expenditures were approximately $1.6 million, compared to approximately $1.2 million last year, Company issued and sold 1,893,126 Class A shares during the quarter and received net proceeds of approximately $21.2 million. As of June 30th, 2021, total gross debt was $825 million. Ending unrestricted cash was $129.3 million. and net debt was approximately $695.7 million, compared to $156.2 million of LTM-reported adjusted EBITDA for a total net leverage ratio of 4.45 times. And with that, I'll hand back to Alfred.
spk06: Thank you, Peter. So, you know, again, really happy with those results. You know, leverage ratio continues to come down, you know, again, although... this mid-fours leverage ratio is is you know not where you know it's likely to stay given you know you know fourth quarter was so strong last year but it certainly is going to be a lot lower at the end of this year than where we were at at the end of q1 so you know super excited about that update on Richmond casino efforts we've passed all the voting hurdles through city council. City council voted to allow the city to sign the host community agreement. We've signed the host community agreement and that host community agreement has been submitted to the courts and the courts have to give an order to put the casino location and operator on the ballot for the November 2nd referendum. The courts have to, I believe, August 13th in order to do that. In order to even submit it to the courts, we had to get a pre-certification check done by the Virginia Lottery Board, and that obviously happened and got cleared before it went to the court. So we're now waiting for that court order so we can begin an official campaign for the referendum, although the company has started to do additional educational marketing about the casino project and its benefits that started this week in the city of Richmond. And we feel good about the support in the city for gaming. We've done polling. We've done polling all along. We did polling when we first started lobbying the General Assembly back in The first quarter of 2020, we did polling right after we submitted our RFP in March of 21. We did polling again in May of 21 to see how people were feeling about locations and gaming issues. right in the heat of the competitive battle. We did polling once. We got selected. Our site was selected. It saw improvements from the lows, if you will, during the heat of the battle. And then we've done some recent small polling as we were looking at testing our television commercial. All those signs have been very, very favorable, although you can't take anything for granted, and we're going to go hard on the referendum, but it's a good project for the city. No tax dollars, no taxpayer dollars being used, so significant revenues to the city and to the state, and obviously it's a great opportunity for Urban One and its stakeholders. So, you know, we've seen, you know, it's interesting people talk to us about the increase in our stock price all the time this year. And, you know, a lot of people note, you know, what an extraordinary rise. I tend to focus on the UONEK and not necessarily the Class A's because the Class A is UONEK. tend to trade at a significant premium and have been subject to wild swings based on a lot of retail interest and demand up and down. But at the end of the day, there's really no economic difference between the K shares and the UONE shares. But in any event, I kind of wanted to just make the comment that based on the results of the company and based on where we expect EBITDA to be, and particularly after we got our refinancing done, we always expected that the UONEK stock price should kind of be in this range where it's at just based on the media business alone. irrespective of what happens with the Richmond Casino opportunity. Just using a seven times multiple on our EBITDA and backing out our net debt and dividing by the number of outstanding shares gets you to a stock price in the neighborhood that – It's in, and you've got to factor in any sort of hidden value for our MGM interest. So I think I, in particular, have been waiting for the share price to kind of catch up to where our performance has been because Our leverage has been steadily coming down, and we've been issuing equity opportunistically to help get that leverage down, and our cash flow has been increasing. We continue to, when we think about it, use a reasonable multiple of about seven times, which is kind of in line with a lot of the radio sector, even though we're a much more diversified company. And so I get a lot of questions about the stock price. I've given sort of my analysis of how we value it before. And so I just kind of wanted to add in that the rise, although it may seem dramatic off of where it was in the high ones, again, you know, and a year ago is, you know, $1. I, you know, I believe that that was, you know, depressed because of COVID. And a lot's happened since then, including a very favorable refinancing, improved performance and deleveraging. So, you know, with that operator, I'd like to open the lines up for questions from anybody.
spk03: Ladies and gentlemen, if you have a question, please press 1 then 0. Press 1 then 0 if you have a question you'd like to ask. And we have several people queuing up to ask a question. We'll go to the line of Patrick Wang with Voya Investments. Please go ahead.
spk05: Yeah, hi. Thank you for the questions. Could you just follow up on your last comment on the shares? Could you just tell us the difference between A shares UNOE and the B shares UNOUK? Yeah.
spk06: So it's basically the UNOE shares have – they come with a vote. They get one vote, and – And the U-O-N-E-K shares are no vote shares. So early in the company, when we went public, we went public with the A shares that had a vote. The company has always been ultimately controlled by super vote shares that are held by myself and my mother, the chairman, that don't trade, that have 10 to 1 voting power. So ultimately, the decisions on board seats and major decisions are controlled by those shares, and they don't trade. And over time, and this happened way back when we, probably during the first year after we went public in 99, we stopped issuing the O and E shares. and did a stock dividend and created the no vote shares, UONEK, and we started issuing those going forward. And we did that for years. All the liquidity was in the UONEK. Most of the liquidity is there now. And the shares basically started to trade on top of each other in terms of value. However, in June of last year, we got sort of swept up into this whole retail interest, Wall Street Bets, Robinhood, and the shares of UONE spiked. And they did because at that point in time, there's only like a million and a half shares outstanding. And so they were easy to move if retail got involved. on it, and you've seen it, you know, happen a lot. At the end, there's, you know, there's really no economic difference, you know, between the two, and they have the, you know, and O&E has the one vote, but, you know, the one vote doesn't get you much, you know, and so that's really the difference, and so, you know, the company's been opportunistic. You've seen our filings. I mean, if those UONE shares are trading, you know, at a premium or a high level, we're taking advantage of it and we'll sell equity into it and use it to deliver, which is good for shareholders. And that's what we've been doing. But that's the explanation of the difference between the two.
spk05: And you sold one point, how many shares for $21 million during the quarter of A shares?
spk02: Yeah, call it $1.9 million. The exact number was $1,893,126. So just a whisker under $1.9 million. So are you done with the ATM program of A shares? We have and we plan to keep.
spk05: We plan to keep ATMs up or shares registered for both classes because we don't know.
spk06: which one's going to, you know, make the most sense, you know, for us to monetize at any given time. So I think if there's one of the things that I've learned during, you know, this particular financial crisis is to always be prepared. So you should expect us to always have, you know, a shelf up or an ATM up to be able to take advantage of any opportunity to, you know, create shareholder value by – by selling equity. So that's our plan to always be in a position to act.
spk05: Right. I guess the investor equity side have trouble assigning a value for the casino project. So maybe you can just go into the details of economics of the ownership that I know you're putting 75 million cash equity.
spk06: Yeah, no, that's changed. And I think Peter Chris, you know, in our filings, we've changed from this, you know, have we, you know, have we notified people that the economics have changed?
spk04: Yeah, we believe in both the registration statement that went out and the 8K at the time.
spk06: Yeah. So, look, the economics of the project have changed, what we needed to pay the city in order to get the deal changed. went up and the cost of the project went up. It's now a $562 million, $63 million project. Originally it was $485 million. Essentially the company's investment was going to be about $75 million. Now the company is going to be on the on the hook for is it yeah it's it's 110 million dollars but about 10 million of that will probably come from the local investors although you know those local investors aren't contractually committed at this point in time to have to put up that you know that 10 million dollars they basically have signed pledges you know to do it and so as we come to closing on the financing but I suspect that they will fill out that $10 million easily and then some maybe. So the company is now going to be on the hook for about $100 million of investment. We will end up owning somewhere between 85-90% of the entity. And we have not given numbers officially out for it, but I have said, and I've had conversations on these conference calls with people who have kind of backed into it, that the casino, it's public knowledge based on what we submitted in the RFP and what the state of Virginia has said they thought that, you know, they think the top-line revenue for the Richmond Casino is going to be in the $300 million range. The city's got a favorable tax rate. Excuse me, the state's got a favorable tax rate. And so, you know, projections... you know, are going to, you know, kind of pencil out, you know, to EBITDA that could be, you know, very similar to or better than our radio and our TV divisions. So, you know, you could expect, you know, that EBITDA, you know, to, you know, be, you know, the range could be anywhere from, you know, $150 North of $100 million, $112 million, misprojections could be $70 million. But I think our radio division's EBITDA is in the 70s, and last year TV1 did about $100 million. So my statement's been that this casino opportunity will create another division. And this doesn't include our MGM division. interest, another division that would rival the EBITDA. It'll have greater revenue, but it'll rival the EBITDA of both of our existing divisions. So you're referring to EBITDA R. Albeit these casino investments are valued at a much higher multiple than either radio or cable TV as well.
spk05: Right, so you're referring to EBITDA R I'm sorry? At the casino, EBDR before rent. So I assume the project finance will be an additional debt within that silo.
spk06: Correct, correct. The project will be project finance. It will have its own debt capital stack, and we are providing 100-ish of equity funds Our gaming partner is providing another $25 to $35 million of preferred equity. They won't own any common stock in the entity. And the local investors are going to put up about $10 million.
spk05: Right. But the PTE is 25 to 35 preferred. What's the equity interest do they have?
spk06: That's what I just said. I just said they're just going to have a straight – single-digit coupon and they don't own any common equity in the entity whatsoever.
spk05: Are they going to be running the operation?
spk06: That's correct. Again, this is in all of our filings. They are our gaming partner. They are our operating and development partner. So we're working with them to develop it and they will have a management agreement to operate the casino on our behalf.
spk05: Gotcha. Thank you very much.
spk06: You're welcome.
spk03: Our next question comes in line of Todd Morgan with Jeffries. Please go ahead. And pardon me, just a moment. Mr. Morgan, your line is open.
spk01: Great. Thank you. Um, uh, thanks for all the detail as usual. Just turning to radio, I know, Alfred, in the past you've been pretty frank about plans for radio, kind of just being opportunistic. I don't know if there's any different sort of environment as you see it going forward now as to the ability or the opportunity set for swaps or creative smaller deals or anything else like that. Has the environment evolved at all in the last several months?
spk06: I don't think the opportunity set's changed. I mean, the fact of the matter is... the owners have basically been the same and not many assets have changed hands. I think what is changing is a better economic environment in general and for radio. In particular, audio continues to have a resurgence and be hot. I believe that radio is a medium of albeit we got hit the hardest in the pandemic because our advertisers, you know, were the ones that were hit the hardest and then people were at home and not riding around in cars. You know, prior to that, people kind of felt like the digital disruption had already happened to radio. I've seen some, you know, really good numbers coming, you know, out of the other radio operators, Town Square, Cuban List's numbers, their guidance just went up, you know, their guidance for they're projecting for 22 to be back to daggone near where they were in 19. Look, that's a long way out, so who the hell knows what happens at the end of 22, but they're feeling bullish about it, and they raise their guidance for 21. So I think that's all good for radio, but at the end of the day, the regulatory environment hasn't changed. And radio's always been about a mismatch of price expectation and what people were willing to pay and where everybody's leverage was. Those have always been the stumbling blocks, if you will. Nobody who owns a radio station that's not a public company wants to believe that their radio station is really only worth seven times cash flow. They don't want to believe that because that's not... what the old days used to believe, right? And then people used to really look at stick value, right? Well, people's view of stick value has certainly changed in an environment where top-line radio revenue is not growing at 7% a year. But I definitely believe there's much more interest and demand for audio and radio from advertisers. We're seeing it, talking to people. I believe that the business is definitely stabilized. I'm bullish about it. We still plan to be opportunistic. The media business is crazy because there's challenges, threats, disruption in every part of it. I'm just happy that we've got a bet in all these different sectors that you know, and that diversification is helping us. And when people ask us what our strategy, you know, is, you know, it's to, you know, it's to be opportunistic and create value in each of these silos, whether it's radio, cable, TV, gaming, or digital.
spk01: No, that's very helpful. Just a quick follow-up on the cost side. One area, programming technical You know, you guys have done a great job kind of holding those costs down, certainly through the pandemic, but compared to where it was in the past, it's dramatically different. As you go forward, is that a number – I mean, is this kind of a run rate or at least sort of generic percentage kind of a good way to think about things? And in particular, I'm thinking more on the TV side. Do you need to spend more on programming going forward kind of thing?
spk06: Look, you know, we probably – we are spending more on programming. I wouldn't say – look, if you ask the TV programming people, they'd tell you, yeah, we need to spend more on programming. But it's also going to depend on what happens to our distribution, right? And so you don't want to spend a ton more on programming. And if you don't actually have the distribution or the eyeballs to monetize it – then it's not a great investment. However, we have been looking at ways to increase the distribution of TV1 and Clio, our new network. Clio's got a lot of upside. And so I do feel optimistic about new distribution opportunities for both of those networks. And therefore, I think you'll see... continued programming investments. We do not have a direct-to-consumer offering at this point in time. So when you hear about Viacom's programming investment or Disney's programming investment, a lot of those programming investments are are driven to fuel their DTC offerings, right? And so we're not in that boat at this point in time. So I wouldn't get nervous about our programming spend. I can tell you that the way that we've always run the company is we – and particularly when you have high leverage, you have to think about this. And our leverage is coming down. But we've always thought about where do we need to be in order to be successful as opposed to, hey, we've got to make this big programming investment and we're hoping to hit the ball out of the park. If we've got leverage that's in the four times range, you know, then, yeah, you could spend an extra whatever the number is, you know, $50 million in a video programming strategy, you know, and hope that it works out, right? But you can't do that when you're leveraged seven times, right? You know, and so, you know, we've been working our way down, getting ourselves into a position, and we're getting close, you know. But today, you know, there's no huge programming – uptake in terms of spend on the horizon. But you've got to create quality programming that people want to see in order to get eyeballs, and you've got to figure out how to get that distributed. So I'm not sitting here telling you to never expect us to make more investments in programming. I'm just saying that at this point in time they're moderate. They're increasing, but they're moderate.
spk01: That's all very helpful. So thanks, and good luck with this.
spk06: Thank you.
spk03: There are no other questions.
spk06: Great. Thank you, operator. Thank you, everybody, for joining the call. We appreciate your support, and we'll talk to you offline if you need anything else, and we'll talk to you again next quarter. Thank you.
spk03: Ladies and gentlemen, that does conclude our conference for today. Thank you again for using the AT&T Teleconference Center. You may now disconnect. We're sorry. Your conference is ending now. Please hang up.
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