Urban One, Inc.

Ladies and gentlemen, thank you for standing by and welcome to the Urban One 2021 third quarter earnings call. As a reminder, this conference is being recorded. We will begin the 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 November 4th, 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 and 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 will be made available from 12 p.m. Eastern Standard Time today, November 4, 2021, until 11.59 p.m. November 8, 2021. Callers may access the replay by calling 1-866-207-1041 or 402-970-0847 with the access code 816-8582. Access to live audio and a replay of the conference will also be available on Urban One's corporate website, again 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 will now turn the call over to Alfred C. Liggins, Chief Executive Officer of Urban One, who is joined by Peter Thompson, Chief Financial Officer. Mr. Liggins, please go ahead.

Thank you very much, Operator, and welcome everybody to our third quarter results conference call. Also with Peter and I today are Christopher Simpson, our general counsel, Karen Wishart, our chief administrative officer, and Jody Drewer, our chief financial officer at TV1. We issued our results, and I think the big thing that people are probably going to want to talk about in the Q&A is you know, the results of the Richmond gaming referendum, which we narrowly lost, you know, 51-49. And, you know, it definitely was a close vote and very unfortunate given what we thought the significant benefits to the city were. I'm happy to take questions on it and discuss it. Everybody wants to know what next. It's 24 hours old and so we're in the process of evaluating our options as is I think the city too. We feel like it's a great project and an opportunity. In any event, we do plan to continue to pursue this opportunity in the Commonwealth in Virginia. We just got to figure out exactly how we're going to go about it. So we're going to be happy to take questions on it. But again, the information is 24 hours old for us, so we really are just kind of digesting it all. But that aside, the company's base business, is doing exceptionally well, and our results speak to that. In fact, we're going to increase our guidance for full-year EBITDA from the mid-130s to 140 to 145. We feel really good about the demand that's out there for our audience, even though the economy's got its challenges with supply chains and auto and et cetera, there still is a decent recovery trajectory happening and we feel like we're going to continue into this recovery mode. with also the wind in our sails surrounded by our particular business into 2022. So with that, I'm going to turn it over to Peter and let him take you through the detail of the numbers.

Thank you, Alfred. Consolidated adjusted EBITDA was $42.7 million for the quarter, up 8% or $3.2 million from 2020. and it was up $4.1 million from 2019. We've been seeing increased demand from major advertisers for our digital network and cable inventory, which is reflected in our segment results. Compared to pre-pandemic 2019, adjusted EBITDA for our radio plus reach plus digital segments is up 12.7%, and our cable TV segment is up 9.5%. Our year-to-date adjusted EBITDA is also favorable to 2019, and we expect the same to be true for the full year. And as Alfred said, we've raised our full-year adjusted EBITDA guidance to between $140 and $145 million. Net revenue for the quarter was up by 21.3% year-over-year at approximately $111.5 million. Net revenue for the radio stations, radio divisions, pardon me, was up 21.8% year over year in the third quarter. Local advertising sales for Q3 were up 32.4% year over year, while national ad sales were down 15.7% compared to last year, or down 4% excluding political. Most of the major advertising categories were up from last year, except for government and public spending, which was down 29% due to non-recurring political and census spending, but that was still the largest category. Entertainment category saw the biggest increase from last year, up 240%, driven by casinos, concerts, and events. The other categories, services, retail, healthcare, financial, food and beverage, and automotive all saw double-digit increases compared to Q3 last year, and telecommunications was the only category that was down from last year. Excluding political, fourth quarter 2021 is currently pacing up in the high teens percentage range. Fourth quarter political revenue in 2020 was $15.4 million, versus a forecast for fourth quarter 2021 of approximately $1.5 million. So our revenue comps for the fourth quarter are going to be impacted by approximately $13.9 million is what we forecast. Net revenue for reach media was up by 28.2% in the third quarter, driven by increased advertiser demand for network audio. And adjusted EBITDA there was up by $410,000 year over year. Net revenues for our digital segment increased by $6.5 million in the third quarter. Continued demand for black-owned and targeted brands drove the growth in direct advertising sales at I-1 Digital. Adjusted EBITDA increased for the quarter by approximately $3.8 million year-over-year and by $4.7 million compared to 2019. Our digital platform is becoming a significant driver of revenue and EBITDA growth for the company. And with the higher multiples applied to digital businesses, we believe there's now significant value being created by those digital assets. We recognized approximately $48.8 million of revenue from our cable television segment during the quarter, an increase of 9.2%. Cable TV advertising revenue was up 17.2%, excluding political. Increased demand drove a higher average unit rate, And Clio TV advertising revenue was also up by $1.1 million. Cable TV affiliate revenue was up by 6%, driven by rate increases and converting free subs to paying subs, which was partially offset by churn. Cable subscribers for TV1, as measured by Nielsen, finished third quarter 2021 at $42.3 million, down from $45.5 million at the end of Q2 2021. And Clio had 34.6 million Nielsen subscribers. We recorded approximately $2.1 million of cost method income, less administrative expenses for our investment in the MGM National Harbor property for the quarter, compared to $1.6 million last year, and $1.7 million in 2019. So the MGM business is doing exceptionally well. Operating expenses excluding depreciation, amortization, impairments, and stock-based compensation increased to approximately $74.6 million in the third quarter compared to $55.6 million in Q3 of 2020 and $75.5 million in the third quarter of 2019. Employee compensation expenses increased by approximately $4.7 million due to the reversal of temporary salary cuts that were in effect last year and also staff salary increases given at the beginning of third quarter of this year following several years of pay freezes. Program content amortization at cable television segment increased by $2.7 million. Revenue variable expenses increased by $2.4 million. Marketing and promotional spending increased by $2.2 million, mostly at TV One. Outside services increased by $2 million. and event expenses increased by $1.6 million. The increase in corporate selling and general administrative expenses is primarily due to $2.5 million of expenses related to the Richmond gaming opportunity, which are added back to adjusted EBITDA. Radio operating expenses were up $5.1 million against a revenue increase of $6.9 million. Employee compensation and commissions were up as well as expenses to support special events. Our Atlanta stations hosted a successful 25th anniversary birthday bash in July. REACH operating expenses were up by $1.6 million against a revenue increase of $2.2 million, mainly due to higher employee and talent compensation and higher affiliate station costs. Operating expenses in the digital segment were up by $2.7 million, against a revenue increase of $6.5 million. That was driven predominantly by variable expenses related to traffic acquisition and sales costs. Cable TV expenses were up $6.2 million year over year. Programming content expense increased by approximately $2.7 million. Sales and marketing expenses were up by approximately $2.4 million, driven by increased media campaigns to support programming. Operating expenses in the corporate and elimination segment were up by $3.3 million, which included the Richmond Casino Chase costs of $2.5 million. For the third quarter, consolidated broadcast and digital operating income was approximately $49.1 million, an increase of 11.2%. Interest expense was approximately $15.9 million for the third quarter compared to approximately $18.2 million for the same period in 2020, and the company made cash interest payments of approximately $31.6 million in the quarter since semi-annual debt service payments are due February 1st and August 1st. The provision for income taxes was approximately $6.3 million in the quarter, and the company did not pay any cash taxes. Net income was approximately $13.9 million, or 27 cents per share, compared to a net loss of $12.8 million, or 29 cents per share for the third quarter of 2020. Capital expenditures were approximately $1.7 million compared to $526,000 last year. The company repurchased 6,715 shares of Class D common stock for $39,000. It executed a stock best repurchase of 3,285 shares of Class D common stock for $18,000. As of September 30th, 2021, total gross debt was $825 million. Ending unrestricted cash balance was $111.4 million, and therefore net debt was approximately $713.6 million, compared to $159.4 million of LTM-adjusted EBITDA for a total net leverage ratio of 4.48 times. We continue to generate strong free cash flow. Our expected year-end cash balance is now in the $160 million range, reducing net debt to approximately $665 million. As we think about net leverage moving forward, we're targeting to get below four times within the next 18 months. And ultimately, we see a path to get below three times based on the free cash flow generation from our core businesses. And with that, I'll hand back to Alan.

Thank you. As you have heard, the company is in good shape from a leverage standpoint. We've come a long way. Many of you have been following the company know to a place where it's manageable and we continue to look to reduce our leverage. We, as it relates to what are we gonna do with all our cash, our hope had been that we were gonna invest it in the Richmond Casino opportunity. We are focused on figuring out what our options are for Plan B, et cetera, but we're also exploring a number of other opportunities with the company. I've stated before, I do believe that the radio business is ripe for some sort of consolidation opportunity, particularly in market consolidation. Our digital business has become real and robust and has a high level of demand from advertisers. So, we're looking at that space and we continue to figure out what our cable television growth options are. We don't have a direct-to-consumer play at this point in time. We've been spending a lot of our time and energy, obviously, in the Richmond casino effort. we'll take a step back, figure out what the next moves are in these places. We've got a lot of cash that is netting down our debt. One option to consider also in the future is the prepayment of some of our debt. That's not off the table. And so, you know, we're in the middle of going through just starting our budget process and going through our budget process now. I am focused on us coming up with our strategic plan during this period of time going into the next year. So I feel very bummed out about the casino boat. However, I feel great about where the company is and how our team has operated. We've had an extraordinary amount of support from our team for all of our efforts, including the Richmond effort. And all the while we're pursuing that, our guys and women have just been hitting on all cylinders to make sure that we perform as we still exist in a choppy environment. So operator, with that, I'd like to open the line up for questions from the folks that have them.

Certainly. Ladies and gentlemen, if you wish 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. We ask 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, we'll line up Patrick Wang with Voya Investments. Please go ahead.

Yeah, hi. Could you maybe just talk about what the voters' concerns were when they voted down the referendum? What was the reason behind that?

Yeah, I mean, people have myriads of concerns. When you talk about gaming referendums, everybody has their reasons why they're either for them or against them. A lot of the... A lot of the reasons and the themes are consistent across, you know, these referendums across the country. So, you know, on the four side, people want jobs. They want tax revenue for the city. Some people actually, you know, want, you know, the casino gaming experience, you know, something new and exciting to do in their cities. On the against, some people are just against gambling. They feel that it's got a moral tinge to it. Despite the fact that it's legal across the country and the Supreme Court said it's okay for sports betting, some people have issues with it. Some people think casinos bring crime, which is not the case. They're probably the most secure business institutions second to banks in the country. In this referendum, some people distrust government, don't want to give whatever their local municipality is you know, a win or pass in any way because they don't think that, you know, they don't believe the tax revenue number because they don't think that the government is going to, you know, spend it, you know, in the right way. You know, I think that anybody who's politically, you know, plugged in, you know, was aware of the Virginia gubernatorial race and what's going on in Virginia, you know, as a bellwether, I think that we got caught you know, in a significant, you know, Republican surge, conservative surge, you know, as played out, you know, in the governor's race and basically a sweep of all the high-level offices, you know, so governor, lieutenant governor – I don't know if they called the Attorney General's race yet or not, but it looked like it was heading that direction. And a flip of the Virginia House of Delegates, conservative voters, conservative Republican voters, generally are not favorable to gaming referendums. And there was absolutely a surge of more Republican conservative voters in the city of Richmond, in the city of Richmond election. you know, everybody's got their reasons. Those are kind of some of the highlights, you know, uh, as to, you know, why people would be against it, you know, but in the end, uh, there were probably 8,000 new voters that came into the Virginia, uh, into the Richmond city electorate. And, um, uh, and that was a lot of new voters. Uh, and, uh, and most of those, um, came to vote for the Republican ticket. And, uh, and probably 70% of those voted no against the casino referendum. Our polling showed that's how Republicans felt about it anyway.

So the casino will not be built ever in Richmond? What will happen to the proposal, to the... that you are able to, there will be a casino in Virginia, a new casino.

Well, there's already four that have been approved in different locales, right? So Norfolk, Portsmouth, Danville, and Portsmouth. Norfolk, Portsmouth, Danville, and Bristol. So those have approved. Those referendums all passed mid-'60s, high-'60s. I think Bristol passed in the 70s. The Richmond electorate is very different. The Richmond electorate does have a number of these conservative Republicans in there, but that's about 15%. It surged to 20-plus percent in this election. but it also has a progressive liberal part to it, and they were anti-casino as well. And you can see how the progressive liberal politics plays out on the national stage. So as to what happens, it's going to be – I mean, I do think people – the city's probably figuring out their options now, You know, they probably have, you know, an option to go at it again, but they got to decide, you know, if they, you know, if they want to do that. You know, I believe there'll be a casino in Central Virginia, but that's going to be an act by the General Assembly, you know, which is changing over. So there's a lot of moving pieces as to what happens next, right? And again, it's 24 hours old, so I don't think anybody in the city knows what do we do next. Actually, I know nobody in the city knows because I'm talking to them. And we're really just starting to think about what our options are for other locations, et cetera. And again, that's ultimately... You know, something that has to be, you know, discussed with the General Assembly.

So at what point that you decide to use that cash to pay down the first lien? I mean, is there a timeline that you can point to?

We hadn't, I mean, you know, we hadn't thought through that, right? You know, and so, but look, I brought it up. in my comments for a reason. There's no sense for us sitting around holding on to almost $200 million of cash. We like reporting leverage ratios, but we realize that it's a net of cash leverage ratio. We were stockpiling cash for this particular opportunity. Now, by the way, we're going to continue to build cash, right? So even if we do decide, you know, by the end of the year or, you know, I think we've got a window or something like that that we've got to, you know, do it by in early or mid-January, even if we pay down, you know, some debt, it doesn't preclude us from continuing to pursue this or other things because, you know, we have a revolver. You know, we're going to be building cash. I think that we'll be prudent stewards of the resources here and do the right thing to make sure the company stays healthy and increase our free cash flow. All right.

Another question regarding your comment on in-market consolidation. I'm sorry.

I think I answered your question. Hopefully that, you know, we've got to make a decision by the beginning or mid-January, basically whatever the anniversary was on the issuance of our first lien debt.

Got it. Got it. Thanks for that. So I'll ask just regarding your comment on the in-market consolidation radio. What are you thinking in terms of either buying or selling? in the radio segment.

We're open to buying, selling, or swapping. I know that this is a better business when you've got scale inside markets. And because our company has historically been focused on urban formats and urban audiences, Uh, we, we, we're, we're not at the full compliment of stations in most of our markets. Um, and so, you know, there's a, you know, there are MNA opportunities, you know, um, uh, in market, you know, from that perspective. Uh, it all depends on what you end up paying, you know, for those opportunities. You know, you want to, you want to make sure at the end of the day, you're, you know, you're creating value and reducing leverage, right? You know, and, uh, And so we continue to look at these things and count them as options. But if they're not at a price that makes sense, we won't do them. We'll just take our cash and pay down our existing debt and keep it moving.

Right, right. Has your radio revenue level surpassed 2019? Or you comment that the patient's in high teens, but that's overall advertising for the company, right?

Yeah, no, we have not surpassed 2019 levels. But you really got to think about business as because we segment it. We have the radio segment, we have the reach segment, and we have the digital segment. And when you look at our competitors, they are putting all of those together. And that's why I called out in my script that when you look at radio plus reach plus digital, that we're actually ahead of 2019. And so, yeah, even in fourth quarter, the revenues, when you combine those three elements, will actually be ahead. But if you just looked at our straight radio segment that doesn't have the digital growth in it, then you're not going to be surpassing 2019 levels. Does that make sense?

Yes, yes. And the political, I know it's a little bit too early to look at 2022, but I think at a peak level you'll have $20 million political in 2020. Do you think 2022 will be at the same level or slightly better?

Based on what we just saw down in Virginia, we think that's going to bode well for next year's political revenues for us.

Yeah, Virginia, I think there was $150 million spent on that race, the governor's race.

Great. Thank you.

Thank you.

And ladies and gentlemen, just a quick reminder, if you do have a question, please press 1, then 0 at this time. And next, we have a line of Sundar Varad with Lord Abbott. Please go ahead.

Yeah, hi. I just wanted to follow up on that consolidation question. And, you know, if you're looking to be the consolidator, you know, you talked about any transaction having to, you know, make sense from a valuation perspective. How does that put it in perspective of your leverage reduction goals? Would you want these transactions to also be delevering or would you mind taking leverage up if the transaction is compelling enough?

Yeah, I mean, I think I just said that we'd like it to be de-levering in addition to creating value. I guess that does start to present a challenge once you, you know, your leverage falls below a certain level, right? You know, and so I got to give that some more thought, you know, but generally speaking, You know, we haven't done, we haven't really been in a position to, you know, done transactions that, you know, brought on leverage. You know, I mean, you know, not that long ago our leverage was a couple turns higher, right? You know, so, you know, during leveraging transactions when you're leveraged at close to seven times, it's difficult. You know, and obviously it doesn't make sense. So I just got to think about it more. We like sitting in this position now. But look, if we had done – if the casino opportunity had passed, we were going to send $100 million out the door into – basically a project-financed startup with a two-year build-out time. Our leverage was going to go up. But I think that the marketplace would say, that's a good thing because you're going to create a lot of value, right? So that's kind of how we would look at any transaction. The radio business is different because – And then the reason I talked about in market is because, you know, in market you can really kind of quantify what your immediate cost synergies are, and you can rely less if not at all on revenue synergies, which is a good place to be, right? You know, let revenue synergies, which are hard to quantify and may or may not happen, let those be the gravy, right? But if you've got cost synergies in market acquisition, it at least gives you a floor of profitability that you could expect, and then you can figure out how you want to price that, right? And that's what you're willing to pay.

Got it. And just going back to your comment about making a decision in January, you know, It doesn't look like there's another, you know, you said plan B, but it doesn't seem like anything is out there at this point. And if you're still kind of evaluating your M&A strategy, doesn't it just make sense to, you know, pay it down sooner rather than later? Because, you know, it doesn't seem like there's another alternative use for that cash right away.

I don't know. Again, like I said, it's 24 hours old. One of the things I love about people as soon as they get news, they're like, okay, what are we going to do next? I don't know. I'm still kind of thinking through that. In any event, whether we had made the casino investment or not, we were going to contemplate whether or not it made sense to pay down any of our debt, you know, by the January timeline. We negotiated for that feature in our debt for a reason because we wanted to have the ability to de-lever. And so, you know, I don't think it makes a difference whether or not we decide to do it, you know, by November 15th or whether or not we do it by January 2nd, right? You know, I think we need to spend the time figuring out what's the right path for the company And again, we got a lot of fresh information that we're dealing with and we need some time to focus and strategize.

Thank you.

But to your point, if we don't pay down debt by January, we can't do it again for another year. So that's the reason when I got asked the timeline question, I I specifically talked about that particular date.

Got it.

Yeah, it would be a lost opportunity for a year.

Our next question is from Matthew Sanchafer with Musero. Please go ahead.

Hi. Morning, guys.

Morning.

I was wondering, could you remind us of the seasonality in the business? Just doing the math here, obviously there's a big sequential step down in EBITDA in the fourth quarter embedded in the guidance. And I'm just wondering, it's obviously been a chaotic 18 months.

Yeah, so Matthew, I called out the political numbers. That's the biggest driver, right? So fourth quarter last year, we had 15.4 million in politicals. We're only anticipating about a million and a half, so we're missing almost $14 million of political revenues comping against last year, hence the step down in Q4.

I guess my question is more about third quarter versus fourth quarter.

Compared to what? Sorry, to Q2? I'm sorry.

third quarter uh adjusted even though 42 and a half million versus fourth quarter embedded in the guidance seems like it's somewhere in the mid to high 20s i guess i'm trying to understand what the seasonality is there right okay so um it's not all about seasonality so you know

Cable TV advertising is more about how much advertising and programming write-off we're going to take. So give me a second. Just looking at fourth quarter. So, I mean, look, let's go back to 2019. That might give you a better take on it. If we look pre-pandemic fourth quarter in 2019, we did $27.5 million of EBITDA. We did $45 million of revenue in radio, $14.7 million of EBITDA. We just did $1.2 million. Digital was kind of breaking. We lost half a million dollars. Cable TV did $16.9 million of adjusted EBITDA on $44.8 million of revenue. So... You had $106 million of revenue and $27.5 million of adjusted EBITDA. And if we just go to the bottom line, I think we're saying we're going to be kind of in a similar range on the bottom line in fourth quarter this year compared to fourth quarter of last year. And so, yes, there is a seasonal – there was a seasonal drop-off in 2019. And we're going to –

What is that seasonal fluctuation on the expenses on the cable TV side? Because that appears to be a big part of the effect, if you look at 2019.

It's around a couple of things. Programming write-off, marketing spend, and then whether we are or are not paying bonuses, depending on performance. They're probably the three expense drivers.

Okay, thank you.

Thanks, Matthew.

And Mr. Liggins, we have no further questions in queue.

Okay, great. Thank you, operator. And thank you, everybody, for tuning in. And as I always offer, Peter and I are available offline to answer any follow-up questions that anybody might have. Thank you very much.

Ladies and gentlemen, that does conclude your conference for today. Thank you for your participation. You may now disconnect.