Urban One, Inc.

Ladies and gentlemen, thank you for standing by. 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 January 11, 2024. Please note that Urban One disclaims any duty to update any forward-looking statements made in the presentation. In this call, Urban One may also discuss some non-GAAP financial measures in talking about its performance. These measures will be reconciled to GAAP either during the course of this call or in the company's press release, which can be found on its website at www.urbanone.com. A replay of this conference call will be available from 1 p.m. Eastern Time, January 11, 2024, until 1159 p.m., January 18, 2024. Callers may access the replay by calling 866-207-1041, or international callers may dial direct 402-970-0847. The replay access code is 231-8685. 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. Also joining Peter and I are our Chief Administrative Officer, Karen Wishart, our General Counsel, Chris Simpson, and the Chief Financial Officer for TV1, Jody Dror. We have released our third quarter results, did so before the end of the year, so that's been out there, and we're obviously doing the conference call now. A little bit of news that's already out there. I think we kind of guided as to where we were going to be for the year end. Third quarter for us, as well as the rest of the radio sector, an awful quarter. Ours wasn't any different. Fourth quarter, We have huge political, you know, that's kind of, you know, same station, you know, ex-political kind of in line with third quarter, you know, as well. But, yeah, net-net, we still, you know, are affirming our year-end guidance of 125 to almost, you know, 128. You know, we're still on top of that, comfortable, you know, with that as we, you know, finish tying out the the year-end results. Good news going into 24 in the radio sector, Q1 radio pacings are substantially better, bolstered a lot by improving local. Currently for us, we're pacing low single digits. Today it bounces around, but today it's minus one for Q1. We'll see how that looks and holds, but we're optimistic as we go into 24 for a bottoming, if you will, in radio advertising performance and an upswing due to political. So with that, I'm going to turn it over to Peter, let him get into the detail of the numbers, and then we'll come back for Q&A.

Thank you, Alfred. Net revenue was down by 2.8% year-over-year for the quarter end of September 30th, 2023, at approximately $117.8 million. Net revenue for the radio segment was $40.2 million, a decrease of 0.6% year-over-year. And we were down by 14.4% same-station, minus 12% same-station ex-political, which, as Alfred said, is broadly in line with what we discussed on our last earnings call. According to Miller Kaplan, our local ad sales were down 8.4% against the market that was down 5.7% for the quarter, and our national ad sales were down 7% against the market that was down 10.5%. Q4 23 radio segment is expected to be down approximately 14% all in. On the same station basis, Q4 is expected to be down approximately 23%, and then ex-political down about 13%, so broadly kind of in line with Q3 same-station. And Q1 pacing on a same-station basis, currently down very low single digits. Local is pacing plus 4%. National is down about 20%. Net revenue for reach media. was $11.2 million in the third quarter, up 10.8% over prior year, and adjusted EBITDA was $3.4 million, down 6.7% for the quarter. Net revenues for our digital segment decreased by 3% in Q3, to $20.4 million. Direct sales were down while local radio, streaming, and podcast revenues were all up. Adjusted EBITDA was $7.4 million, down 2.9% year over year. We recognized approximately $46.8 million of revenue from our cable television segment during the quarter, decreased 7.6%. Cable TV advertising revenue was down 5.9%, where we had a favorable rate impact of $1.1 million, unfavorable volume impact of $1.2 million, half a million unfavorable audience deficiency units, and an $850,000 reclass of VOD revenue to our digital segment related to CTV. Cable TV affiliate revenue was down by 9.3%, with favorable rate increases of $1.2 million being offset by $3.4 million of net churn. Cable subscribers for TV1, as measured by Nielsen, finished Q3 2023 at $44 million, compared to 45.1 million at the end of Q2. And Clio TV had 41.4 million meals and subs. Operating expenses, excluding depreciation and amortization, stock-based compensation and impairments of long-lived assets, increased to approximately $84.5 million for the quarter, up 5.3%. approximately $80.2 million incurred for the comparable period in 2022. Radio operating expenses were up 14.1%, or $3.9 million, and the Houston radio acquisition, which was effective August 1st, 2023, that added approximately $2.2 million to expense, and also the Indianapolis radio acquisition, which we did back in September of 2022, added approximately $2 million of incremental expense. On the same station basis, sales commission expenses were down and event expenses were down from last year for the quarter due to the time and difference between the two of the largest radio events for the company. REACH operating expenses were up by 21.4%. That was driven by increased REACH net station compensation expense given the addition of four new networks as well as event expenses and talent compensation. Operating expenses in the digital segment were down 3%, driven predominantly by variable sales expenses tied to lower direct advertising revenues. Cable TV expenses were down 4.4% year-over-year. Content amortization expenses up by $1.7 million, driven by an increase of $2.2 million for original programming. And that increases offset slightly by a reduction in promotional media spend, actually $3.1 million, considering that we had a greater number of premier hours that we promoted in prior year. Operating expenses in the corporate elimination segment were up by approximately $520,000, primarily as a result of higher third-party consulting and audit expenses. Consolidated adjusted EBITDA. was $34.1 million for the quarter, down 23%. For the third quarter, consolidated broadcast and digital operating income was approximately $43.8 million, a decrease of 13.9%. Interest expense decreased to approximately $14 million for Q3, down $15.3 million last year due to lower overall debt balances. The company made cash interest payments of approximately $26.9 million in the quarter, and the next semiannual debt service payment is due in Q1. An $85.4 million impairment of goodwill in long live assets was recorded across 10 of our 13 radio markets. The benefit from income taxes was approximately $16.8 million for the quarter. The company paid cash income taxes in the amount of approximately $1.6 million. Net loss was approximately $54.4 million, or $1.14 per share, compared to net income of $3.5 million, or $0.07 per share, for the third quarter of 2022. Capital expenditures were approximately $2.5 million for the quarter. And as of September 30, 2023, total gross debt was $725 million, ending unrestricted cash was $195.7 million, resulting in net debt of approximately $529.3 million, which we compare to $133.3 million of LTM reported adjusted EBITDA for a total net leverage ratio of 3.97 times. Pro forma for the Indianapolis and Houston radio acquisitions, total net leverage was 3.93 times. And with that, I'll come back to you.

Thank you, Peter. Operator, could you open it up to the callers for Q&A?

Okay. Ladies and gentlemen, if you'd like to ask a question, please press 1 and 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, please press 1 and 0 at this time. And one moment, please, for your first question. Your first question comes from the line of Hal Steiner from BNP Paribas. Please go ahead.

Hey, guys. Congratulations on the quarter and coming in line with expectations. Great to see the affirmation of the guide for the year. I guess one thing that really stuck out to me was I thought the Q1 pacings for radio were much stronger than I would have expected. You speak to local being stronger, which is fantastic. Is that really just a reflection of the economy improving and people are stepping back in and being willing to advertise again. And I guess my little two-parter on that is just sort of, you know, for the year, with sort of that pacing, do you think – should we be thinking that overall radio revenue should be up year over year with political?

The answer to that is yes. And look, I would – I definitely feel like we've gone through an ad recession, 23. I mean, we felt it. I mean, you could really see it national, right? Advertisers pulling back. We saw it across all of our businesses. So not one of them was not affected from television to radio to digital. So just because there's an ad recession doesn't necessarily mean there is indeed, a macroeconomic recession. So the recession that never materializes or a soft landing or whatever you want to call it, You know, so like I'm not, you know, I'm not good at sort of, you know, predicting, you know, why economic advertising trends move in one direction, you know, or another. But it, you know, definitely does feel like, you know, you kind of bottomed out in the third and fourth quarter. I'm hearing it from other operators that business in Q1 looks better. And, you know, I think the tenor, you know, around, you know, the country, you know, seems much more, you know, optimistic in terms of whether or not, you know, we're going to have a soft landing. So, you know, my guess is, yeah, yeah, things are, you know, bottoming out and are improving. And that's indicative of, you know, what's happening with our radio patients right now. Again, that's my... opinion, but that's what it feels like. I had a conversation with one of our sales managers who handles national political stuff for us. We're starting to see more political avails coming in. There's not a ton of political money in that Q1 number right now. I thought it was maybe $150,000 or something like that. But we're starting to see it heat up. So hopefully, again, that's a good sign for things to come for the year.

Yeah, great. Absolutely. I mean, that is fantastic. I mean, the data itself is certainly irrefutable. So anyway, I guess moving on to my next question is, I mean, with all of that, I guess I would think then that – Would it be right to – and I know you're not putting out any guidance yet for 2024, but sort of with that backdrop, I mean, certainly there probably will still be some sub-pressure on TV, but overall, I mean, wouldn't you guys sort of maybe be disappointed at this point if EBITDA was flat for the year in 2024? I would think that there would probably be some room for a little bit of improvement year over year.

We're not there yet, but you said – You called out the single biggest headwind, and that's the pay TV ecosystem and churn and double-digit sub-decline. Those are difficult to deal with. We're not prepared to give a 24 number yet. We're still working through budgets. Honestly, seeing this momentum in the radio business is helpful to our mindset, but we're not ready to plant a stake in the ground as to where we're going to learn.

That makes sense, Alfred. That's definitely prudent, and I appreciate the conservatism, but respect the strong performance. And I'll just say one last question, and I guess I'll go back into the queue. And thank you guys, of course, for the time. But I guess I just wanted to say, so for the debt paid out, we have been talking about that before. And I think on the last call you had said you're pretty much restricted from doing anything until the last 10Q was posted. I mean, so now that that's done, have you started to buy back any of the bonds yet in the open market in 4Q or 1Q? No. Just asking that. And if there's any update on the sizing of the buyback or what you think you'll target.

The answer is yes, we are active in the market now.

That's great. Any update on the overall sizing of what you think you could be targeting?

I think I've said on the call before that that, you know, I think we talked about it, right? We did. We tend to look at our bond buybacks in kind of $25 million tranches. I think we got an authorization from our board for $75 million just because we kind of liked the round number of 650 in terms of face amount of debt to go down to next And so, you know, that's what we did. We've got that authorization. We kind of, you know, look at, you know, $25 million tranches and then kind of pause and see where we're at. And, you know, that's been our, you know, that's kind of been our game plan, you know, and that's what we're doing.

Great. Thank you guys so much for the questions and congratulations again. You're welcome. Thanks.

If there are any additional questions, please press 1 then 0. And you have a question from the line of Brad Kern, a private investor. Please go ahead.

Thanks for taking my call. First of all, I wanted to see if there was any update on the way you're thinking about capital deployment in terms of strategic investments. And I don't know if you can maybe share what you're seeing out there in terms of opportunities that you're vetting for other use of the cash on investments.

Yeah, there's no strategic investment decisions currently being vetted at the company right now. We've got nothing on the table. We're not exploring, we're not working on an acquisition. I know we still are active in trying to figure out future gaming opportunities, but there is nothing actionable today. And so the number one use of capital right now is what I just described to the last caller's question. And that's it. Really boring. Delevering and operating and strategically trying to figure out what to do with these businesses. Where do we take our cable television business? What are our next distribution opportunities? That stuff's changing so fast. I feel good that we're sitting back and we have breathing room to figure out where the puck's going and try to skate there and continue to you know, work on de-levering at the same time, so.

Okay, that's helpful. And then there was some news in December about around Paramount potentially selling Intoxicel PET to, I think they're a management-led buyout team, and you had said on a previous call that you were around.

Yeah.

Kind of the hoot.

I saw that news report. I don't know how real it is. I think a number of people kind of reached out when they saw that news report and said, hey, we're still interested. And it looks like Paramount didn't really respond to that. They seem like they're working on some sort of larger project. you know, solution, you know, so I don't know anymore. I mean, you know, we were, you know, we were there with a bid that was, you know, well lower than the $3 billion that they had, you know, kind of said that they were looking, you know, for. We, you know, we had a great private equity partner, you know, lined up and, and ready to go and we had a couple banks lined up and ready to underwrite it so our bid was real. So I say in all that that they know that we were there and we were credible and we could be actionable. So it would be surprising to me if they, and again this is just my opinion, you know, go out and do kind of like a, you know, a one-off deal without at least calling people that they, you know, that were credible there to create some tension. If they were going to decide to sell for a lower number than three and come down to kind of where everybody was at, you know, it would be surprising if we didn't get a call to re-engage, you know, and we haven't, you know. And so I don't know what's going on there, you know. But it feels like they got bigger fish to fry, right? I think I just saw something either yesterday or the day before about Skydance and Redbird trying to take out national amusements. Seems like a larger discussion than whether or not you're going to spin out BET.

Absolutely. All right, thanks for the time.

Sure.

If there are any additional questions, please press 1 then 0. And at this time, there are no further questions. Great. Well, thank you, everybody.

We look forward to speaking with you again on our year-end conference call.

Ladies and gentlemen, that does conclude your conference for today. Thank you for your participation and for using AT&T Teleconference. You may now disconnect.