Urban One, Inc.

Welcome to Urban One's first quarter conference call. 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, refer to in the 10-K, 10-Q, 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 June 10 2024 please note that urban one disclaims any duty to update any forward looking statements made in this 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 the conference will be available from 5.30 p.m. Eastern Time 6-10-24 until 11-59 p.m. 6-17-24. Callers may access the replay by calling 866-207-1041. International is 402-970-0847. Callers may dial direct. The replay access code is 1372 800. 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.

Thank you very much, Operator, and also joining Peter and I, as usual, Jody Drewer, our Chief Financial Officer at TV One in Clio, Chris Simpson, our General Counsel at and Karen Wishart, who is our EBP administration. And thank you. We haven't, you know, done a call in a while because we've, you know, been going through a long and arduous audit, you know, with a new audit firm. You know, but as you have seen from the filings and the press release, you know, we are finally completed. with the year end 2023 audit and also our first quarter 2024 audit results as well. And so, you know, we're officially back in compliance with NASDAQ and so, you know, very happy about that. And in time to, you know, keep our eyes, you know, moving forward in terms of, you know, of filings to come. And you saw from the year-end results, we were right in our range. The guidance that we've been giving all along came in at $128.4 million of the year-end adjusted EBITDA. Something that we've been, yeah, asked on a consistent basis and we haven't, yeah, been in a position to do or haven't been willing to do at that point in time is talk about what we think 2024 is going to look like. But, you know, at almost the six-month mark, we want to provide 2024 EBITDA guidance And we expect, depending on how robust political is, to do 110 million to 120 million of EBITDA in the 2024 calendar year. So with that, you can triangulate where you think we're going to be in terms of leverage ratios, et cetera. The political landscape is yet to play out. We're hopeful about it, but it's starting now. For us, the primary season wasn't as robust as we would have liked it to be, but we think that the presidential landscape will be quite robust, and we're having really good conversations. So with that, I will turn it over to Peter to get into the specifics of the numbers. We've got more than usual because we're dealing with two reporting periods.

So, Peter? Thank you, Alfred. Just a couple of clarifications. We got audited results for 23. Q1 would technically be unaudited, although it's been reviewed by EY and signed off. It's not actually audited until I finish out the annual audit. And then the guidance number that Alfred referred to would be adjusted EBITDA in the 110, 120 range. And with that, consolidated net revenue was down by 9.2% year-over-year for quarter-ended December 31st, 2023 at approximately $120.3 million. Net revenue for the radio segment was $41.7 million, decrease of 12.4% year-over-year by 23% on the same station basis. According to Miller Kaplan, our local ad sales were down 6.8% against a market that was down 7.2%. National ad sales were down 37.2% against a market down 24.5%. And political advertising was the largest driver of that decline in Q4, down $6.6 million in the radio division, or 76% year over year, which was expected. That is not unexpected. Net revenue for the REIT segment was $10.8 million in the fourth quarter, down 9.7% from the prior year. Adjusted EBITDA was $3.4 million, up 10.6% for the quarter. Net revenues for the digital segment decreased by 12.5% in Q4 to $21.2 million. Direct national sales were down, while local radio, streaming, and podcast revenue were all up. Adjusted EBITDA was $3.5%. $5 million, which was up 82%. We recognized approximately $47.3 million of revenue from our cable television segment during the quarter, a decrease of 4.9%. Cable TV advertising revenue was up 1.9%. An updated rate card reflecting current delivery drove the overall rate down, but increased volume along with additional units applied towards ADU helped mitigate the rate impact. Cable TV affiliate revenue was down by 13.4%. The favorable rate increases offset by net churn. Cable subscribers to TV1, as measured by Nielsen, finished Q4 23 at 42.9 million dollars, sorry, 42.9 million subs compared to 44.0 million at the end of Q3. And Clio TV had 41 0.4 million Nielsen subs. Moving on to the Q1 revenues consolidated, net revenue was down by 5% year over year at approximately $104.4 million. Net revenue for the radio segment was $36.4 million, an increase of 3.3% year over year, but a decrease of 7.9% on a same station basis. According to Miller Kaplan, our local ad sales were down 1.9%, against the market that was down 7.9%. And our national ad sales were down 18% against a market that was down 4.3%. Net revenue for the REIT segment was $8.5 million the first quarter, down 22.4% from the prior year. Just the debit dial was $1.8 million, down 47.7% for the quarter. Net revenues for the digital segment decreased by 7.3% for Q1, to $14 million. Direct national sales were down, while CTV, local radio, streaming, and podcast revenues were all up for the quarter. Just to leave it there, it was $3 million, down 20.1%. We recognized approximately $46.2 million of revenue from our cable television segment during the quarter, decreased to 6.9%. Cable TV advertising revenue was down 1.8%. An updated rate card reflecting current delivery drove average unit rates down. The increased volume and increased urban want honors sponsorships helped mitigate the rate impact. Cable T affiliate revenue was down by 12.8%, with favorable rate increases of $1 million offset by negative $4 million of churn. Cable subscribers for TV1, as measured by Nielsen, finished Q1 2024 at 40.7 million compared to 42.9 million at the end of Q4. And Clio TV had 38.5 million Nielsen Sons. Turn into operating expenses for Q4. Operating expenses excluding depreciation and amortization, stock-based compensation, and impairment of long-lived assets increased to approximately $105.6 million for the quarter, up 1.6% from the prior year. Radio operating expenses were up 6.5%, or $2.1 million. The Houston radio acquisition, which was effective August 1, 2023, added approximately $3.1 million of expense. So if you normalize for that, expenses were actually down. On a same station basis, variable expenses relative to revenue such as sales commission, bonus compensation, bad debt, and national rep fees were all down. REACH operating expenses were down by 15.1%, driven by reduced variable expenses tied to revenue such as talent compensation, sales commissions, and bonus compensation. Operating expenses in the digital segment were down 17.2%. driven predominantly by variable traffic acquisition and sales expenses tied to lower direct advertising revenue. Cable TV expenses were down 4.5% year-over-year. Content amortization was up by $1.5 million, driven by an increase of $600,000 for 2023 originals and $1 million for pre-2023 write-offs related to programming tax credits. That was non-cash and that was added back to adjusted EBITDA. This increase was offset by a reduction in promotional media spend of $1.7 million due to the timing of return in series. $900,000 driven by reduced bonuses and $200,000 of reduced travel and expenses in the quarter. Operating expenses in corporate elimination segments were up approximately $5.9 million primarily as a result of a higher non-cash expense for the CEO's TV1 award and higher third-party consulting and audit expenses. For adjusted EBITDA, we added back $2.8 million for the non-cash TV1 award expense and $2.6 million for non-recurring professional fees related to the audit expenses. and $1.7 million for prior period balance sheet adjustments, including a write-off for computer hardware losses. For the first quarter, operating expenses excluded in depreciation, amortization, stock-based comp, and impairment of long-lived assets increased to approximately $88.3 million, up 11.6% from approximately $79.1 million incurred in the first quarter of 2023. Radio operating expenses were up 13.1%, or $3.5 million. The Houston radio acquisition added approximately $3.2 million of expense, so the bulk of the expense increase related to the Houston acquisition. Reach operating expenses were down 10.9%, driven by decreased affiliate station compensation expense and lower programming talent costs. Operating expenses in the digital segment were down 3.1%, driven predominantly by lower traffic acquisition costs, which related to lower direct revenues. Cable TV expenses were down 1.5% year-over-year. Content amortization expense was down $2.1 million, driven by an increase of $800,000 for originals, which was incremental hours, offset by $2.9 million of acquisitions gone out of license. A million dollars increase in marketing and promotion expense was due to timing of campaigns. And there was a half million dollar increase in travel to the Urban One Honors event. Operating expenses in corporate elimination segment up by approximately $7.3 million, primarily as a result of higher third-party professional fees. We had a $5 million increase non-recurring professional fee related to the prolonged audit and remediation of controls, which was added back to adjusted EBITDA. Consolidated adjusted EBITDA was $26.4 million for the fourth quarter, down 30.5%. Consolidated broadcast and digital operating income was approximately $38 million, a decrease of 19.6%. Consolidated adjusted EBITDA was $21.5 million for the first quarter, down 28.9%. Consolidated broadcast and digital operating income was approximately $32 million, a decrease of 18.5%. Interest income for Q4 increased to $2.5 million compared to half a million dollars in the prior year. Interest expense decreased to approximately $14.2 million for the fourth quarter, down from $14.6 million in the prior year. due to the lower overall debt balances, and the company made cash interest payments of approximately $121,000 in the quarter. Interest income increased to $2 million in the first quarter from $300,000 last year. Interest expense decreased to approximately $13 million for Q1, down from $14.1 million last year. Due to the lower overall debt balances, the company made cash interest payments of approximately $26.8 million in the quarter. And during the quarter, the company repurchased $75 million of its 2028 notes at an average price of 88.3% par. The next semiannual debt service payment is due on August 1st. A $5 million impairment charge was recorded in Q4, primarily for our Washington, D.C. radio market, and there were no impairments recorded in first quarter 2024. Provision for income taxes was approximately $2.7 million for the fourth quarter, and the company paid cash income taxes in the amount of $337,000. Provision for income taxes was approximately $2.5 million for the first quarter, and the company paid cash taxes of approximately $1.6 million. Net loss was approximately $11 million or $0.23 per share compared to a net loss of $1.9 million or $0.04 per share for the fourth quarter of 2022. And for the first quarter, net income was approximately $7.5 million or $0.15 per share compared to a net loss of $2.9 million or $0.06 per share for the first quarter of 2023. During the fourth quarter, the company repurchased approximately 396,000 shares of Class D common stock in the amount of $1.4 million. During the first quarter, the company repurchased approximately 256,000 shares of Class D common stock in the amount of approximately $1.3 million. And that related to the employee stock pool. Capital expenditures for the quarter were approximately $1.8 million. And as at December 31st, 2023, total gross debt was $725 million. Ending unrestricted cash was $233.1 million, resulting in net debt of approximately $491.9 million, which we compared to $128.4 million of LTM adjusted EBITDA for a total net leverage ratio of 3.83 times. Pro forma for the Houston radio acquisition total net leverage was 3.74 times. As of March 31st, 2024, total gross debt was $650 million, ending unrestricted cash was $155.3 million, resulting in net debt of approximately $494.7 million, which we compared to $119.6 million of LTM reported adjusted EBITDA for a total net leverage ratio of 4.14 times. And pro forma for the Houston radio acquisition, total net leverage was 4.08 times. Phew.

And with that, I shall hand back to Alfred. And that's a mouthful. So circling back on other questions that people have been asking, we gave the 2024 a just leave it there guide. Thank you for the correction on Q1 numbers being reviewed but not audited, Peter. But for your 2024 adjusted EBITDA guide 110 to 120, we are still very focused on continuing to manage the company's leverage down. We do not have any, you know, M&A, you know, on the table plan, you know, we're always looking at things, you know, opportunistically. We have been focused on continuing to lower the company's leverage and we'll continue to do that. Whenever we look at M&A opportunities, we like them you know, to be not only accretive, but, you know, but hopefully delivering, you know, as well, particularly in the businesses that we're in where you can't count on top-line industry-level growth. So any sort of M&A, you know, kind of needs to fit into the, you know, synergistic category, which, you know, should produce accretive, you know, miss, you know, and do leveraging. You know, so that's, you know, that's where we're sitting now in terms of stuff that's on the table and what our, you know, our intention is, you know, going forward, you know, for this year. So we have not, we haven't come to any concrete decisions on capital allocation at this point in time. But, you know, those overarching, goals and the thesis that I just laid out for you guide our decision making process. So with that operator, I'd love to open it up for questions from the participants on the call.

If you would like to ask a question today, please press 1 then 0. You may remove yourself from queue at any time by pressing 1 then 0 again. If you are using a speakerphone, please pick up the handset before pressing the numbers. Once again, to ask a question, please press 1 then 0 at this time. One moment, please, for our first question. And I have a question from Tim Daggett with Schroeders. Please go ahead.

Hey, guys. Thanks for taking the question. I was trying to think about the fixed charges for 2024. Specifically, CapEx and the taxes, it looks like your cash interest is about $48 million per year now after the pay down. How much do you expect to spend this year on the CapEx and taxes? Thanks.

Yeah, CapEx is penciled out. There are a couple of big real estate projects we're doing. We normally run $7-ish million on CapEx. I think it could be nine or 10 million this year. I think we penciled it out around the nine million mark. And then cash taxes, we're not gonna be a federal taxpayer for another couple of years, so I think probably, we'll be looking at a couple of million, hang on a second. Sorry, cash taxes. We've got it penciled out about three million this year, so kind of nine on capex and three on taxes.

And the big CapEx project is our consolidation in Indianapolis, right? I don't know what you have penciled in for that. But we bought the MS cluster radio stations in Indianapolis. We had our own operation there. We've actually been running two separate facilities for quite some time. We ultimately made a deal with our the radio one urban one original landlord to expand in that facility. So we moved everybody over to the endless facility while we're building out the expansion in our in our original facility. So that's That's taken with it took us longer to decide where to go and make the and make the right deal. But, you know, once we actually get that done in indianapolis we're probably going to save you know another million dollars a year um in operating expense there um from what we're currently paying so um so that's that's that's what's driving the capex numbers this year okay great so if i add that up it's about 60 million of six charges among

interest, capex, and tax. Is there anything else that we should consider in terms of cash outflow? So at the midpoint of the 115 of EBITDA plus the 60, that kind of gets you to 55 million of free cash. So is there anything else I need to consider for this year?

Yeah, the one thing that can swing a bit is cash versus panel TV1 programming. And so for this year, we've got additional cash going out the door that doesn't get amortized until future periods. So you should probably pencil in $10-ish million for that. That's the sort of big ticket item that won't be easy to get out. Okay. That doesn't necessarily come to pass, but that's just the forecast as it is at the moment. Sure. Makes sense.

And our next question comes from Dominic Wave with Stifle. Please go ahead.

Hi. Thanks for taking the question. If you just touch a little bit on kind of like, I know you guys kind of said that, you know, the national ad was down a little more than the general market in the fourth and first quarter. Can you just describe a little color, just kind of what you're seeing there? Do you expect that to kind of persist? And then just to follow up on I know you guys said your EBITDA targets depended on how the political ad comes. Are you guys able to provide some sort of forecast, what you're thinking the political ad might come in at for 2024?

Yeah, so we budgeted $10 million for political this year, which is low relative to the last couple of even-year cycles, but we did incredibly well down in Atlanta the last two goes around. So $10 million, that's hopefully conservative. And I think what we are seeing is a fair amount of that is starting to switch to digital. Normally, the bulk, almost 80-plus percent of our political is radio. I think we're starting to see some of that switch towards digital. And so our digital division could have some political upside that's not necessarily factored in. And then on national in general, we've been... we've been outperforming on national, um, for quite a while. And that just seems to have reversed and it's reversed, um, in terms of our corporate sales team, um, who, you know, we had a bunch of clients who just didn't come back in the same, uh, in the same volume as they had before. And so we got hurt a bit more than the market did. Um, I think over time that that normalizes, And as we look into Q2, we're actually doing better on national than we are relative to local. So it's flip-flopped in Q2. But because we're not as big as some of the other national radio players, one client that doesn't recur that may be a $3 or $4 million client can really impact our comps. And so you saw some of that going on in our corporate sales activities.

Okay. Thank you for the cover. Um, and just lastly, I can just follow up. Are you guys able to write any kind of read through and how, how to accuse coming along? Um, just, you know, any color, maybe not some official guidance, but it's kind of what you're seeing.

Well, it's, it's soft with the exception of political. I think we're continuing to experience, you know, churning cable TV plus some softness in delivery there. So, um, there's softness in TV, there's some softness in digital, and then offsetting some of that is the political. So that's kind of the shape of where it's at.

People have been given radio guidance. Our Q2 right now is kind of down three, you know, in our radio business. Mm-hmm. All of that is factored in. So let's say that Q2 is not going to be a great quarter for us, but all that's factored into the guidance that we're given. We're almost through Q2 now, and so we feel pretty good about it. Being able to, yeah. The problem, the reason the guide is so wide is, you know, quite frankly, there's a lot of, you know, there's a lot of big conversations going on around political, but you just can't count on it until it actually hits, right? You know, and so the conversations are encouraging, you know, but, you know, Until those orders, you know, are placed, start running, you know, we don't like to get too optimistic. But even with a soft Q2, we feel okay about what we just, you know, outlined to you. Okay.

All right. Got it. That's it for me. Appreciate answering the questions.

And as a reminder, if you would like to ask a question, the command is 1, then 0. Next question comes from Hal Steiner with BNP Paribus. Please go ahead.

Hey, guys. Thank you for taking my questions. You know, on the back of the discussion on digital, could you just talk a little bit more about what's been sort of driving the softness in digital and I guess a little bit to a lesser extent reach for the last two queues and just what you're sort of like going to be focusing on or trying to work on this year to sort of reverse some of those trends or improve performance there?

Yeah, I mean, I guess we haven't talked about it as much. But there was a wave of diversity dollars that happened post-George Floyd that benefited minority targeted, minority owned media. You also, prior to that, you didn't have advertising uncertainty. you know, in the marketplace. So a couple of things happened, interest rates went up, national advertising got soft, you saw it, you know, everywhere, right? You see it at Paramount and, you know, and Disney and, you know, you saw that, you know, the other radio companies, we had, you know, the diversity uh, when, you know, at our backs that, you know, um, that was helping us. And then you started, you, you have started to see a, um, a fall off in diversity, you know, uh, dollars, particularly as, uh, the concept of DEI becomes, you know, more and more under assault, you know, by certain political, you know, factions. So, you know, you, um, you get an economic, you know, And I always talk about a soft economic environment, but nobody really feels like we're in a recession, but there absolutely was a national ad recession. People felt that across the media sector. Maybe Meta and Google didn't experience it, but the rest of traditional media did. And then you factor in a tail off in diversity dollars. And that's, you know, that's what you see to contribute, you know, into digital and reach, you know. And so, look, we're working through, you know, this is stuff that all happened kind of last six months, right? You know, I would say six to nine months. We knew going into, you know, this year that Q1 was gonna be tough and we were gonna see fall off in dollars. I haven't quite figured out of the three drivers, one driver being you know, a shift, you know, continued shift out of traditional ad distribution systems into digital distribution systems. And when I say digital distribution systems, you're really talking about Google and Meta now because a lot of digital publishers have been, you know, struggling. And then the second bucket would be what's just the general ad recession, you know, that's happening and when does that, you know, national ad recession, when does that correct itself and then how much of it is sort of the diversity bucket falling off. I don't know, you know, how to weight sort of, you know, blame there yet, and so the strategy of how you turn that around is not fully in place. I would say right now, we're giving you a view of where we're going to land this year, but the strategy of how we're going to take that EBITDA number back more. I don't have a solid answer for you right this second. And so I don't know how much of that is just internal investment in the assets that we already have. I don't know if there's any accretive and deleveraging M&A that helps us a lot. I've always felt that there needs to be some sort of scale solution for both our TV and you know, um, uh, our radio business. But again, that's, that's tricky, right? You know, when, when you, you know, when you do, you know, those kinds of deals, you got to make sure that, uh, um, you're taking, you know, uh, into account any sort of, um, market decline that most people are not very good at predicting, you know, so.

Got it. Got it. That was all very helpful. Thank you for that, Alfred. Um, Okay, I mean, maybe on just the expense side then, I know sort of in SG&A and sort of on the corporate expense line for SG&A, I know there's sort of been elevated investment in there for the last two quarters, like that spending has been going up, which I was a little bit surprised about. And I guess I'm just like, do you have any commentary on Sort of thoughts to try to reduce any of those expenses?

Yeah, I kind of called it out. It's a one-time audit and consultancy fees in corporate SG&A that's driving it up. You know, we had a super expensive and prolonged audit. I mean, there's $5 million of additional expenses in Q1. And by the way, I should have called that out as a deduct on the cash flow question that I got earlier, because we're adding that back for just a bit, but obviously that's cash that's going out. But that's what's driving it. And in Q4, there was some tidy-up entries of about $1.7 million, which I also called out that went back over a period of three-plus years. that we ran through corporate SG&A in fourth quarter as part of the detailed audit cleanup.

Okay, got it. Sorry for missing some of that.

No, I probably wasn't clear enough. There was a lot I was going through.

Understood. Thank you. And then I guess my only other one is just sort of, you know, where's sort of the cash balance now, like as of today? And I hear you. It sounds like you're very focused really mostly sort of on kind of continuing to manage leverage down and all of that. I guess one asset that's been sort of thrown out or recently talked about was sort of Bounce TV, and Scripps might be marketing that. And I'm just curious if you have any thoughts on that asset.

Yes, we signed the NDA. We're going to participate in the process. We don't have any information yet. It's a competitor. The best place is to look for synergies you know, that created, you know, that provides, you know, accretive, you know, acquisitions and stuff that can help you, you know, view lever are places where you can create great synergies. And so, you know, there's programming synergies, promotion synergies, same target audience, you know, synergies, I have no idea what the, you know, I couldn't even tell you exactly right now, you know, what the particulars of the bounce numbers are because we've been focused on this. And I have no idea what the potential acquisition expectation or cost would be. I think I saw something in a Scripps con call where they kind of called out what they thought it was worth. You know, and so we're at the very early stages of that. But just like BET, which made sense, you know, we absolutely will be, you know, at the table looking at it because it makes sense. But everything's relative as to price, right? You know, and, you know, a lot of things happen. You know, somebody's willing to, you know, pay more than you're willing to pay because it works for them for some other reason. Or in the case of BET, they didn't achieve their price expectations, so they decided not to sell.

And then on the cash on hand today, $162.9 million. So up a little bit for quartering.

Great. Thank you guys so much for taking my questions.

And we have no further questions at this time.

Thank you, operator, and we look forward to talking to you all next quarter. And thank you for your patience in giving these statements caught up to date. Talk to you next quarter. Thank you.

That does conclude our conference for today. Thank you for your participation. You may now disconnect.