Urban One, Inc.

Ladies and gentlemen, thank you for standing by and welcome to Urban One's second quarter earnings call. All participants are in a listen-only mode and this call is being recorded. 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 August 8, 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 5 p.m. Eastern Time today, August 8, 2024, until 11.59 or midnight on August 15, 2024. Callers may access the replay by calling 866-207-1041 from the U.S. International callers can call direct at 402-9700-847. The replay access code is 1733-886. 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. and 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. This time I'll now turn the call over to Alfred Liggins, Chief Executive Officer of Urban One, who is also joined by Peter D. Thompson, Chief Financial Officer. Please go ahead.

Thank you very much, Operator, and welcome everybody to our Q2 results conference call. Also joining Peter and I are Karen Wishart, our Chief Administrative Officer, Jody Drewer, who's the Chief Financial Officer at TV1, and Christopher Simpson, who's our General Counsel. We've sent out the press release on our Q2 results, largely in line with, you know, how we've guided in terms of the different segments. Radio, you know, coming in at... minus three with political, minus 5.6 on a same-station basis, ex-political. That's not including the acquisitions that we made with Houston, Texas. It's been a challenging environment in our cable television segment. mostly because of churn and audience delivery, something that's happening throughout the pay TV ecosystem. Peter's going to go into more detail about those results in Q2 in his comments. Q3 radio currently is pacing down 6.9% on the same station basis. It's going to be up 7%, you know, as reported. If you include Politico, it's pacing down mid single digits. However, we are, you know, feeling pretty optimistic about the strength of political and we're starting to see registrations and orders coming in on hold. We actually think it's going to be much more robust than we have currently forecasted. It's real-time action right now in terms of getting it laid in. The new political landscape and the closeness of the current race, I think is going to bode well for us, you know, given our audience. So, uh, that is, uh, yet to be determined. You know, we're not, you know, we're not forecasting, uh, a big, uh, a beat on our political budget as of yet. Um, but, um, but we're very optimistic, but even with the optimism and, uh, in political ad spend coming, uh, There's still softness in our cable television segment, which we have to address. Ultimately, we've got to find more impressions to offset the churn that we're experiencing. and we've got upside coming in terms of our connected TV offering as we switch ad servers that will allow us to better monetize the CTV inventory that we have on some of the new over-the-top platforms. That's not in place yet. We haven't had the benefit of that so far this year, but we will in the second half of this year. But given the softness in the cable TV segment, I think that we are more likely to finish 2024 at the lower end of our EBITDA guidance, which was 110 to 120. And again, we're not sure exactly what we think that the upside on political is yet. We think there is some, but we just want to give an indication that we feel at this point that we're more likely to finish on the lower end of the guidance than the upper end of the guidance. So we can talk more about that during the Q&A. And so at this point, I'd like to turn it over to Peter to go into the details of the numbers, and then we can switch to Q&A. Peter?

Yeah, thank you, Alfred. I'll just walk through the press release numbers. So consolidated net revenue was down by 9.2% year over year for the quarter end of June 30, 2024, at approximately $117.7 million. Net revenue for the radio broadcasting segment was $42 million, which was an increase of 7.2% year over year, but was down 3% on the same station basis, excluding political Net revenue was up by 4.7% year over year, but down by 5.6% on the same station basis. According to Miller Kaplan, our local advertising sales were down 8.5% against a market that was down 7.1%. National ad sales were down 1.6% against a market that was up 7%. Net revenue for the reach media segment was $18.9 million in the second quarter, down 5.6% from the prior year. And adjusted EBITDA was $3.7 million for the quarter, down from $4.6 million last year. Net revenues for the digital segment decreased by 16% in the second quarter to $15.9 million. Direct national sales were down, driven by decreased advertiser demand. but connected TV and podcast revenues showed growth compared to last year. Adjusted EBITDA was $2.9 million, down 52.5%. We recognized approximately $41.5 million of revenue from our cable television segment during the quarter, a decrease of 20.9%. Cable TV advertising revenue was down 26.7%. Delivery erosion continued, down 2%. 30% in total day, persons 25, 54, resulting in an increase of $4.7 million to our audience deficiency reserve. Increased volume through promo conversions partially offset the delivery shortfall. Cable TV affiliate revenue was down by 12.9% with contractual rate increases being offset. by approximately $3.3 million in net subscriber churn impact. Cable subscribers for TV1, as measured by Nielsen, finished second quarter at $39.8 million, compared to $40.7 million at the end of Q1. And Clio TV had 38 million Nielsen subscribers. Operating expenses, excluding depreciation and amortization, stock-based compensation, and impairment of goodwill, intangible assets, and long-lived assets decreased to approximately $93.3 million for the quarter ended June 30, 2024, down 0.4% from the prior year. Radio operating expenses were up 6.4%, or $1.9 million. The Houston radio acquisition, which was effective August 1, 2023, added approximately $2 million of expense year over year. On the same station basis, event expenses were up $700,000, driven by two of the company's tentpole events, which was Birthday Bash in Atlanta and Women's Empowerment in Raleigh. While variable expenses related to revenue, such as sales commissions, bonus compensation, bad debt, and national rep fees were all down, the marketing costs were also down. Reach operating expenses were down by 1.3%. driven by reduced talent compensation and affiliate station fees. Operating expenses in the digital segment were up 1.5%, driven by increased cross-platform marketing expenses and third-party cost of sales on audience extension revenue for digital audio. Operating expenses in the cable TV segment were down 4.7% year-over-year, driven by about an $800,000 favorable programming expense, related to acquisitions that expired in 2023, and reduced sales and marketing expense, which was offset by increased operations costs associated with connected TV and VOD support. Operating expenses in the corporate and elimination segment were down by approximately $900,000, primarily as a result of a $4.5 million decrease for the CEO's TV One Award, offset by a $3 million increase in third-party consulting and audit expenses. For adjusted EBITDA, we added back $4.1 million for non-recurring professional fees related to the mediation and audit efforts. However, the $6.3 million non-cash benefit for the TV1 award is not added back for the current year when assessing adjusted EBITDA. Consolidated adjusted EBITDA was $28.4 million for the second quarter, down 24.2%. Consolidated broadcast and digital operating income was approximately $34.2 million, decrease of 27.7%. Interest income was approximately $1.8 million in the second quarter compared to $1.9 million last year. Decrease was due to lower cash balances in interest-bearing investment accounts. Interest expense decreased to approximately $12.4 million for Q2, down from $14 million last year due to low overall debt balances as a result of the company's debt reduction strategy. The company made cash interest payments of approximately $1 million in the quarter related to the repurchase of the notes. During the quarter, the company repurchased $35.5 million of its 2028 notes at a price of 78% of the past. An impairment charge of $80.8 million, which was non-cash, was recorded in Q2 entirely for the broadcasting licenses in nine of the 13 radio markets in the broadcast segment. The primary factors leading to the impairments were decline in projected gross market revenues and operating profits and an increase in the discount rate. The benefit from income taxes was approximately $18.5 million for the second quarter, and the company paid cash income tax in the amount of $600,000. Net loss was approximately $45.4 million, or $0.94 per share, compared to net income of $70.4 million, or $1.48 per share, for the second quarter of 2023. During the second quarter, the company repurchased $449 million 1,277 shares of Class A common stock in the amount of approximately $900,000 at an average price of $2.06 per share, and 113,283 shares of Class D common stock in the amount of approximately $200,000, an average price of $1.57 per share. Capital expenditures were approximately $2.2 million in the second quarter. As of June 30th, 2024, total gross debt was $614.5 million. The ending unrestricted cash balance was $131.9 million, resulting in net debt of approximately $482.6 million, compared to $110.5 million of LTM reported adjusted EBITDA for a total net leverage ratio of 4.37 times, And finally, we'll be timely filing the 10Q tomorrow at some point. So good that we're back on track in terms of meeting our deadlines and filing timely. And with that, I will hand back to Alfred.

Thank you, Peter. Operator, we can go to the lines for Q&A.

Ladies and gentlemen, if you'd like to ask a question, please press 1, then 0 on your phone's keypad. You'll hear an indication that you've been placed in queue. And repeating that 1, 0 process will remove you from the queue. Once again, if you have questions, please press 1, then 0. And at this time, we do not have any callers queuing up. Take that back. We're just a little bit late. All right, we'll go first to Dominic Lieb with Staple. You go ahead, please.

Hey, guys. Thanks for taking the questions. Yeah, I just had two things, a couple things for me. One, could you just comment on the digital has kind of been trending a week or for a couple quarters now. Can you just kind of offer some guidance on what that market's looking like? Are you guys expecting that? to pick up, you know, versus kind of like a national local area or kind of just what your thoughts on that?

Yeah. Yeah, digital, you know, there's been weaker demand in digital, you know, associated with, you know, the pullback in national advertising, but also a pullback in, you know, DE, you know, diversity and inclusion areas. um, ad dollars, um, that, you know, we, you know, we felt that wave was ultimately gonna, um, gonna crest and be affected by the national ad pullback. However, the second half is looking, um, uh, is looking better, uh, and, you know, we're also optimistic, um, there that we're going to see more political ad dollars than we had budgeted. So, um, yeah, to date, you know, we are, are still forecasting, uh, our digital segment to, to meet its budget, which is, you know, uh, you know, you know, off of last year, but not that, but not that far off. So we're, we're, we're, we're feeling decent about, uh, digital. Our TV business is really what's, what, what, what, what is what's hurting us. Yeah.

Okay. Thank you. And, um, Based off the backdrop of you guys keeping your EBITDA guidance, I think you gave a range of like 110 to 120 last calls. That's sort of still in line?

Yeah, yeah. As I said at the top of the call, you know, we're more likely to be on the lower end of that guidance. But, yes, we're, you know, we're maintaining our current guidance.

Sorry, I joined a little late here. Yeah, words. A couple more things.

The debt buybacks, do you guys continue kind of continuing a similar cadence in terms of repurchases if prices kind of... I don't want to commit to the cadence, you know, because the cadence really kind of depends on... The cadence depends on where we see the debt trading. But you can rest assured that our primary focus is to make sure that we're managing our leverage and looking to march that down. And it's challenging right now with EBITDA. falling, right? So quite frankly, being able to buy debt back opportunistically at attractive prices is important. So very high priority for us. That's the reason you saw us buy $35 million worth of debt right before our window closed. uh, that ended up being a negotiation, you know, uh, that, you know, to, to buy that piece of debt at 30, uh, $35 million was probably a week long negotiation that only closed right before the window was happening. So, you know, we're trying to be opportunistic and smart about it.

Okay. Got it. That makes sense. Um, yeah. And then just last one, I think you guys mentioned, maybe you might've commented, but last quarter you guys mentioned you were, um, under NDA to potentially purchase bounds from EWScripts to the effect you can offer any commentary. Is there any update regarding those?

No.

There's a process going on. We're involved in it, and no update at this point in time. Okay. Got it.

Okay. Appreciate the answer to the question. That's it for me. Thank you.

Our next question comes from Hal Steiner with BNP. Please go ahead.

Hey guys, good morning. Thank you for taking the questions. So my first one was, do you have any early thoughts on some of the things you could try to do in TV to sort of improve audience and audience delivery? Is maybe like changing measurement providers a possible solution? And I think you also commented on sort of CTV ad upside. If you could just share a little more color or help quantify that at all, that would be very helpful. Thank you.

Yeah. So we are looking at different measurement solutions. And we're in the middle of the upfront right now, so I don't want to have a public – a public adjudication of our upfront strategy and our audience measurement strategy, but suffice it to say, yes, we are engaged in those kinds of conversations and looking at several different alternatives, one of which has more of a positive impact than others, right? So... But that's an active negotiation right now because it's not just us switching audience measurement. It's getting the advertising holding companies and the clients to actually accept a discurrency too. And so that's a real-time negotiation as we speak. But the answer to your question is yes, we're looking at that. Second, on CTV, we basically were on an ad server that didn't allow us to transact on a programmatic level and had some other limitations that really severely limited our ability to monetize that inventory. It has taken us... And, you know, don't ask me all of the whys, but it's taken six months actually for us to identify, negotiate, and then ultimately get activated a new ad server that will allow us to more effectively monetize it. And we're at the, you know, we're almost at the end of that road. I think it goes live within the next, you know, 30 days or so. Jody, do you know when, you know, the new CTV ad server goes live? I don't. This month. This month. This month. Yeah. So, you know, people – advertisers like CTV a lot because they can do it programmatically, and the ad server that we were on didn't allow us to do that. So that's just, you know, that's real – Just moving to a system that allows us to monetize it the way the majority of advertisers want to do business is tangible upside just because we haven't been able to participate in that marketplace. So, yeah, that's the elaboration on it. And obviously more and more ad dollars are moving to connected television too.

Gotcha. Gotcha. Okay, that's helpful. And then I guess just on financial policy, with the operating environment being a little bit weaker, do you sort of feel like it's more prudent to maybe hoard more cash or is like sort of the minimum cash you want to hold in the business maybe higher than it was before? And I heard your comments on debt buybacks, but I maybe also just wonder, you know, How do you view M&A in the current environment?

We view M&A, and I think I've said it before, look, in the current environment, you can't count on top-line growth, right? Not in the media business, right? If we were a software company, you know, maybe. So M&A has got to be, you know, not only – highly accretive. It's got to be de-levering. And Peter and I were actually talking about it this morning before the call. And any M&A deal that you do that's de-levering out the box, you've got to assume that there's going to continue to be downward top line pressure in the industry, right? Whether it's radio or television. And so you've got to take that into account when you're figuring out what that M&A does to you from a de-levering standpoint. So very comfortable with our Houston acquisition last year and our Indianapolis acquisition in radio. And so that's how we think about it. You can expect us not to do anything – you know, that is contrary to that because that would be way too risky. And we are, again, conscious of the fact that it's not just is something de-levering day one, you know. Is it going to continue to be de-levering, you know, with, you know, with, with, with, with the downward, you know, um, uh, trend, you know, um, from, from an industry standpoint, um, finding those deals is hard, but my sense is they will come about cause everybody's going to get kind of got the same problem. Um, and, uh, I mean, we're substantially free cash flow, positive to date. The thing that reducing debt, particularly reducing debt at a discount, does is it also increases our free cash flow, right? And so we don't really have a cash flow problem such that we have to hoard a bunch of cash. And if we are looking for a deal that is substantially de-levering you know, particularly at the levels, you know, that we're trying to get down to. Let's say, I think, you know, our leverage level, we just reported was 4.37 times, right? 4.37. So let's say we were looking for something that, you know, delevers us, you know, a ton, right? So it gets us down to, to three, three, you know, if the synergies are really there and it does that, then that's probably in the strike zone is something that you can finance, you know? So the point is, I don't, I don't, I don't, I don't think we have to hoard cash for, for, for an MNA, you know, situation, the kind of MNA that we're looking for, you know, should produce, you know, a financeable scenario in and of itself. and we can look at that cash to deliver and buy debt opportunistically. Does that make sense?

Yes, it does. It does. Thank you, Alfred. Okay, that's all my questions for now. Thank you guys so much.

Yeah. And once again, for additional questions, please press 1 and 0 at this time on your phone's keypad. We have a question now from Marlene Piero with BOA. Please go ahead.

Thank you for taking the question. Hi, Alfred. Hi, Peter. Hi. Just wanted a quick sanity check on free cash flow, just kind of given the commentary you've given this quarter versus last quarter. So I think it kind of worked out to roughly around $40 million, given kind of some one-offs related to TV1. You know, cash tax is around $3 million. I think cap-back is around $9 million. So I just wanted to sanity check if, you know, kind of the ballpark and that my inputs are correct.

Yeah, I think, look, Alpha's guided towards the lower end of the guidance. So you probably need to take, if we were coming off of the midpoint, right, you'd probably take $5 million off of that number and be in the mid-30s. And then, obviously, the other comment he made at the top of the call was, we don't know where political is going to come out. It feels good, right? It feels like the developments on the Democratic side are going to be really helpful to us. So, yeah, maybe there's some upside on that. To the downside, you know, we're still going through all the remediation of the material and there's going to be incremental effort there from a consultant standpoint and also from an audit standpoint. So, our old $2 million audit fee, you know, isn't coming back this year. So, there's There's some incremental one-time remediation and audit costs. So, you know, I think we're somewhere in the 30s, depending on where political comes out, I would say.

Got it. But the cash taxes and capex, that's still roughly that much, part of $3 million effectively.

Yeah, and the other lever that's in there, I say lever, the other thing that's in there, is how much cash programming we spend versus what we're amortizing. At the moment, we have a $10 million cash usage in the numbers I just gave you. So if we end up saving some of that, then that would also boost free cash flow.

Sorry if I might have missed this sooner, but have you disclosed if you've bought any bonds back close to the quarter?

I'm sorry, Marlene. I couldn't hear the question. It's a bit faint.

Sorry. I was just curious, and apologies if I missed this, but have there been any bonds repurchased post-requeue?

No. The last ones we did were the 35.5 in Q2. We haven't done any more since then.

Got it. Thank you very much. That's all I have.

We have a question next from Kevin Chapman with PRV.

Please go ahead. Yes, hi. Thank you. I would like for you to expand, if you can, on the political advertising. I know you're very optimistic about it. Are you seeing interest with both parties? And could this possibly be... at historic levels when you look at what you're seeing so far?

The answer is yes, we're seeing interest from both parties. However, the ratio of what Dems spend against our audience to what ours spend is... you know, is very, very, very, very wide, right? So, you know, an increase in interest from the R's is, you know, is not a move the needle, right? You know, but it's, you know, on a percentage-wise off a low base, I think it's, you know, a substantial increase. You know what I mean? But it's, you know, it still doesn't compare to, you know, what the Dems spend between the campaigns and the packs and all that. Um, because the, uh, the primary audience that we have, um, is, is obviously critical to, you know, democratic success. We also got some significant exposure in some key markets, you know, so we've got big Atlanta, you know, position, Georgia. has been our most robust political market over the last two cycles. We are in Charlotte and Raleigh, so North Carolina is in play. Pennsylvania is in play when Philadelphia. Um, and so, you know, we've, we've, we've got some decent, you know, um, uh, exposure. Um, and then, you know, we've got a, you know, we've got a big digital business, right. And I would say over half of the spend that's going to come from the Dems this year is going to be in digital. Um, so, you know, um, you know, in comparison to others, other cycle. Peter, what was the big year that we had?

Yeah, we've had two, right? So the high water mark was in 2020 we did In radio alone, we did $18.8 million in 2020. So that was the biggest. And then in 22, we did about $13 million in radio. So they were our two biggest.

Yeah, and Peter, if you want to elaborate.

Yeah, I mean, look, I think you covered it, but yeah, there are. it's not just the presidential race was the only point I was going to make. There are some races. Yeah, yeah. In the markets you mentioned, you know, the North Carolina governor race, the Maryland Senate, and the Ohio Senate, and then some other issues, redistricting issues. So it's not all going to be presidential money. There are other things that we're participating in as well. Correct. Yeah. But obviously that change on the Democratic side is going to help us in some of those markets that probably may not have been in play that now are, like Georgia and Pennsylvania, where we're well positioned.

Just one follow-up. Will you update as these bins come in?

I'm sorry, will we update as what comes in? As you get buys, advertising buys. We'll give an update when we do our next earnings call.

you know, just as we, as we have here and, and it'll flow into whatever our guidance is. Uh, you know, our next, yeah, we'll, we'll give the market, you know, a view of, uh, we always give a view on where we're pacing and, um, uh, and, you know, the last couple of years we've given, you know, we've given guidance and, you know, we, we feel we'll have an obligation to continue to update that guidance, you know, um, uh, as we report.

Okay. Thank you.

Yep.

For additional questions, press 1 and 0. And we're going now to Ben Briggs from StoneX. Go ahead.

Hi. This is James Godman on for Ben Briggs. Thank you guys for taking the questions. I was wondering, can you provide any clarity on what the revenue and EBITDA impact of TV One and Clio joining the Xfinity lineup will be?

Actually, it's not the Xfinity lineup. It's TV Now, which is their over-the-top skinny bundle. It's a $20 a month service. and it will be positive, although we just launched, I think, Jody, we just launched in August, right, beginning of August? In July. We launched in July, and it's a growing service, so it's a small number of subs now that we think will ultimately grow larger. It's a positive impact, but it's not a hugely positive impact to our numbers. Awesome. Thank you.

For additional questions, please press 1 and 0. We have no more questions in queue.

All right. Thank you, everyone, and we look forward to talking with you next quarter. And as usual, we're available offline. Thank you very much.

Ladies and gentlemen, once again, a replay for this conference call will be available through midnight on August 15th. To access the replay from the U.S., dial 402-970-0847. Use access code 1733886. International participants use 4... Scratch that. International callers use 4029700847. Domestic callers use 8662071041. And again, that access code is 1733886. That does conclude your conference call for today. You may now disconnect.