Q2 2021 Urban One Inc Earnings Call

August 5, 2021

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Ladies and gentlemen, thank you for standing by.

And welcome to the urban 1.2021 second quarter earnings call.

As a reminder, this conference is being recorded we will begin this call with the following safe Harbor statement.

During the conference call urban 1 will be sharing with you certain projections or other forward looking statements regarding future events or its future performance urban 1 cautions you that certain factors, including risks and uncertainties referred to in the 10, Ks and 10 Qs and other reports it.

Periodically falls with the Securities and Exchange Commission could cause the companys actual results to differ materially from those indicated by its projections or forward looking statement.

This call will present information as of August <unk> 2000.

From 'twenty 1.

Please note that urban 1 disclaims any duty to update any forward looking statements made in the presentation.

On this call urban 1 may also discuss 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 www dot urban 1 dot com a replay of this conference will be made available from 12 PM Eastern standard time today August <unk> 2.

2021 until 11.59 August 8.2021 callers may access the replay by calling the following number 186620710 or 1.

Or dialing for zero to 97008 for 7 with.

With the access code of 6180.

There are 679.

Access to live audio and a replay of the conference will also be available on urban one's corporate website at www Dot urban 1 dot com.

The replay will be available on the website for 7 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 1 who is joined by Peter Thompson, Chief Financial Officer. Mr. Liggins. Please go ahead. Thank you operator, and thank you everybody and welcome to our second quarter results Conference call also joining Peter and I.

As Jodi drew or our Chief financial Officer at TV, 1 and also Christopher Simpson, Our general counsel at urban 1.

We.

Issued our results in the press release, and so hopefully you've seen.

The good news we had.

An outstanding quarter, a great balance off the on.

The lows of from from Covid, Yeah happy.

To get the vast majority of the Covid effect behind us, although as we all know we're not out of the woods yet with.

The potential re infections and mashed mandates, but yes.

We are starting to you don't really feel.

Like there's light at the end of the tunnel.

And in addition, there has been significant interest in our platform.

African American targeted African American owned platforms from major advertisers all across the spectrum, which is considerably positively impacting our business and yeah. It's it's it's my belief that this is systemic change and not Ah Ah moment in <unk>.

Time and in it and it's great to see a really proud of our management team.

All the way at the radio market level on through the different divisions for coming through yeah. This this pandemic on the other side a stronger than.

Then we went into it the team you know really handled themselves extraordinarily well in the toughest of times.

And now it's now really poised to take advantage of the positive momentum that the business has and the environment has and you know the economy is clipping along.

At a at a very nice pace, so got a lot of wind in our sails.

To that end you know we.

Decided to update our year end guidance are we had been kind of guiding people to yeah us doing about $130 million of EBITDA. This year, yeah, where we're very comfortable at this point in time of increasing that guidance to the mill.

Did 1 thirties.

On a lot of what it's going to happen. The rest of the year is going to depend on Q for we had a yeah and.

An exceptionally strong Q for Oh, you know last year. So we yeah now need to see how yeah. That's all going to play out. So we know it's going to play out better than we thought we just don't know exactly on where it's going to land. So.

There could be you know more good news on the horizon I'm going to turn it over to Peter to go into the detail of the numbers and then after that I'll give you on.

<unk> a.

An update on our progress in the Richmond Casino gaming efforts now on where you know, we're making a lot of good steady progress and so I'll give you an update there and then we'll go into Q&A So Peter.

Thanks Alfred.

So net revenue was up by 41, 6% year over year for quarter ended June 32021 at approximately $107.6 million net.

Net revenue for the radio Division was up 73 per cent year over year on the second quarter.

Local advertising sales for Q2 were up 108, 7% year over year, well on National AD sales were up $36.8 per cent compared to last year.

All of the major advertising categories were up from last year government public was the largest category driven by COVID-19 vaccine outreach followed by services, which was driven by a law firms coming back than telecoms on retail.

Total motive was up by 83, 9%.

Radio continues to be a high margin platform.

With 83 per cent of the revenue increase for ing to adjusted EBITDA, which is an improvement of $12.4 million year over year.

Look for radio in the third quarter is also strong.

Q3, 2021 is currently pacing up by over 40% on we expect Q3 call radio to finish.

Over 20%.

Net revenue for reach media was up by 52% in the second quarter driven by increased advertiser demand for the African American audience, just adjusted EBITDA was up by approximately $1.9 million year over year net.

Net revenues for our digital segment increased by $9 million in Q2.

Continued demand for black on in cognizant brands drove growth in direct advertising sales at high 1 digital.

On adjusted EBITDA increased for the quarter by approximately $6.1 million year over year and our digital segment.

We recognized approximately $48.5 million for revenue from our cable television segment during the quarter, an increase of 10, 7%.

Cable TV advertising revenue was up 21, 3%.

<unk> demand drove about a 35% average unit rate increase on.

<unk> TV AD revenue was up by $1.2 million a D U partially offset these gains.

Cable TV affiliate revenue was up by 3.2% with rate increases of approximately $1 million, partially offset by channel.

Cable subscribers for TV, 1 as measured by Nielsen finished Q2.2021 of $45.5 million down from $49.4 million at the end of Q1.

<unk> had $28.8 million Nielsen subs.

The reduction in Nielsen subscribers was not reflective of the underlying trend in paying subscribers, which were down by just 1.9% for the same period.

We recorded approximately $1.9 million cost method income less administrative expenses for our investment in the MGM National Harbor property for the quarter.

Compared to only $40000 last year on.

$1.7 million in 2019.

Operating expenses, excluding depreciation amortization impairments and stock based compensation increased to approximately $67.2 million in Q2 compared to $53 million in Q2 of 2020 on.

$84.9 million in Q2.

2019.

<unk> compensation expenses increased by approximately $3.4 million, mainly due to the reversal of temporary salary cuts in 2020.

Marketing and promotional spending increased by $4.8 million, mostly on TV 1 rep.

Revenue variable expenses increased by $2.3 million.

Services increased by $2.2 million on program content amortization expense on the cable TV segment increased by $1.3 million in the quarter.

All signs of a healthy business environment.

The increase in corporate selling general and expense kind of minutes administrative expense is primarily due to an increase in professional fees related to the Richmond gaming opportunity as well as a noncash charge for the <unk> TV 1 award both of which are added back to adjusted EBITDA.

Radio operating expenses were up 8.7% employee compensation and commissions were up on bad debt expense and severance expense went down.

Reach operating expenses were up by $1.1 million, mainly due to higher employee and talent compensation on higher affiliate station compensation.

Operating expenses in the digital segment were up by $3 million against a revenue increase of $9 million driven predominantly by the variable expenses related to traffic acquisition costs and sales.

Cable TV expenses were up 39% year over year programming content.

Expense increased by approximately $1.3 million sales and marketing expense was approximately $5 million driven by increased media campaigns to support programming and we are.

We're also catching up on some contractual marketing spend commitments that were deferred from 2020.

Operating expenses in the corporate and elimination segment were up by $1.6 million due to an increase in professional fees for corporate development activities related to the Richmond casino venture on a noncash charge for the CEO and for.

Ointment Agreement award.

For the second quarter consolidated broadcast and digital operating income was approximately $49.6 million an increase from 64, 3%.

<unk> adjusted EBITDA was $44.8 million, an increase of 82, 4% year to year on.

On $5.1 million higher than the second quarter of 2019, Oliver on divisions significantly ahead of our operating projects for the first 6 months for the year.

Given the strong performance, we've raised our full year adjusted EBITDA guidance to the mid 130 millions.

Excluding casino chase conscious.

Obviously, a resurgence on the COVID-19 pandemic and subsequent business closures.

<unk> have an adverse impact to this guidance.

Interest expense was approximately $15.9 million for the second quarter compared to approximately $18.4 million for the same period in 2020.

Company made cash interest payments of approximately $172000 in the quarter.

Annual debt service payments due on February 1 on August 1.

Provision for income taxes was approximately $6.1 million in the quarter on the company paid cash taxes.

$814000.

Net income was approximately $17.9 million or <unk> 36 per share compared to $1.4 million were 1 <unk> per share for the second quarter of 2020 capital expenditures were approximately $1.6 million compared to approximately $1.2 million last year.

Company issued and sold $1 million 893126 class a shares during the quarter and received net proceeds of approximately $21.2 million.

As of June 32021, total gross debt was $825 million.

Ending unrestricted cash was $1.129.3 million.

Net debt was approximately $695.7 million.

Compared to $156.2 million of LTM reported adjusted EBITDA for a total net leverage ratio of 445 times on with that I'll hand back to Alfred.

Peter So you know again really happy with those results.

Leverage ratio continues to come down again Aldo.

This mid fours leverage ratios.

Is not where it's likely to stay given.

Fourth quarter was so strong.

Last year, but it certainly isn't going to be a lot lower at the end of this year.

Then where we were at at the end of Q1, so Super excited about that update on Richmond Casino efforts we've.

Passed all the voting hurdles.

Through City Council.

City Council.

<unk> to allow the city to sign the host community agreement, we've signed the host community agreement.

And that host community agreement.

<unk> been.

Submit it.

To the courts.

And the courts.

Have they have to give in order to.

Put the casino location and operator.

On the ballot for the November 2nd referendum.

For courts have to I believe August 13th in order to.

To do that.

We in order to to even submitted to the court, we had to get a pre certification.

Check done by the Virginia Lottery Board wind and.

On that obviously happened in got cleared on before it went to the court so.

We're now waiting for that court order. So we can begin an official.

Campaign for the referendum, although the company has started.

To do educational additional educational marketing.

About the casino project and its benefits that started.

Started this week and the city of Richmond.

And we you know we we feel good.

About the support in the in the city for for for gaming.

We've done we've done polling.

We've done pulling all along with it pulling when we first started.

Being the general Assembly back and.

The first quarter of 2020, we did polling right when we.

Right after we submitted our RFP.

Our RFP.

In March.

'twenty, 1 we did polling again.

And in May of 'twenty, 1 to see how people were feeling about.

Locations and gaming.

Right in the heat of the of the competitive battle.

Did polling.

Once.

We got selected on our site was selected.

It's all improvements from from the lows if you will during the heat of the Battle and then.

And we've done some recent small pulling as we were looking at them.

Of testing our TV commercial.

All of those signs have been very very favorable although you can't take anything for granted and.

On a go hard on on the referendum, but.

It's a good project for the city no tax dollars no taxpayer dollars being used so significant revenues.

To the city into the state.

And obviously, it's a great opportunity for for urban 1.

And its stakeholders so.

We've seen.

It's interesting people talk to us.

About the increase in our stock price all the time.

This year and you know a lot of people know.

What an extraordinary rise.

Tend to focus on the U K.

Okay.

And not necessarily the class A's because the class A's you O N E tend to trade at a at a.

<unk> premium and none have been subject to wild swings based on.

A lot of retail interest and demand.

Up and down.

But at the end of the day, there's really no economic difference between the K shares in the U O N E shares.

But any event as you know.

I kind of wanted to just make the comment that.

Based on the results for the company and based on we expect EBITDA to be Oh, and particularly after we got our refinancing done.

We always expected that the U K.

K stock price should kind of be in this range, where it is that just based on the media business alone irrespective of what happens with the Richmond Casino opportunity.

Just using.

A 7 times multiple on our EBITDA and backing out on net debt.

And divide by the number of outstanding shares get you.

On the stock price in the neighborhood that.

That debt.

And and.

You've got to factor in any sort of hidden value for.

M G M <unk>.

Interest so I.

You know.

Uh huh.

I in particular.

Been waiting for.

On the share price to kind of catch up to where our performance has been because our leverage has been steadily coming down.

We've been issuing.

On equity Opportunistically to help get that leverage down and our cash flow has been increasing.

And we continue to when we when we think about it use a you know a.

A reasonable multiple of about 7 times, which is kind of in line with a lot of.

The radio sector, and even though we're much more diversified company.

So I get a lot of questions about the stock price.

I've given.

Sort of my analysis of how we value it.

For.

And so I just kind of wanted to add in that.

The the rise although it may seem dramatic off of the.

Where it was in the in the high ones again.

On a year ago as 1.

Dollar.

Yeah.

Uh huh.

I believe that that was.

Depressed because of Covid and a lot's happened since then including a very favorable refinancing.

On improved performance and deleveraging so.

With that operator, I'd like to open the.

The lines up for questions from anybody.

Ladies and gentlemen, if you have a question. Please press 1 then there are price.

1 zero or you have a question you'd like to ask.

Okay.

And we have several people queuing up to ask a question.

We'll go to the line of Patrick Wang with Voya investment. Please go ahead.

Yeah, Hi, Thank you for the questions could you just follow up on your last comment on the shares could you just tell us the difference between a <unk> and the B shares.

Okay Yeah.

So the U S.

It's basically the U O N E shares have they come with a vote, yes, they've got they you know they get they get 1 vote.

And.

In the U O N E K shares our novo chairs.

So early in the company when we went public we went public with the a shares that.

That had about the company has always.

And then ultimately controlled by Supervoting shares that are held by.

Myself and my mother, the chairman that don't trade day out.

That have 10 to 1 voting power so ultimately the decisions.

On board seats, and major decisions or control or are controlled by those shares and they don't trade.

And over and.

Over time, and this happened way back when we.

Probably during the first year after we went public in 99.

We stopped issuing the day you open E shares in and did a stock dividend and created the no vote shares you on U K.

Okay, and we started issuing those going forward and.

And we did dose per year did that for years all the liquidity was in the U K most of the liquidity is there now.

And.

The shares basically started to trade on top of each other.

In terms of.

Value.

However in June of last year.

Got sort of swept up into this whole retail interest wall Street bets robinhood.

On the shares of U O N E spiked and they did because at that point in time, there's only like 1 million and a half shares outstanding and so.

We're easy to move.

If retail got involved.

Involved.

On it and you've seen it.

You know happened a lot at the end there is there's really no economic difference between the 2 and and they have the.

In 1 he has the 1 vote, but you know the 1 vote doesn't get you much.

So that's really the difference and so you know the company has been.

Opportunistic you've seen our filings I mean, if those you own any shares are trading.

At a at a premium or a high level. You know we're you know we're taking advantage of it and we'll sell you know Lasalle equity into it and then and use it to Delever, which is good for shareholders.

And so and that's what we've been doing.

But.

That's the explanation of the difference between the 2.

And that new so at 1.1.

He shares for $21 million during the quarter.

Yes Colin.

At $1.9 million at the exact number was $1 million 893120, <unk>. So just on the $1.9.

So are you done with the ATM program of Ishares.

We have and we plan to keep we plan to keep Atms up.

Our shares registered for both for both classes, because we don't know, which 1 is going to make the most sense.

For us to monetize at any given time, so I think if any if theres 1 of the things that I've learned during this.

This particular financial crisis is to always be prepared so you should expect us to always have.

Shell for up or an ATM up to be able to take advantage of.

Any opportunity to create shareholder value by.

Bye Bye bye bye selling equity so that's our that's our plan to always be in a position to to act.

Right.

I guess the.

On the Investor equity side have trouble assigning a value for the casino projects. So maybe you can just.

Moving to the details of the economics of that.

Ownership, I know, you're putting $75 million cash equity yeah, no. That's on that that that's changed and I think Peter or Chris.

In our filings we've changed from this.

Have we.

We notified people that the economics have changed.

We believe in growth.

The registration statement that went out in the 8-K.

Yeah. So look the economics of the project changed what we needed to pay the city in order to get the deal.

Went up and the cost of the project went up.

It's now at $562.63 million project originally.

Originally it was 45.

Essentially the company's investment was going to be about $75 million now the company.

It.

There's going to be on the.

I'm on the hook for is it yes, it's $110 million, but about $10 million of that will probably come from the local investors although.

Those local investors arent contractually committed at this point in time to have to put up that that $10 million day, basically a sign pledges to do it and so as we come to closing on the financing, but I suspect that they will fill out that $10 million easily and then some maybe so the company is now going to be on the hook.

For about $100 million.

On.

On the investment.

We will end up.

Owning.

Somewhere between you know.

85 <unk>.

<unk> 90 per cent of the.

Of the entity.

And and we have not given numbers.

Officially out.

For it but I have said and I've had conversations on these conference calls with people have kind of backed into it.

On that.

The casino is.

Its public knowledge based on.

What we.

Submit it in the RFP and what the state of Virginia has said they thought that they think the topline revenue for the Richmond Casino is gonna be on the $300 million range.

Cities got a favorable tax rate.

Excuse me the states got a favorable tax rate.

So projections.

Are going to kind of pencil out.

You know to EBITDA that could be very similar to <unk>.

Our better than our radio and our television divisions.

So you could expect that EBITDA too.

To.

Be well.

Yes, the range could be anywhere from.

100 and.

You know north of $100 million hundred $12 million to fear misperceptions could be 70, right, yeah, but yeah I think.

For radio divisions, Ebitdas in the Seventy's and yeah and last year at TV..1 did about 100, yeah. So so my statement has been that this casino.

Opportunity will create a another division and this doesn't include our MGM.

Interest and other division that would rival the the EBITDA.

Greater revenue.

But the arrival of the EBITDA of both of our existing divisions.

So for Europe.

Albeit these casino investments are valued at a at a much higher multiple than either radio or cable TV as well.

Right, so so you're referring to EBITDAR.

I am sorry to casino EBITDA.

For our before Randy I assume for project finance will be a.

<unk>.

Additional debt within that silo.

Correct correct that the project will.

It'll be it'll be project finance habits, 1 that capital stack and.

And we are providing a 100 and.

100 ish of of equity.

Our gaming partner has.

<unk>, another $25 million to $35 million of preferred equity.

They won't put on any common stock in the entity and the local investors are going to put up about $10 million.

Right, but the Pte 25 to 30 pulp for what's the equity interest do they have or that.

What I just said I just said, it's they're just gonna have a straight single digit coupon and they don't own any common equity in the entity whatsoever.

Are they going to be running the operations. That's correct. That's yes. They are and again. This is in all of our filings. Okay. They are are.

They are our gaming partner there are operating and development partner. So we're working with them to develop it and they will have a management agreement too.

To operate the casino on our behalf.

Got it thank you very much youre welcome.

Our next question comes from the line of Todd Morgan with Jefferies. Please go ahead.

And pardon me just a moment.

Mr. Morgan Your line is open.

Great. Thank you.

Thanks for all the detail as usual just turning to radio I know Alfred in the past you've been pretty Frank about plans for radio or kind of just being opportunistic I don't know if there is any different sort of environment as you see it going forward now as to the ability for the opportunity set for swaps or accretive.

Smaller deals or anything else like that is that as the environment evolves at all on the last several 1.

Look I I don't think the opportunity set has changed I mean, the fact the matter is is.

The owners have basically been the same and you know not many assets have changed hands I think what is changing.

Is a better.

Economic environment.

In general and for radio in.

In particular audio continues to have a resurgence and be hot.

I believe that radio as a medium.

We got hit the hardest and the pandemic because our advertisers were the ones that were hit.

The hardest and then people were at home and not riding around in cars yeah price.

Share of that people kind of felt like the digital disruption it already happened to radio.

I've seen some.

Really good numbers come in.

Out of the other radio operators town square.

She's malicious numbers or guidance just went up the guidance for.

Yeah. They are projecting for 'twenty 2 to be back to tag on there where they were at.

119.

<unk> looked at for a long way out so who the hell knows what happens at the end of 'twenty 2 but you know they are feeling bullish about it and then they raised their guidance for 'twenty 1.

So I think that's all good for radio but at the end of the day, the regulatory environment Hasnt changed.

Yeah, and radio has always been about a mismatch of price expectations.

And people what people were willing to pay and where everybody's leverage was that there's always been the you know the stumbling blocks if you will.

And so no no nobody homes or radio who owns a radio station that is not a public company wants to believe that their radio station is really only 1.7 times cash flow yeah. They don't want to believe that because that's not you know.

For what the old days, you stipulate right, Yeah, and then people used to really look at stick value right.

Well you know peoples view of stick value has certainly changed in an environment, where top line radio revenue is not growing at 7% a year.

But I definitely believed.

There's much more interest in demand for audio and radio from advertisers.

We're seeing it talking to people.

And I believe that the business has definitely stabilized so I'm bullish about it.

Still plan to be opportunistic.

And.

On the media business is crazy because.

There's challenges threats, yeah disruption in every part of it.

So I'm just happy that we've got a yeah, we've got a bet and all these different sectors yes.

And that diversification is helping us on when people ask us what our strategy is.

Is yeah its too.

It's to be opportunistic Tunis and create value in each of these silos, whether it's radio cable TV gaming or digital.

No. That's very helpful. Just a quick follow up on the on the on cost side..1 area of programming technical you guys have done a great job kind of holding that those costs down certainly through the pandemic, but compared to where it was in the past it's dramatically different.

Go forward is that a number I mean does this kind of a run rate or at least sort of generic percentage kind of a good way to think about things.

Q2 2021 Urban One Inc Earnings Call

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