Q4 2022 Urban One Inc Earnings Call
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Okay.
Ladies and gentlemen, thank you for standing by and welcome to urban one's 2022 year end earnings Conference call.
At this time all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions will be given at that time.
During this conference call urban one will be sharing with you certain projections and 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 <unk>.
This call will present information as of July 7th 2023. 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 dot urban one dot com.
A replay of the conference call will be available from 12 P. M. Eastern time, seven 720 twenty-three until 11 59 P. M 714 in 'twenty to 'twenty three.
Callers may access the replay by calling 8662071041 within the U S International callers may dial direct 4029700847.
The replay access code is 8019907.
Access to live audio and a replay of the conference call will be available on urban one's corporate website at www Dot urban one dot com.
A 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 we also have Jody <unk>, the chief financial Officer for TV one.
And Kris Simpson, who is the general counsel of the company is also joining us.
Bob.
Finally, our year end earnings report in the middle of the year. Thank you everyone for bearing with us as we got.
Got through an unexpected.
Got it.
But we're happy to report that the year ended are as expected was right on top of our year end guidance of about $165 $6 million of EBITDA Leverages before below four times, which was a great outcome.
Indicated that that was our goal and Thats, where we landed.
Couple of things just to give you highlights.
Before I turn it over to Peter.
You, probably also know and <unk> seen in the press release, we monetized our MGM National Harbor investment we did that in April .
It ended up being a fantastic investment for us we invested $40 million.
Our cash and AR.
And the project, we ended up pulling in that $40 million out in dividends over the length of time that we held it and then our equity investment in the end it was worth $137 million. So it's probably roughly a four five times our money investment why did we do it we do.
Did it because we thought that there are 2022 performance was number one a high watermark.
For the property.
It was not expected it was well ahead of where we had expected it to be we also felt that given the macro economic environment.
And a number of other things that probably was not particularly liked.
Likely that we were going to do better.
Then back going board things can happen, we don't know for sure.
But yes that was our calculus that they.
The third thing is that you know on that $137 million.
We were earning approximately $8 $8 million of dividends, which was about a six 4% return on the value of it since it's a tremendous return on $40 million, but around $137 million at.
The six 4% return and we thought that we could do better.
And then six 4%.
Investing that capital.
And other things in the.
The first place we started wise, even though we're not doing better as you know with U S treasuries, where we're getting about 5% yeah.
On that money South back the matter is we're not giving up a ton of current income right now holding that.
In treasuries and we're sitting on a bunch of cash right now as we lead through an uncertain economic time.
The thing that the uncertainty actually moderate feels like maybe.
Maybe there's not going to be a recession.
But who knows and we've got a number of things coming up.
There.
We may.
You may need to deploy that cash whether it's yeah that continued debt buybacks, which we haven't been doing yeah, particularly since we haven't filed our financial statements, but I haven't checked in a minute. The last I checked that bonds are yielding like 10% north of 10% 10, 3%. So even that now is there's a better investment than.
Just continuing to hold the equity and get a six 4% return we are.
In the process of gearing up to run another referendum in Richmond for our Casino project with our new partner at Churchill Downs.
We.
Believe that there is an exceptionally high likelihood that we.
We will be running that referendum.
We've got.
Some assurances public ensure assurances by the.
Virginia Senate budget negotiators that yeah.
Richmond referendum or this casino.
Recommended being blocked to potentially move to Petersburg as a non negotiable item for them that was recently.
And the news press in Virginia, So we've got some some some real support their city Council voted it out, whereas the Virginia lottery now for approval and and then we'll go to the circuit court to get the referendum scheduled early vote would start September 22nd.
The 2023 Friday September 22nd election day would be November 7th So if I'm Oh of.
If we're successful with the referendum will obviously need cash.
Order to find that although the partnership.
Enrichment is different now we are not the sole equity provider at this point in time.
The equity investment with their SaaS and Churchill Downs.
There are great.
Well capitalized company.
The CEO is very engaged in this we couldnt be lumpier to have them.
As a partner we also oh.
I don't want to say recently, a few months ago announced the acquisition.
For Houston radio stations from Cox media.
Media group, we expect the upper $27 $5 million.
We have also signed agreements to spin off two stations that we can't.
Can't only because it will be over the limit for a total of $10 $5 million. So we're gonna be into that acquisition for about 17.
<unk> million dollars I shouldn't change yeah, we expect that that cash flow.
From that acquisition will equate to at least $5 million yeah.
As we step into it so a very attractive multiple that we were able to acquire that once you factor in the.
The amount of money that we got for the <unk>. We also think that there are number of other potential <unk>.
Radio acquisitions that are out there that view right.
Right now radio.
The radio companies are trading kind of like in the fives in terms of an EBITDA multiple.
And so if you were to buy radio and a five and a half times multiple you're talking about close to a 20% return which is also better than our six 4% that we were getting on the MGM.
Investment. So there are a number of things that we think that we can do.
Going forward that will ultimately net us a better a better return so whether it's paying down debt you know at 10%, whether it's buying radio in the fives.
That met you at 20%.
If they are.
Getting a referendum, one and investing in the Richmond casino.
As another.
There is a process going on that <unk>.
Guys have probably seen in the business press, where paramount is looking to sell.
The BH media group, which includes B E T N V H one.
Our name is not never mentioned, but we are involved in that process you know with a number of other parties.
Still doing our diligence yeah on it don't know where we land.
But yeah. We are we're engaged and we think that we have exceptionally complementary assets with TV, one and cleo assets that could potentially create a lot of value.
However, we remain disciplined from an acquisition standpoint, we're fully aware of the challenges that the pay TV ecosystem has one of the reasons why we think of that.
Finding scale in there.
This business could make a lot of sense as well so we're we're.
We're doing our work.
Staying engaged on that.
2023 guidance are we.
We are expecting 2023 EBITDA they come in.
Better than our 2019 pre pandemic EBITDA, if you go X N G M dividends. So that's our goal.
We we feel pretty good about being able to achieve that.
We're.
Thinking leverage will continue to be below four times, you know call. It three seven ish you know by the.
By the end of the year and given the macro economic backdrop I think we'd also pretty good about that as an outcome should that come to pass so with that I am going to turn it over to Peter Thompson to go.
More specifically into the numbers.
Thank you operator.
The numbers, let me talk a little bit about the delayed filing of the MGM restatement.
Since the inception of the MGM deal we've been carrying.
How stake and that is an equity investment cost.
I don't know once the put option that we had became exercisable, we should have reclassified the investment as a debt securities available for sale.
So it really is a technical challenges.
Should have counted on the balance sheet. Once you ended up in that.
Bucket, so there's a debt securities available for sale.
And then reevaluate.
Every quarter and.
And we didn't do that and obviously, we knew what it was worth.
And I think we've done a decent job of telling our investors what it's worth when the put crystallize that so the end state value of $136 $8 million was known but we have to go into an outside valuation specialists to appraise the asset for each quarter of 2021 and 2022 using multiple.
Methodologies.
Which took some time to work.
Separate from this but also contributing to the delay in filing our auditors required additional documentation around the company's ASC 606 revenue recognition policies and that required us to bring in a consultancy firm to write a bunch of technical accounting memorandum.
We're not a big shop, we didn't have the resource to do that internally.
And so we have to go find someone to write those technical.
Accounts of memos for Us and then finally.
There was significantly increased.
And to order testing.
Around general insurance and other things as a result of a law.
Lack of reliance on total consoles, but in prior years had been deemed sufficient.
<unk> this year and all of that meant that it took many additional weeks of work to get the accounts signed off.
This has been frustrating both for the company and the investors.
Thank you all for your patience and support I've been speaking to.
As many of the investors.
Just to try and keep people apprised of what's going on and we appreciate you.
Inpatient and bearing with us while we work through that.
Sure.
Turning to the numbers themselves.
Adjusted EBITDA was $31 $7 million for the quarter, which was down two 3% from last year full year consolidated adjusted EBITDA was $165 6 million in line with the company's guidance.
10, 2% year over year.
Fourth quarter consolidated net revenue was up one 6% year over year.
Indianapolis splitting acquisition added approximately $4 2 million.
And there was the absence of a cruise.
$7 million.
Last year in the fourth.
In 2012.
Normalizing for those two things net revenue was up nine.
9%.
We're down one 4%, excluding $6 million of incremental political advertising.
Net revenue for the radio segment increased 23, 8% year over year by 14, 1% on a same station basis.
According to Miller Kaplan and on a same station basis local AD sales were on par with the market of minus 1%.
National AD sales.
Outperformed we were up 41, 9% against the market that was up 17, 4%.
Our heavy political spend but also our corporate sales effort.
We recorded $8 $1 million in net political AD revenue of which $7 $2 million was radio.
<unk> to $1 $5 million in prior year government and public was our biggest radio advertising category for the quarter 97, 6% health care was up this quarter.
6% or Covid resolved.
Six 3% retail was up 12, 7%.
Payment was up eight 9%.
Services financial telecoms, food and beverage and travel and transportation down in the quarter.
Q1, 2023 radio revenue, excluding digital was up 2% on a same station basis or up two 1% excluding political.
Q2 is currently pacing down 5%, excluding digital on a same station basis.
<unk>, 0.9%, excluding political so with all of them well on a same station basis ex political.
Net revenue for reach media was $11 9 million in the fourth quarter compared to $12 $3 million last year, excluding the crews are there.
Adjusted EBITDA was $3 $1 million down from three 8 million in prior year.
Full year adjusted EBITDA.
Increased by 13, 3% to 15.
Yeah.
Net revenues for our digital segment increased by 24, 1% and fourth quarters of 2012, one and $2 million.
The direct sales team had an exceptionally strong finish to the year.
Driven by continued demand to reach black audiences of scale and increased midterm political revenue.
EBITDA was $9 million per quarter.
With $1 $8 million per year up 24, 1% year over year.
Radio reach and digital segments, so our audio business.
Q4, adjusted EBITDA of $28 million quarter up 12% year over year.
We recognized approximately $49 $7 million of revenue from our cable television segment during the course.
Eight 3% cable TV advertising revenue was down eight 4% with a favorable rate and volume impact.
$900000 offset by unfavorable climate variance of 1 million $7 three video on demand.
And 1 million six months favorable AVG.
Cable TV affiliate revenue was down by seven 4% with a favorable rate increased $1 $2 million being offset by some $4 million.
Sure.
$650000 of the increase.
Cable subscribers as measured by Nielsen finished Q4.
$5 million.
That's great.
End of Q3, and Cleo TV had $41 $8 million loss in subs.
Okay.
In trouble hearing us.
Okay.
I understand that the same quality was poor we tell me a conditional yes.
Maybe demand phones around hopefully that will be better.
We recorded approximately $2 $6 million of investment income from our stake in the MGM National Harbor property for the quarter up 30% from prior year.
Operating expenses, excluding depreciation amortization impairments and stock based compensation of approximately $104 $2 million in fourth quarter.
$305 $6 million in Q4 of 2021.
<unk> expenses decreased by $6 $9 million due to the absence of the reach cruise event, which returned in may of this year.
Cable TV content amortization decreased by $5 $3 million.
The noncash charge when the CEO is employment award decreased by three and a half million dollars.
Employee compensation increased by approximately $5 $6 million, including incentive compensation across the organization for superior audio performance against plan.
Revenue variable expenses increased $4 million travel entertainment and office expenses increased by $2 $2 million in outside services, including contract talent consulting fees increased by two and a half million dollars about.
About three and $3 3 million of those increased expenses.
We are in relation to the Indianapolis Radio acquisition is included in those totals.
Radio operating expenses were up by $4 8 million for the Indianapolis cluster Adam.
Just over $3 million of the increase expenses related to revenue increases such as sales commissions and bonuses drove the rest of the increase our.
Reach operating expenses were flat except for the cruise event.
Operating expenses in the digital segment were up 36, 9% driven predominantly by variable expenses related to traffic acquisition costs, which were up $2 $3 million of production out of production and marketing, which was up $2 million in content and streaming music royalties, which was up by $1 7 million.
Cable TV expenses were down $4 $9 million with content amortization expense down by $5 3 million users.
<unk> had some write downs in prior years it didn't work.
Operating expenses in the corporate and eliminations segment went down by four 7%. It was a favorable variance of three and a half million dollars for noncash TV, One employment award charge, which was offset by increases in employee compensation, including annual performance bonuses outside legal fees third party.
Software license fees T E recruiting and marketing.
For the fourth quarter consolidated broadcast and digital operating income was approximately $47 $6 million an increase of seven 9%.
During the quarter the company repurchased $25 million of his 2028 notes at an average price of approximately 86.4%, resulting.
Resulting in a net gain on the timing.
Approximately $3 million, an additional $25 million of the 2028 notes was repurchased in the first quarter of 2023 at an average price of approximately 89, 1%, bringing the total gross debt.
Lance down to $725 million today down from $825 million at the start of 2022, So we've now paid down $100 million.
That.
Interest expense decreased to approximately $14 $6 million for the fourth quarter down 8% from last year due to the debt pay Downs company made cash interest payments of approximately $625000 in the quarter include.
Including the accrued interest on the retired notes.
Semiannual interest payment was paid on February 1st 23.
A noncash impairment of $10 3 million was recorded for a radio market broadcasting licenses in Cincinnati, Dallas, Houston, and Raleigh, and also for our Philadelphia market goodwill balance.
Provision for income taxes was approximately $3 $9 million for the quarter company paid cash taxes.
And the amount of approximately $1 $1 million.
Net income.
It was approximately $856000 or <unk>, <unk>, a share compared to $5 $3 million or <unk> 10, a share for the fourth quarter of 2021 capital expenditures were approximately $1 $5 million company repurchased 13577 shares of class B common stock in the amount of $57000.
As of December 31st 22.
Gross debt was $750 million, the ending unrestricted cash balance was $94 $9 million.
Our resulting in net debt of approximately $655 $1 million, which compared to $165 $6 million of LTM reported adjusted EBITDA.
It gives a total net leverage ratio of 396 times.
Pro forma for the Indianapolis acquisition total net leverage was 391 times.
On March eight 2023, the company issued notice with respect to 100% of his interest in the MGM National Harbor LLC.
April 21, 2023, we closed on the sale of the quote interest company received approximately $136 $8 million of proceeds at the time of settlement.
During the quarter ended March 31st 2023. The company also received $8 $8 million, representing the company's annual distribution from MGM National Harbor with respect to fiscal year 'twenty two.
Pro forma for the MGM put total net leverage was 321 times, including the $145 $5 million of cash receipts from MGM and excluding the LTM adjusted EBITDA for the MGM stake of $8 $8 million.
On April 11th 2023, the company announced it had signed asset purchase agreement with Cups media to purchase a Houston radio cluster of and one we will divest two stations to comply with the FCC ownership regulations.
Actions subject to FCC approval and is anticipated to close either late in the second quarter or early in the third quarter of 2003.
Until that time, we will re in CMG will continue to operate a respected stations.
And then finally.
With the MGM proceeds our current cash balance.
<unk> has approximately $235 million.
With that.
I will Oh, I'll hand back to Alfred Great.
Great. Thank you.
Operators I'd like to open the line up for Q and a place absolutely ladies and gentlemen, if you do have any questions. Please press. One then zero on your telephone keypad, you'll hear an indication you've been placed into queue and you may remove yourself from Q by repeating the one then zero command.
If you are using a speaker phone and we ask that you. Please pickup your handset before pressing any buttons.
<unk> for your questions Press, one then zero at this time.
Well first go to the line of Aaron Watts with Deutsche Bank, One moment, while we opened near line.
You May go ahead.
Hi, guys. Thanks for hosting the call good to hear from you.
I've got a couple of Peter sorry to ask you to do this at least for me. Your line was a little choppy at the beginning of your comment could you repeat what on the radio side, what you're kind of same station core advertising.
Performance was in for Q1 Q and then also what you said <unk> was pacing at.
Yeah. So.
Let me go back.
Uh huh.
Q1 of 'twenty three.
Excluding digital which is what we report radio segment was up 2% on a same station basis.
Excluding political was up three 1%.
As reported.
It's probably gonna look it's going to look like it was up about 11% the first quarter because of the Indianapolis acquisition.
The second quarter.
Is pacing down 5% at the moment on a same station basis.
But obviously political there was there was a fair amount of political last year, a couple of million dollars. So excluding that some station, we're pacing down to 0.9%.
<unk>.
The second quarter.
On radio as reported because we're layering on top of that.
Probably looking more like we're going to be up probably.
Low to mid single digits.
Okay got it thank you for repeating that and and alright.
Sorry, and then on the on the radio segment on a same station basis 14, 1% up for fourth quarter.
Great.
And as you sit today guys like.
How is the environment feeling to you as you enter your entering July here relative to what you've felt in the first half of the year any.
Any rays of light coming through in terms of advertising.
Willing advertiser willingness to spend whether it's on the local or national level or is it feels relatively steady with what you had been feeling and the kind of April may June timeframe.
Yeah look there's definitely an advertising recession going on.
I was at the Cannes Lions advertising conference.
Thanks ago.
And you hear it from you know the big holding companies.
And it's particularly taken root and national you know and so you're seeing that come through.
With.
People, who have national AD platforms local feels stronger you know but.
I mean, you watch the news CNBC the economic data is still really strong.
And but just because advertisers are pulling back or not.
I'm not sure they're pulling back because they're worried about something thats coming or exactly yeah, exactly why but there is definitely an add recession going on.
We're still feeling.
Yeah.
A level of strength.
Due to interest and.
And diverse owned media Yeah, we're definitely still feeling that doesn't mean that we're not seeing less demand, but we're doing better than our non diverse owned peers. One of the reasons. Why we also felt it would be good to be sitting on a lot of cash you know at this point in time.
I don't know exactly.
Exactly whats going to happen, but I you know I am.
I I feel if there's a recession it would be a mild recession you know I think we're already in an advertising recession, we may not be in an economic recession.
At this point.
And are you now.
Our radio business is going against some significant political headwinds right, we had $20 million worth of political.
It was clear to me unless you thought that was the prior presidential cycles. So it's only has about 13 got you Joe.
Significant significance excuse me and.
Yeah.
But I do know that work now.
We're preparing to be okay, regardless of what the economy does but I would say.
Say I feel better about where things are going today than I did in January .
Okay. That's helpful context, thank you for that.
Second question and I'm, sorry, if you already disclosed this but with the stations you are picking up from Cox.
Are you able to share what the multiple you paid was on that purchase.
No I mean, we paid now.
We paid 27 and a half million dollars you know I think I just said that we think you know with.
Now with add backs and things of that nature that we will have at least $5 million of EBITDA, yeah, Yeah, and so I don't know if you caught up with that.
Net of spins yeah, yeah, yeah.
So so so let's say that their EBITDA was less than $5 million. We think would add backs will have at least $5 million and when I say add backs.
Duplicate expense stuff that we can take out.
They want and there's not a lot of it right now we're not changing formats.
But what was the surprise for us to be honest with you because we modeled something else.
<unk> was.
We.
Well, we yeah, we were able to.
Get out of the two radio stations.
For.
An acceptable price right.
And we didn't know what the marketplace was gonna be like yeah, and and we have been able to find to buyers and got what we thought were not amazing prices, probably low watermarks for stations and in Houston, but given the M&A activity.
Activity and radio period is pretty tepid you know.
We felt.
Feel pretty good about.
The sales there and so we're going to be in to Houston for about $17 million.
Okay. Thank you for that and one last question you've mentioned your liquidity.
Couple of times and it is a nice cushion to have given the uncertain.
The economic backdrop.
As you move forward here, you've bought back bonds, but you also have the potential casino project.
How should we think about the uses of those of that cash whether it's debt paydown going towards the casino initiative or potentially more M&A activity, whether that's on the radio side or otherwise.
Look at it.
When we when this can see no referendum.
We were gonna have to right now.
Yes.
It's not certain exactly what the equity check will be it's 50 50 right now.
But you know, let's assume that it's $80 million.
For each awesome Churchill, and that's assuming you put some debt on it.
We may not go that route you know depending on how expensive project financing is so.
They need the right.
I'll start with a bigger check.
But.
Assume that that's going to be something that we will spend cash on that starting in Q4.
Beginning with closing on the land acquisition.
And then I think we sit back and just look at stuff opportunistic I mean, the good thing is that you know.
Our bonds trading at a discount call, it 90 or and some change or whatever your 10, 5% right. So that's always yeah. That's that that's a good use of capital.
At that point in time in it and if we can make.
Some radio acquisitions that are a better.
Better return than that then we should look hard at that.
But.
Paying down debt I mean, we're also starting to get into our strike zone.
<unk>.
Of leverage into threes, you get leverage now three and a half.
Yeah, low threes, you're starting to get in the strike zone of.
What other kind of capital.
Returns of capital do you look at.
But we've got a.
We've got some significant projects on that on the on the plate right now that we need to see how they're going to turn out.
Okay, Alright, great I appreciate the time as always.
Yeah.
Well next go to the line of Ben Briggs with Stone ex financial incorporated go ahead.
Morning, guys. Thank you for holding the call and taking my questions.
So a lot of mine got answered, but I still have a couple of more here so you're using you're using your guidance and again, thank you for providing guidance.
You said that you expect to come in above where you were in fiscal year 19, while adjusting out the roughly $8 million MGM dividend.
Dividend that you received so that gets me to roughly let's call. It like just north of $130 million.
EBITDA.
I just wanted to kind of sanity check that and make sure I'm doing my math right there.
No I haven't I have 133, and a half with MGM in an MGM I think it was 6.6. So I think you I think it's like high.
Hi, one 'twenty, one 'twenty, one 'twenty six 'twenty seven.
Okay. Okay.
Yeah Yeah.
Okay. So 126 127.
And then if I subtract out call it between 60 and $65 million of interest expense.
And some capex.
It looks like you guys on an EBITDA minus interest minus capex basis should still be comfortably free cash flow positive.
In fiscal year 'twenty three.
Is that a safe assumption.
Yeah, I've got is kind of mid 60.
Free cash flow, depending on where our profit comes out we've got a couple of big is.
Holiday and in Indianapolis, and Charlotte, but probably you don't get to spend all of us here so far.
While mid 60 with free cash flow is what we're planning for that for this year.
Okay perfect. That's that's right around where I was getting too. Thank you.
And then the second question so.
So Churchill downs.
Thank you for the clarity on you know what size the equity check might be.
And a little bit about what your thought process is that could you give a couple more details on what the operations of that might look like so I know obviously with the MGM casino that was very much you guys were essentially silent partners not like you had a hand in operating the casino.
That to them is the Churchill Downs project going to be similar or are you gonna be taken a more hands on approach.
With this opportunity that'll be the operator, we're just gonna one at 50 50 with them and they'll be responsible for operating however, they'll they'll use their corporate expertise to work with us to build a management team locally at the property now.
They've got a number of partnerships with other people.
Including one with rush gaming in Chicago and guests planes.
Got one in Miami with Delaware, North I think it's Miami.
So they've got a good thing about them they've got experience with having.
Large partners, meaning you know not somebody who owns 7%, but somebody who owns 50 per cent along with them right now so.
But we will be relying on them to be the operator.
Okay got it got it okay.
Thank you and then finally.
And I'm, hoping you can answer that so obviously you just released the fiscal year 'twenty. Two 10-K do you and I know this is officially the fiscal year 'twenty two conference call.
Do you know when.
You might release, the first quarter 'twenty three 10-Q.
We haven't set a day I think we'll know more next week, but we're just working through some stuff.
In terms of the timing of that and obviously, we're mindful of.
We got an extension from NASDAQ through 927, we don't want to take that length of time, but.
But I think we'll put something out next week, which will which will shed some light on that.
Terms of timing of filing that.
Okay great.
Thank you very much for holding the call and answering the questions great Tiger.
Thank you.
Our next question will come from the line of Matt Swope with Baird go ahead.
Alright, good morning, guys.
Peter could you could you give us a sense for out of that large cash number you mentioned.
Unexpected.
Unusual uses that we should think of I mean, how does that cash number yes.
Yeah, you just won a bid out as you said it but I think you were asking is there any tax leakage on the MGM sale right.
That's right yeah yeah.
Yes.
Minimal.
Because we got enough NOL to cover it.
Roughly $100 million game.
It will burn through Nols fastest so will probably accelerate.
<unk> become a federal tax fall from 2027 to 2026 months somewhere in that region. So the good news as well.
We'll have the cash on the balance sheet and there'll be minimal tax leakage.
Okay.
And as a reminder, ladies and gentlemen, if you do have questions. Please take this opportunity now to press. One then zero on your telephone keypad.
We'll go next to the line of Brad Kern, a private Investor go ahead.
Hi, Thanks for taking the call and I appreciate it I.
Appreciate all the information today first one is on the Richmond Casino, what what's the likelihood in your view of a favorable vote are you doing any.
Any polling yourselves are tracking any sort of local polling that you can maybe give us some color on and for what work are you doing to improve local sentiment for the project among them.
Likely voters.
In addition on the casino.
It's a 50 year partnership with Who's who is gonna be controlling that.
The decision should you decide you know I think it has your name on it so who are you.
Who's going to be making the decisions when you get down to the tough ones.
No there'll be joint decisions, if we disagree there's a dispute.
Resolution mechanism.
But.
But we're 50 50 partners then we gotta agree otherwise we'd go to distribute that.
Resolution mechanism.
We've got a 50 50 shot the referendum, we lost it.
58, five to 49.
0.15.
Sentiment.
<unk> continues to be divided in in the city.
And.
We got to do a better job of telling voters, how the money that the casino will.
Generate is going to be spent we didn't do that last time. We got you know we've got to work with the city on that that's not our unilateral call.
I think that we've got to articulate the other aspects of the of the resort not just the casino Park their entertainment vehicle.
We gotta do.
A better job of getting out our voters, but it's 50 50, I've always said that people should look at our company.
As you know as a baseline.
And decide whether or not they're comfortable with our existing operations and in our balance sheet and look at the casino as upsides like gravy.
And so that's you know that's where we sit.
Okay.
Its helpful and so assuming that is approved I mean, what do you anticipate that.
The payback will be on the casino and sure for modeling purposes.
Because of the number of tables and slots and gross gaming revenue across each of those or are there some.
Preliminary figures you can you can throw out.
And that failure.
You should assume that the the gaming revenue this is the.
State has its own there.
Gaming analysis for each of the proposed casino licenses there are five different jurisdictions.
The one for Richmond, Virginia is a little better than $300 million of gaming revenue.
By year end and you can probably operate.
Better than a.
30% margin on that so I assume that the property to a $100 million in EBIT EBITDA.
If not better.
But as a as a minimum I think you should assume that the $100 million.
Could do better.
Okay. That's that's really helpful.
And then on the on the radio and TV side are.
Do you anticipate any potential slowdown in appetite for advertising.
Particularly given the.
Affirmative action ruling what are you hearing from your your advertising partners.
Everybody's asking that question, yeah and so.
My General.
Is that if the political climate changes significantly.
And in the country that.
Sort of.
Progressive an inclusionary politics.
We will take a hit.
I believe that many of the corporations that have committed to do Eni efforts yeah.
Believe in it and doing it because.
It's a good business in today's world I mean, one of the things that you cannot run from is the changing face of America.
That's yeah, that's just what's happening yeah.
Black and Brown and now Asian populations are growing at a considerably faster clip.
Then the traditional Caucasian population and that's not.
It's not a race war, that's just the economics of the country right and so there will be different consumption patterns for those populations at and consult and different types of consumption for for media and and how you communicate with them and talk to them et cetera, They will become more and more of a force.
From a consumer.
Standpoint, and and it's no different than any other customer you got to cater to that customer and so.
And that's the conversation that I'm hearing among advertisers now, but yeah. If the government doesn't give you now.
Uh-huh about diversity.
Diversity and inclusion now then I think there will be some corporations that will pull back on that yeah, because generally.
Yeah government.
Pressure.
Our fear of some sort of.
Government regulation of retribution.
Causes good corporate citizenship yeah.
So, but that's my general view, but you never know.
Yeah.
Yeah I mean.
Forget who it was but you know Donald Trump won his way out the door pardon I forgot the number of rappers or whatever.
Forget I forgot who it was who would've thought right ruling was a little way I don't remember what it was like Oh, So maybe he if he if he if he wins the presidency, maybe he can all of a sudden decides it's a good business as well you never know.
But that's but that's my view I mean.
Look the progressive wing of the Democratic Party.
Party right now.
He's got a.
A lot of people talking about fairness and equity.
And Justice and then the traditional.
Faction of the Democratic Party is yeah. Those are things that we believed then too right yeah and.
So that that helps with this wave.
Okay I appreciate that that's helpful response.
On a related note your your core audience or are you seeing.
Or is it sort of.
Existential time for.
Radio listenership and secular pressures there.
Are you seeing better.
Consumption trends or how can you can you just talk about consumption trends of your core audience versus.
Everything competitors.
Everything in traditional media is going down and seeing less consumption.
And.
And and and so but radio.
Radio fields.
Safer and better and less of a.
And then less of a free fall then the pay TV ecosystem yeah. It does.
But I think what we're also seeing.
<unk>.
With radio where we're dealing with less rating points right now, but if you looked at our revenue. Peter you did that analysis, our revenue is really kind of on par.
What was the analysis you did well when you look at audio we're looking across the radio segment reach and.
Digital audio we're still.
Above pre pandemic levels of revenue and EBITDA. Despite the fact that the the universe of listeners who've gone down fairly significantly post pandemic as you might imagine given different working patterns and commute in pounds. So I mean, I might give some credit to.
One of the.
Uh huh.
He owes premier CEO in the AR and the.
The industry, Bob Pittman, and I had a conversation with him and Tan at this.
This advertising festival, and we were talking about the radio business and he hammers.
That radio still has 90% reach even though the numbers may be small, there's a 90% reach in America and reach and TV. Yes. It continues to decline historically advertisers have paid more for less and TV and I think Peter's analysis would say.
Hey.
That we're doing pretty good on pricing versus where audience yeah.
Is gone.
So that's what that's the world we're living in.
And I don't know what the answer is nobody nobody except Netflix is making money in streaming right now maybe discovery.
Turns the corner here I think they were supposed to turned the quarter I'm trying to corner. This quarter next quarter, but people are starting to dial back on their investments in streaming.
Radio is kind of hanging in there now.
Yeah, but I.
There was a time when I was a lot more worried about radio and I was really good that I felt really good that we were in the cable TV business yeah.
I feel really good that we're diversified among all of these things and radio feels like it's hanging in there and we're making our cable TV business you know hang in there right now with the way that we're managing it but I do feel like we need to do something strategic there, whether it's picking up more distribution.
Programming investments, yeah, some sort of consolidation opportunity.
Cause that landscape is changing and so we got to figure it out but the good news is we're at a leverage level now where we're going to have time to do that we have time to make those investments. We're gonna have tie yeah, we're not going to be under any pressure.
That will.
Make us have to operate in a non effective non strategic way I think that we're going to have the runway to make the turn.
Sure. So on the balance sheet I mean, we've talked about that.
You talked about the economics of the casino. So so in the world. We're in in the 50 50 shot where it doesn't.
Go through you mentioned on the call that.
Average kind of.
Leverage in the low threes or there's other forms of capital return you might be looking at so how do you how are you thinking about that versus potential strategic.
Strategic actions.
On the radio and television.
Or are there other industries, whether it's gaming or okay.
Look we match everything for us is it so.
Our strategy is often.
Strategy.
Our strategy has to be accountable to what your current return options are I don't think you make a decision you make a strategic decision and not match that up against what is the best use of capital right. So I would not if we can pay.
You can buy our bonds and retire our debt and get a 10, 5% return there is no strategic decision that we would make that would net us a 5% return.
We wouldn't do that.
You just pay it out you can pay down your bonds right now because if it's strategic then it should actually yield you a an.
Side return right yeah.
Get you itchy it should have you create value and the value that it creates needs to be better than what else what else you can do with.
With the capital that's how that's the lens under which we look at stuff.
And it's and it's and it's worked for us.
Yeah.
Does that makes sense.
I guess I'm just wondering is there at some point is there a leverage level that you.
The stock is and isn't terribly liquid is or is there a leverage level that you start to think about.
You ship from that debt reduction too.
Yeah.
Whether it's share buybacks or.
Amazingly wherever it is going to return that cash to maybe I mean, we were buying back shares last year. Yeah. Yeah, then we bought back $25 million worth of shares at $5 30.
And.
If I go up we see that come down, but its kind of yeah, but given the macro that we're just you know we got some strategic options ahead of us that'll be that'll be on the place at some point, but it depends on tons an hour revenue goes how EBITDA.
How do we feel about them and the share buyback analysis goes through the same return.
<unk>.
Rigor that buying a radio cluster does us buying more cable assets as investing in.
In the casino.
Yeah, we're not we're not we're not going to buy back.
Our stock and earn a 5% return over paying down our debt and 10, 5% return.
Okay. Thank you and let last question for me is just a housekeeping when you mentioned the three seven times leverage by the end of year is that I assume that all of that.
We set three seven.
Alright, 337, that's on a net basis, yes.
And that is that pro forma for any other uses of cash or what is what is what are the underlying assumptions in the three seven it assumes that we win the Richmond referendum, when we buy the land the alpha sub two in fourth quarter, so that cash goes out the door.
And it assumes that we close on the.
Acquisition in Houston.
So thats, 7% net 17 million goes out the door as well, but we pro forma them call it $5 million or so.
Of EBITDA from that transaction.
Okay, no no additional debt buybacks and that number now modeled into that number okay.
That's all my questions I appreciate it.
Yes.
We will go next to the line of Matthew Sam Schaefer with Mesirow Oh go ahead.
Hi, guys. Thank you for sneaking me in here.
Near the end.
Just a couple of housekeeping questions. What are you guys planning to spend on content. This year that number was obviously pretty high in 2022.
Yeah.
It was high in 'twenty two I was just looking I think mid fifties, Joe did you say, whether if he can speak to it seems like but I think we're looking at cash I've got a mine she leaves cash spend in the <unk>.
And the kind of mid fifties.
Ms Sabra.
So again.
Did you say mid fifties I'm, sorry, I don't have all the sound issue yeah mid fifties.
Okay great.
I think normalizes fathom philosophy, a lot from a cash standpoint.
Okay, great. Thank you.
And where there were there any unusual cash expenses in the radio or digital segments in the fourth quarter specifically.
Its margins took a little bit more of a hit than anybody expected.
Alright, I went through that during the first part of the call. He was on but I missed it yeah.
Yeah. They are there were a few things Mike there was some northern minimum. So obviously, we had a warm up yeah. So bonuses were higher than they otherwise normally would be so.
There was some of that.
And margins in digital we talked a little bit about the silos were impacted by higher traffic acquisition cost that was $2 $3 million also higher content.
Cost of digital and on production costs.
So those all those margins compressed.
Other than that.
There wasn't anything particularly material.
Okay, Great and then the that mid sixties free cash flow number you mentioned does that include the MGM dividend. This year or are you rolling that up into the shale price.
But that was in the sale price. So that's not so that mid sixties I don't know Stephane. Good point, let me just double check before us pretty similar.
Shouldn't have.
We have.
Okay.
Actually no sorry that doesn't include in my eyes rolled up into it.
The $8 seven of receipts.
Israel is in the mid <unk>.
Mid sixties sorry, okay.
And I guess, just generally on the digital side of things you mentioned to higher traffic acquisition costs or some guidance for what looks like kind of a persistent lower margins going forward.
What do you think about that competitive landscape overall.
Feels like.
And as you guys know it feels like.
Every radio station and not just radio obviously, but every every radio station company isn't trying to get into that business in a significant way.
Yeah.
What do you think is driving the higher <unk>.
<unk> costs, Yes go ahead, yeah, our digital business is different than everybody else's rail business.
Digital business.
Our digital business is largely as a content publisher.
Where we sell.
Video ads and display advertising, probably roughly 40% of our revenue this year would be digital video.
We've got some oh streaming.
The streaming revenues forgot what it was I know, it's at least 5% I don't know if this is excuse me at least $5 million I don't know if its going to be a little higher at $5 7 million and perhaps in the fall and we've got a bit of podcast business, but the Cumulus and Odyssey.
Modeled and.
R R.
Podcast driven.
I Heart has got their eye heart media streaming platform and they've got.
A big part casting business, where we're much more of a publisher.
And then town square does digital services right. So they act as a local small digital advertising agency for small and medium sized clients in the markets that they operate in.
Our digital business is different.
And everybody else's.
With that said, yeah, it's benefiting from now yes.
Still demand, we've got the largest African American targeted audience in this space. So we're you know we're the scaled player now.
In that space.
And.
Okay.
And I don't know what the prognosis is going for it I hope it continues to remain profitable we got to figure out how to see if we can grow that margin digital publishing is a tough business you can see.
From Buzzfeed, and Vox and a bunch of these other advice.
<unk>.
Having a tough way to go we've been doing better we've got to figure out how to.
<unk> managed through that yeah.
But it's a better business in the podcast business.
Yeah. So.
And my viewpoint.
Okay.
Yep.
Great. Thank you.
Thank you Matt.
We will go next.
Pardon me, Yeah. So 11 O six I think I said, we got time for one more one more question operator.
We'll go to the line of Marlin Pereiro with Bank of America go ahead.
Thank you for taking my call and squeezing me in most of them have been answered but quick question. You had mentioned a b E T. At the top of the call. So any other you know information on that or thoughts on what that could potentially look like in terms of the impact on leverage.
It's a competitive process now we're under an NDA.
I just figured some people people ask us if we're interested in it yeah. So I just figured I'd mentioned that we are in the process I couldn't yeah, we're not far enough along on anything at this point in time.
To comment now.
We wouldn't be allowed to comment anyway.
Got it.
I just get tired of people asking me are you guys looking at this and so I decided to admit that we work yeah, but that's all the information I can give.
Got it and then just a quick you know kind of reframe you know given the current environment overall secular and cyclical how high would you be willing to you know happier leverage in the current environment or what you kind of see the environment to be over the next year.
Ah.
Look we like our leverage you know four below yeah, we like it here if we have to write 100 plus million dollar check at the Yo Yo Yo over the next 12 months.
The casino.
That could change our leverage profile.
I'm sure Peter has the numbers, but.
We are.
$100 million goes out the door with no cash flow coming in for call. It 24 to 30 months, it's got a raise your leverage.
But I'm also assuming if we.
When a casino referendum bat.
We're probably going to get some credit for that in our equity value and who knows maybe we will raise some more equity.
No how we'll think about that.
But yeah yeah.
I would suffice it to say we sleep at night.
Our leverage is now.
For below four we like that.
Public pumps up above four in Q1, excluding the.
Pro forma for Amgen to the cash wasn't receipts of Q2.
So I guess, we'll give pro forma numbers in Q1.
But excluding the pro forma is probably north of four and it drops down.
Hopefully.
Mid threes.
As Alfred said, we hope them to finish about three seven times. This year and then if I look at a long range plan.
So in the low threes and eventually in the mid twos.
Assuming we can we can hit our plan.
Got it and sorry.
And one last one really on the top of the call. You also had said kind of more generally that radio multiples are like five times, if I heard you correctly.
What I mean.
There's lots of comps out there last I looked I thought the average radio multiple is kind of like five and a half or something like that so again now.
Yeah that's.
Yeah that that that that that's what I.
I think I remember, saying habits, it's variable with them, depending on who you're looking at yeah, I think that was above the mean.
Fair enough great well, thank you very much.
Thank you. Thank you everybody, we'll look forward to talking to you.
And at the point in the near future.
Ladies and gentlemen that will conclude your conference call for today. Thank you for your participation and for using AT&T event teleconferencing.
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