Urban One, Inc. (NASDAQ:UONE) Q3 2023 Earnings Conference Call January 11, 2024 10:00 AM ET
Company Participants
Alfred Liggins – Chief Executive Officer
Peter Thompson – Chief Financial Officer
Karen Wishart – Chief Administrative Officer
Kris Simpson – General Counsel
Jody Drewer – Chief Financial Officer TV One
Conference Call Participants
Hal Steiner – BNP Paribas
Operator
Ladies and gentlemen, thank you for standing by. During this conference call, Urban One will be sharing with you certain projections or other forward-looking statements regarding future events or its future performance.
Urban One cautions you that certain factors, including risks and uncertainties referred to in the 10-Ks, 10-Qs, and other reports it periodically files with the Securities and Exchange Commission could cause the company’s actual results to differ materially from those indicated by its projections or forward-looking statements. This call will present information as of January 11, 2024. Please note that Urban One disclaims any duty to update any forward-looking statements made in the presentation.
In this call, Urban One may also discuss some non-GAAP financial measures in talking about its performance. These measures will be reconciled to GAAP either during the course of this call or in the company’s press release, which can be found on its website at www.urban1.com.
A replay of this conference call will be available from 1 p.m. Eastern Time, January 11, 2024 until 11.59 p.m., January 18, 2024. Callers may access the replay by calling 866-207-1041 or international callers may dial direct 402-970-0847. The replay access code is 231-8685. Access to live audio and a replay of the conference call will also be available on Urban One’s corporate website at www.urban1.com. The replay will be made available on the website for seven days after the call. No other recordings or copies of this call are authorized or may be relied upon.
I’ll now turn the call over to Alfred C. Liggins, Chief Executive Officer of Urban One, who is joined by Peter D Thompson, Chief Financial Officer. Please go ahead.
Alfred Liggins
Thank you, operator. Also joining Peter and I are Chief Administrative Officer, Karen Wishart, our General Counsel, Kris Simpson, and the Chief Financial Officer for TV One, Jody Drewer.
We have released our third quarter results. Did so before the end of the year, so that’s been out there and we’re obviously doing the conference call now. A little bit of news that’s already out there, I think we kind of guided as to where we were going to be for the year end. Third quarter for us, as well as the rest of the radio sector, an awful quarter. Ours wasn’t any different.
Fourth quarter, we had huge political, that’s kind of same station, ex-political, kind of in line with third quarter as well. But net-net, we still are affirming our year-end guidance of 125 to almost 128. We’re still on top of that, comfortable with that as we finish tying out the year end results.
Good news going into ‘24, in the radio sector. Q1 radio stations are substantially better, bolstered a lot by improving local. Currently for us, we’re pacing low single digits. Today – it bounces around, but today it’s minus one for Q1. We’ll see how that looks and holds, but we’re optimistic as we go into ‘24 for a bottoming, if you will, in radio advertising performance and in an upswing due to political.
So with that, I’m going to turn it over to Peter, let him get into the detail of the numbers and then we’ll come back for Q&A.
Peter Thompson
Thank you, Alfred. Net revenue is down by 2.8% year-over-year for the quarter ended September 30, 2023 at approximately $117.8 million. Net revenue for the radio segment was $40.2 million, a decrease of 0.6% year-over-year. And we were down by 14.4% same station, minus 12% same station, ex-political, which as Alfred said is broadly in line with what we discussed on our last earnings call.
According to Miller Kaplan, our local ad sales were down 8.4% against the market. It was down 5.7% for the quarter. And our national ad sales were down 7% against the market. It was down 10.5%.
Q4 ‘23 radio segment is expected to be down approximately 14% all in. On the same station basis, Q4 is expected to be down approximately 23%, and then ex-political down about 13%. So broadly kind of in line with Q3 same station ex-political. And Q1 pacing on the same station basis, currently down very low single digits. Local is pacing plus 4%. National is down about 20%.
Net revenue for Reach Media was $11.2 million in the third quarter, up 10.8% over prior year. And adjusted EBITDA was $3.4 million, down 6.7% for the quarter. Net revenues for our digital segment decreased by 3% in Q3 to $20.4 million. Direct sales were down while local radio, streaming and podcast revenues were all up. Adjusted EBITDA was $7.4 million, down 2.9% year-over-year.
We recognize approximately $46.8 million of revenue from our cable television segment during the quarter, a decrease of 7.6%. Cable TV advertising revenue was down 5.9% where we had a favorable rate impact of $1.1 million, unfavorable volume impact of $1.2 million, $0.5 million unfavorable audience deficiency units, and an $850,000 reclass of VOD revenue to our digital segment related to CTV.
Cable TV affiliate revenue was down by 9.3%, with favorable rate increases of $1.2 million being offset by $3.4 million of net churn. Cable subscribers for TV One, as measured by Nielsen, finished Q3, 2023 at $44 million compared to $45.1 million at the end of Q2 and CLEO TV had $41.4 million Nielsen subs.
Operating expenses, excluding depreciation and amortization, stock-based compensation, and impairments of long-life assets increased to approximately $84.5 million for the quarter, up 5.3% from the approximately $80.2 million incurred for the comparable period in 2022.
Radio operating expenses were up 14.1% or $3.9 million, and the Houston Radio acquisition, which was effective August 1, 2023, that added approximately $2.2 million to expense, and also the Indianapolis radio acquisition, which we did back in September of 2022, added approximately $2 million of incremental expense.
On the same station basis, sales commission expenses were down, and event expenses were down from last year, the quarter, due to the time and difference between the two of the largest radio events for the company.
Reach operating expenses were up by 21.4%. That was driven by increased Reach net station compensation expenses, given the addition of four new networks, as well as event expenses and talent compensation.
Operating expenses in the digital segment were down 3%, driven predominantly by variable sales expenses tied to lower direct advertising revenues. Cable TV expenses were down 4.4% year-over-year. Content amortization expenses were up by $1.7 million, driven by an increase of $2.2 million for original programming. That increase was offset slightly by a reduction in promotional media spend, actually $3.1 million, considering that we had a greater number of premiere hours that we promoted in prior year.
Operating expenses in the corporate and elimination segment were up by approximately $520,000, primarily as a result of higher third-party consulting and audit expenses. Consolidated adjusted EBITDA was $34.1 million for the quarter, down 23%. For the third quarter, consolidated broadcast and digital operating income was approximately $43.8 million, a decrease of 13.9%.
Interest expense decreased to approximately $14 million for Q3, down $15.3 million last year due to lower overall debt balances. Company made cash interest payments of approximately $26.9 million in the quarter, and the next semi-annual debt service payment is due in Q1.
An $85.4 million impairment of goodwill intangible and long-lived assets was recorded across 10 of our 13 radio markets. The benefit from income taxes was approximately $16.8 million for the quarter, and the company paid cash income taxes in the amount of approximately $1.6 million.
Net loss was approximately $54.4 million or $1.14 per share, compared to net income of $3.5 million or $0.07 per share for the third quarter of 2022. Capital expenditures were approximately $2.5 million for the quarter. And as of September 30, 2023, total gross debt was $725 million. Ending unrestricted cash was $195.7 million, resulting in net debt of approximately $529.3 million, which we compare to $133.3 million of LTM reported adjusted EBITDA for a total net leverage ratio of 3.97x. Pro forma for the Indianapolis and Houston radio acquisitions, total net leverage was 3.93x.
And with that, I’ll hand back to Alfred.
Alfred Liggins
Thank you, Peter. Operator, could you open it up to the callers for Q&A please?
Question-and-Answer Session
Operator
Okay. [Operator Instructions]. Your first question comes from the line of Hal Steiner from BNP Paribas. Please go ahead.
Hal Steiner
Hey guys. Congratulations on the quarter, coming in line with expectations. Great to see the affirmation of the guide for the year. I guess one thing that really stuck out to me was I thought the Q1 pacings for the radio were much stronger than I would have expected. You speak to local being stronger, which is fantastic. Is that really just a reflection of the economy improving and people are stepping back in and being willing to advertise again?
And I guess my little two-parter on that is just sort of for the year with sort of that pacing, do you think – should we be thinking that overall radio revenue should be up year-over-year with political?
Alfred Liggins
The answer to that is, yes. And look, I would – I definitely feel like we’ve gone through an ad recession, ‘23. I mean, we felt that – we felt that – I mean, you could really see it in national, right? Advertisers pulling back. We saw it across all of our businesses. So not one of them was not affected from television to radio to digital.
So just because there’s an ad recession, it doesn’t necessarily mean there is indeed a macroeconomic recession. So the recession that never materializes or a soft landing or whatever you want to call it. So I’m not good at sort of predicting why the economic advertising trends move in one direction or another, but it definitely does feel like you kind of bottomed out in the third and fourth quarter.
I’m hearing it from other operators that business in Q1 looks better. And I think the tenor, around the country seems much more optimistic in terms of whether or not, we’re going to have a soft landing. So my guess is, yeah, things are bottomed out and are improving. And that’s indicative of what’s happening with our radio pacings right now. Again, that’s my opinion, but that’s what it feels like.
I had a conversation with one of our sales managers who handles national political, stuff for us. We’re starting to see more political avails coming in. Those should also – there’s not a ton of political money in that Q1 number right now. I thought it was maybe 150,000 or something like that, but we’re starting to see it heat up. So hopefully, again, that’s a good sign for things to come for the year.
Hal Steiner
Yeah, great. No, absolutely. I mean, that is fantastic. I mean, the data itself is certainly irrefutable. So anyway, I guess moving on to my next question is, I mean, with all of that, I guess I would think then that, would it be right to – I know you’re not putting out any guidance yet for 2024, but sort of with that backdrop. I mean, certainly there probably will still be some sub-pressure on TV, but overall I mean, wouldn’t you guys sort of maybe be disappointed at this point if EBITDA was flat for the year in 2024? I would think that there would probably be some room for a little bit of improvement year-over-year.
Alfred Liggins
We’re not there yet, but you said, you called out the single biggest headwind and that’s the pay TV ecosystem and churn and double digit sub-decline. Those are difficult to deal with, and so we’re not prepared to give a ‘24 number yet. We’re still working through budgets.
Yeah honestly, we’ve seen this momentum in the radio business. It is helpful to our mindset, but we’re not ready to plant a stake in the ground as to where we’re going to [inaudible], so.
Hal Steiner
That makes sense, Alfred. That’s definitely prudent, and I appreciate the conservatism, but respect the strong performance. And I’ll just say one last question, and I guess I’ll go back into the queue, and thank you guys of course for the time. But I guess I just wanted to say, so for the debt pay down, we have been talking about that before it.
I think on the last call you had said, you are pretty much restricted from doing anything until the last 10-Q was posted. I mean, so now that that’s done, have you started to buy back any of the bonds yet in the open market in 4Q or 1Q? Just asking that, and if there’s any update on the size of the buyback or what you think you’ll target?
Alfred Liggins
Yeah, the answer is, yes, we are active in the market now.
Hal Steiner
That’s great.
Alfred Liggins
Yep.
Hal Steiner
Great. Any update on the overall sizing of what you think you could be targeting?
Alfred Liggins
I think I said on the call before, that I think we talked about it, right? I kind of triangulated.
Hal Steiner
We did.
Alfred Liggins
We tend to look at, like our bond buybacks and kind of $25 million tranches. I think we got an authorization from our board for $75 million, just because we kind of liked the round number of $650 in terms of face amount of debt to go down to next, and so that’s what we did.
We got that authorization. We kind of looked at $25 million tranches and then kind of paused and see where we’re at. And that’s been our – that’s kind of been our game plan, and that’s what we’re doing, so.
Hal Steiner
Great. Thank you guys so much for the questions and congratulations again.
Alfred Liggins
You’re welcome. Thanks.
Operator
[Operator Instructions]. And you have a question from the line of Brad Kern [ph], a Private Investor. Please go ahead.
Unidentified Analyst
Hi, thanks for taking my call. First of all, I wanted to see if there was any update on the way you are thinking about capital deployment in terms of strategic investments. And I don’t know if you can maybe share what you’re seeing out there in terms of opportunities that you are betting for other use of the cash on balance sheet in dollars and I’ll start with that.
Alfred Liggins
Yeah, there is no strategic investment decision currently being vetted at the company right now. We’ve got, we’ve got nothing on the table. We’re not exploring, we’re not working on an acquisition. We still are active in trying to figure out future gaming opportunities, but there is nothing actionable today, and so the number one use of capital right now is what I just described to the last caller’s question.
And that’s it. You know, really boring you know. De-levering and operating and strategically trying to figure out what to do with these businesses. Where do we take our cable television business? What are our next distribution opportunities? That stuff’s changing so fast. Like, I feel good that we’re sitting back and we have breathing room to figure out where the puck’s going and try to skate there and continue to work on de-levering at the same time, so.
Unidentified Analyst
Okay, that’s helpful. And then there was some news in December about around Paramount potentially selling Intoxas LTET [ph] to, I think, they are a management-led buyout team. And you had said on a previous call that you were around kind of the hoop.
Alfred Liggins
Yeah, I don’t – I mean, I saw that news report. I don’t know how real it is. I think a number of people kind of reached out when they saw that news report and said, hey, we’re still interested. And it looks like Paramount didn’t really respond to that. They seem like they are working on some sort of larger solution, so I don’t know anymore.
I mean, we were there with a bid that was well lower than the $3 billion that they had kind of said that they were looking for. We had a great private equity partner, lined up and ready to go. And we had a couple banks lined up and ready to underwrite it, so our bid was real.
So I say in all that, they know that we were there and we were credible and we could be actionable. So it would be surprising to me if they – and again, this is just my opinion, go out and do kind of like a one-off deal without at least calling people that they – that were credible there to create some tension.
If they were going to decide to sell for a lower number than three and come down to kind of where everybody was at, it would be surprising if we didn’t get a call to re-engage, and we haven’t. And so I don’t know what’s going on there. But it feels like they got bigger fish to fry, right.
I think I just saw something either yesterday or the day before about Skydance and RedBird trying to take out National Amusements. It seems like a larger discussion than whether or not you’re going to spin out BET.
Unidentified Analyst
Absolutely. Alright, thanks for the time.
Alfred Liggins
Sure.
Operator
[Operator Instructions]. And at this time, there are no further questions.
Alfred Liggins
Great. But thank you, everybody. We look forward to speaking with you again on our year-end conference call.
Operator
Ladies and gentlemen, that does conclude your conference for today. Thank you for your participation and for using AT&T Teleconference. You may now disconnect.
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