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Radio One, Inc. (NASDAQ:ROIAK)

Q1 2013 Earnings Conference Call

May 09, 2013 10:00 a.m. ET

Executives

Alfred C. Liggins, III – President, CEO & Treasurer

Peter D. Thompson – EVP & CFO

Analysts

Aaron Watts - Deutsche Bank

Operator

Welcome to Radio One First Quarter Conference Call. I have been asked to begin the call with the following Safe Harbor Statement. During this call, Radio One may share with you certain projections, or forward-looking statements regarding future events or its future performance. The company cautions you that certain factors, including risks and uncertainties refer to in the 10-Ks and 10-Qs and other reports periodically filed at the Securities and Exchange Commission could cause the actual results to differ materially from those indicated as projections or forward-looking statements. This call will present information as of May 9th, 2013. Please note that Radio One disclaims any duty to update any forward-looking statements made in the presentation.

In this call, Radio 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.radio-one.com.

A replay of the conference call will be available from 12:00 p.m. Eastern Time May 09, 2013 until May 12, 2013 at 11:59 p.m. Callers may access the replay by calling 1-800-475-6701; international callers may dial direct (+1) 320-365-3844. And the replay Access Code is 292146. Access to live audio and a replay of the conference call will also be available on Radio One's corporate website at www.radio-one.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 maybe relied upon.

I will now turn the call over to Alfred C. Liggins, Chief Executive Officer of Radio One, who is joined by Peter D. Thompson, the Company’s Chief Financial Officer. Mr. Liggins?

Alfred C. Liggins, III

Thank you very much operator and welcome everyone to our Q1 results conference call. As you saw in the press release, the earnings release our Q1 results on Radio did come in mid single digits on revenue growth as we had guided before. So, we’re very happy about that. We had another strong quarter of growth for TV One and we’re seeing respectively optimistic Radio phasing for Q2 in the low single digits.

I’m going to turn it over to Peter Thompson who will go into detail as usual.

Peter D. Thompson

Thanks Alfred. The overall, the company had a strong first quarter particular in the Radio and Television divisions. Net revenue was approximately $99.1 which is a decrease of 3.7% but that decrease is primarily due to the timing to the company’s largest events, Tom Joyner Fantastic Voyage and One Love Gospel Getaway, both taking place in the second quarter this year compared to the first quarter last year. And if you normalize for the event timing differences consolidated net revenue was up approximately 4%.

The Radio division, excluding Reach Media produced net revenues of $49.9 million which excluding corporate sales from the 2012 One Love Gospel Cruise was up 4.9% over the last year. Reach Media net revenues $9.5 million in the quarter which excluding event revenue from the 2012 Tom Joyner Fantastic Voyage was down 13.9% year-to-year. And that decline was primarily due to decrease in advertising revenue on the Tom Joyner Morning Show.

We recognized approximately $36 million of net revenue from the Cable Television segment in the first quarter, which is an increase of 11.6% over Q1 2012. So, net revenue was on fun, and was up 16% versus prior year and subscribers increased 1%. Cable subscribers as measured by Nielsen finished the quarter at $57.4 million compared to $56.7 million at the end of March last year. TV One’s advertising revenue was up 8% versus prior.

The internet division had net revenues of $5.1 million down 12.7% year-to-year driven by decrease in direct revenues. Indirect, alliance and affiliate revenue in the internet division were all up year-over-year.

Our four largest Radio clusters performed as follows, Houston net revenue was up 22.5%, Atlanta was up 7.2%, Washington DC was up 2.3%, and Baltimore was up 6.8% year-over-year. Philadelphia, Columbus, St. Louis and Charlotte clusters posted revenue growth year-over-year. While our Detroit, Indianapolis, Cleveland, Dallas, Cincinnati, Richmond, and Raleigh clusters posted net revenue declines over the last year. Local revenue was up 2.1% and national was plus 13.5%.

Our top five advertising categories were retail, up 16% of the total which was up 30% year-to-year; telecom at 14% of the total, up 22% year-to-year; entertainment at 12% of the total, down 5% year-to-year; food and beverage at 10% of the total, up 17% year-to-year; and financial at 10% of the total, up 7% year-to-year. Auto was our sixth largest category and that was down 12% year-to-year.

Operating expenses excluding depreciation, amortization and stock-based compensation decreased to approximately $72.6 million in the first quarter. Decrease primarily result timing difference of the One Love Gospel event and Tom Joyner Fantastic Voyage. Excluding $2.1 million of expense from the 2012 One Love Gospel Cruise, Radio division expenses increased 1.8%.

Expense at TV One increased 2.2% in the first quarter and on cash basis we spent $12.5 million on content assets during the quarter of which $9 million was on original programming. Excluding $12.9 million of expenses from the 2012 Tom Joyner Fantastic Voyage which is operating expenses decreased by 13.3% primarily as a result of discontinuing the management fee to Radio One. Excluding the management fee and related expenses Reach’s operating expenses were down 5.3%.

The internet segment’s operating expenses increased by 1.6% driven mostly by bad debt expense as we booked the reserve on a $175,000 against (inaudible) which we expect to reverse upon collection in Q2.

The first quarter consolidated station operating income was approximately $35.9 million, up 8.6% from last year. Adjusted consolidated EBITDA was $26.5 million, an increase of approximately 12.5% year-over-year. Interest expense decreased approximately $22.2 million for the first quarter. The Company made cash interest payments of approximately $20.7 million in the quarter compared to approximately $15.5 million in the first quarter of 2012.

There was non-cash impairment charge of $1.4 million to reduce the carrying value of Cincinnati Radio broadcast licenses. Net loss was approximately $18.1 million or $0.36 per share compared to net loss of approximately $79.2 million or $1.58 per share in the same period 2012.

The first quarter capital expenditures were approximately $2.2 million compared to $3 million in the first quarter of 2012. Higher expense in Q1 2012 was largely due to the corporate office slow down.

Cash taxes paid were approximately $8,000, the company received dividends from TV One in the amount of $8.2 million in the first quarter. After March 31, 2013 Radio One had total debt net of cash balance is approximately $771 million. For bank covenant purposes, our total net debt was approximately $679.4 million and our LTM bank EBITDA was approximately $86.6 million, giving a total average ratio of approximately 7.84 times, and a senior leverage ratio of approximately 4.07 times.

Company’s cash and cash equivalents by segment are as follows. Radio One Internet approximately $23.8 million, Reach Media approximately $1.6 million and Cable Television approximately $21 million.

In addition to cash and cash equivalents, Cable Television segment also has short-term investments of approximately $3.2 million and long-term investments of approximately $68,000.

During the quarter the company repurchased 7,150 shares of Class A common stock in the amount of $11,026 and 951,974 shares of Class D common stock in the amount of $1,514,903.

And with that I’ll hand back to Alfred.

Alfred C. Liggins, III

Thank you very much, Peter. Operator, open the lines up for questions please.

Question-and-Answer Session

Operator

Thank you very much. (Operator Instructions) And our first question will come from Aaron Watts with Deutsche Bank. Please go ahead.

Aaron Watts - Deutsche Bank

Hi, guys. Just maybe to start off, Alfred, can you maybe talk about why you’re seeing the variance between local, national and what do you think local can pick up here as we kind of chug along this year?

Alfred C. Liggins, III

That’s a good question, I mean usually, I would say for the last, prior to this period of time coming into this year, we were seeing more local strength and national was weaker. And it’s now reversed and looks the larger markets are really performing well and throughout this recession in this recovery, the last markets have actually been getting hit harder than the medium and sort of the smaller markets. I mean, if you look at some of the bigger companies reporting the third channels and even I saw when Cumulus reported, I think, they’re seeing really strong large market growth they were ever seeing it.

I wish I could tell you why that is, I mean, I just, I have been in this business for a long time, my sense is sort of how companies and Chief Marketing Officers decide to allocate their dollars between mediums on local, national etcetera is not something they like to share with the advisory, I call those of us who are still advertising the advisory because they like to keep their plans to themselves so we can’t came in and switch pitch them and deter them from moving forward with what they want to accomplish as their own individual media plan.

However, what I have said from the very beginning and I think you hear it from a lot of people and we continue to see it is, this is going to be a very slow gradual recovery and I continue to believe that the Radio business is, is a flat to modestly up or modestly down business because of ad share shift. And so, in order for companies like ours to advance the ball down the field we got to figure out ways to grow our market share and in other ways static environment and as an industry we got to figure out how to get into the pockets of weaker if you will traditional mediums like newspapers and we can do that through our digital efforts.

But, I wish I could really, I can’t explain why you diverge between local, national. But, for us, I think, we’re in a good spot because although we’re not in New York or Chicago or Los Angeles. We’re in Houston, Dallas and Washington and Atlanta and we’ve got exposure to the medium markets but not really the smaller market. So, in the last year when political was up Ohio killing if for us, we loved it, this year, the Midwest is weaker, but the big markets we’re dealing are doing better. So, I think we’re uniquely and attractively diversified.

Aaron Watts - Deutsche Bank

That’s helpful context. And then, maybe just shifting to the other side of the house, nice growth in the first quarter for the Cable TV business, is a lot of chatter in the media right now about the TV ad environment, can you maybe just give us some thoughts on how you feel heading into this upfront season for your station and kind of how the Adam Brahman (ph) feels particularly for you?

Alfred C. Liggins, III

We are feeling good about the upfront it’s not like where TV One has yet to gain it’s significant ratings momentum, we’re working on that now, we got a lot of new stuff for 2014 that’s on horizon, we just premiered season 2 of RMV Davies (ph) Atlanta and we’re very happy with those results. However, we manage that business such from an ad inventory standpoint, ad pricing standpoint that we think will see substantial growth again throughout this year and while the Cable Television industry has slowed from its historic growth rates it’s still continuing to draw share from the broadcast networks, so I think we’re going to be in a position to see up low to mid single digit volume in CPM increases this year. So, to vary different business then the Radio businesses and I’m glad we’re in it.

Aaron Watts - Deutsche Bank

Okay. And last from me. Just on the TV business for you now, can you remind me where the split stands between your kind of advertising revenue and your subscriber fees that are coming in?

Alfred C. Liggins, III

It’s about 50:50.

Aaron Watts - Deutsche Bank

Okay, great. Thanks for taking the questions.

Alfred C. Liggins, III

Thank you.

Operator

Thank you. (Operator Instructions) And another few moments I am showing no additional questions please continue.

Alfred C. Liggins, III

Right. Well, there are no additional questions, I appreciate everybody dialing in, as always we’re available offline, I know that people keep asking about our capital structure and when we would look to refinance given how strong the capital markets are? Hopefully, they continue to stay strong and we continue our growth momentum through the balance of this year and if those things happen I think that’s when we start to actually visit that very real opportunity. But, we would like to get our leverage level into much more attractive strike zone in order to actually execute a drop capital market’s transaction and we’re focused on that and we believe that we have that opportunity and we can execute there. So, that’s pretty much our game plan for the rest of the year.

We thank you for your support and we look forward to talking to you on the next quarter results. Thank you, operator.

Operator

Thank you. And ladies and gentlemen that does conclude your conference call for today, we do thank you for your participation and for using AT&T’s executive teleconference. You may now disconnect.

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