Urban One, Inc. (NASDAQ:UONE) Q2 2023 Earnings Call Transcript

Urban One, Inc. (NASDAQ:UONE) Q2 2023 Earnings Call Transcript December 7, 2023

Operator: Ladies and gentlemen, thank you for standing by and welcome to Urban One’s First Half 2023 Conference Call. 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 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 December 7, 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.urban1.com. A replay of the conference call will be available from 12 o’clock noon today running through midnight at December 14th. Callers may access the replay by dialing 1-866-207-1041. International dialers may call 402-970-0847. The replay access code is 3718185. Access to live audio and a replay of the conference call will 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.

Alfred C. Liggins: Thank you very much, operator. And welcome everyone to our first half conference call for 2023. With me also in addition to Peter D. Thompson, is Kris Simpson, who is our General Counsel and Jody Drewer, who is our Chief Financial Officer at TV One. We’ve released our earnings. We’ve got the Q1 and Q2 commentary. Radio in the first half of the year was decent and is showing softness in the second half of the year. The cable television business struggled in the first half of the year, due to ratings and churn and ADU, Q1 in particular. However, that has actually stabilized going into the back half of the year. So, they flip-flopped. Our digital business is actually moving along as planned and is surprising to the upside in Q4.

And with all of that, we are comfortable continuing to reaffirm our full year EBITDA guidance of the range of $125 million to $128 million of EBITDA. This is also the first call we’ve had with our investment in MGM being fully monetized, and it is shown in our cash balance. And we have been to one large investor conference and gotten a lot of questions about what are our plans for our cash now that our Richmond referendum for the casino investment failed to pass for the second time. And so we are thinking through all of those things now. And certainly, debt paydown is something that is a top consideration. And so we are going to be happy to talk more about that in Q&A, if anybody wants to get a bit more granular on it. With that, I want to turn it over to Peter, so he can go into the specifics on the numbers and then we will open it up to Q&A and go from there.

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Q&A Session

Peter D. Thompson: Thank you, Alfred. So for the first six months consolidated net revenue was up 3.8% year-over-year. The Indianapolis radio acquisition added approximately $7.6 million, and the Reach cruise event generated $10.1 million in the second quarter that was absent from 2022. So, normalizing for those two items, net revenue was down 3.9% or down 3.2% excluding political advertising. Net revenue for the radio segment increased 8.3% year-over-year, the decrease of 1.3% on a same station basis. Excluding political, net revenues increased by 1% on a same-station basis. According to Miller Kaplan and on a same-station basis, our local ad sales were down 4.6%, against a market that was down 2.7%. National ad sales were down 2.4% against the market that was down 7.7%.

The radio spot markets were down 1.6% in Q1 and down 6.8% in Q2. Spot markets were down 7.5% in Q3. And we finished Q3 down 0.6% overall, down 14.4% on a same-station basis and down 12% on a same-station basis excluding political. For Q4, we’re currently pacing down 11.6% all in, down 21.2% same-station, and down 10.1% same-station, ex political, with national down 26%, local down 2.1%. So we definitely experienced some softening in market revenues for the second half of the year, although Q4 local has improved sequentially over Q3. Net revenue for Reach Media was $31 million for the first half of the year. And that included the $10.1 million for the Tom Joyner Fantastic Voyage cruise event, and that compared to $21.1 million last year. Adjusted EBITDA was $8.1 million, including $1.75 million from the cruise.

That was down from $8.6 million last year. Advertising revenue was down for the first half of the year, and affiliate station compensation expense was up. Net revenue for the cable television segment was $102.1 million for the first half of the year, decrease of 6.8%. Cable TV advertising revenue was down 5.8% or $3.5 million, with an unfavorable rate volume impact of $2 million, and an additional $1.3 million of ADU deficiency. P25-54 Prime delivery was down 31% in Q1 and down 21% in Q2. Cable TV affiliate revenue was down by 7.8% or $3.9 million with favorable rate increases of $2.2 million, more than offset by $5.3 million of net churn, and $800,000 of increased launch support. Net revenue for our digital segment increased by 1.8% for the first half of the year, which includes $1 million of revenue from the Indianapolis acquisition.

Direct sales from our national New York office were down as advertisers pulled back somewhat on marketing budgets due to recession concerns and fewer advertisers committed to Black History Month and the Juneteenth efforts compared to a year ago. Streaming revenue from our radio station inventory was up. However, increased traffic acquisition costs, sales and marketing expenses offset those revenue increases. And adjusted EBITDA was $9.9 million for the first half compared to $12.3 million for the same period last year. For the six-month period ended June 2023, consolidated adjusted EBITDA was $67.8 million, down $21.7 million or down 24.3% from last year. $4.1 million of the decrease is from the sale of MGM. The Indianapolis acquisition added about $1.8 million but radio and Reach segments were down by $1.1 million combined.

Digital segment was down by $2.4 million and cable TV was down $13.8 million, due to the advertising revenue decrease, subscriber churn and some increased content amortization costs. Cable subscribers for TV One, as measured by Nielsen, finished Q2 ‘23 at 45.1 million compared to 46.5 million at the end of 2022. CLEO TV had 42.5 million Nielsen subs. Operating expenses, excluding depreciation and amortization, stock-based compensation and impairment of long-lived assets, increased to approximately $172.8 million for the six months period ended June 30th, up 16.2% from approximately $148.7 million incurred for the comparable period in 2022. There was an increase of approximately $8.3 million related to Reach’s cruise event, $1.2 million in other radio event expenses, $4.6 million in cable TV content amortization, $5 million in employee compensation expenses, $3.8 million in contract labor, talent costs and consultant fees, $2.7 million in corporate professional fees, $2.2 million in variable expenses, and $1 million in travel, entertainment, marketing and office expenses.

These increases were partially offset by a decrease of approximately $3.3 million in the Employment Agreement Award expense, and also a decrease of $1.6 million for corporate business development costs. Approximately $5.9 million of those increased expenses related to the Indianapolis radio acquisition. And that’s included in the totals that I just mentioned above. Radio operating expenses were up by $6.4 million with the Indianapolis to add in about $5.4 million of that increase. Atlanta’s Birthday Bash event added about $1 million of expense. Reach operating expenses were up $10.4 million with $8.3 million of that from the cruise, $1.2 million of additional affiliate station compensation and $750,000 in additional talent compensation.

Operating expenses in the digital segment were up by $3 million, driven predominantly by variable expenses related to traffic acquisition and audience extension, which were up by $1.3 million, and also, ad production and marketing, which was up by $1.6 million. Cable TV expense was up by $6.4 million with the content amortization, the largest part of that up by $4.6 million. Operating expenses in the corporate and elimination segment were down by $2.2 million, including a favorable variance of $3.3 million for the non-cash TV One employment award charge and $1.6 million for reduced corporate business development, which was offset by increases in professional fees and some employee compensation. Impairment of goodwill, intangible and long-lived assets was $38.9 million for the first half of the year, $16.8 million of that was associated with the sale of KROI-FM, the radio broadcasting license in Houston.

And non-cash impairment charges of $22.1 million were recorded for radio broadcasting licenses, primarily in the Philadelphia market. On April 21, 2023, Radio One Entertainment Holdings closed on the sale of a 100% of the MGM National Harbor interest. Company received approximately $136.8 million at the time of the settlement of the put interest, representing the put price. Other income net was $96.5 million for the first half, primarily as a result of the gain on that sale. The Company repurchased $25 million of its 2028 notes at average price of approximately 89.1% of par in the first quarter, resulting in a net gain on retirement of debt of approximately $2.4 million. Total gross debt balance is now $725 million, down from $825 million at the start of 2022.

Interest expense decreased to approximately $28 million for the fourth quarter, down 11.8% from last year due to the debt pay-downs. The provision for income taxes was approximately $22 million for the first half, and the Company paid cash income taxes in the amount of $1.3 million. Net income was approximately $67.4 million or $1.42 per share compared to $32.8 million or $0.64 per share for the first half of prior year. Capital expenditure was approximately $4.1 million in the first half. And the Company repurchased 274,901 shares of Class D common stock in the amount of $1.4 million. As of June 30, 2023, gross debt was $725 million, ending unrestricted cash was $230.7 million, resulting in net debt of approximately $494.3 million compared to $143.5 million of LTM reported adjusted EBITDA.

Pro forma for the MGM sale, LTM adjusted EBITDA was $139.1 million, giving a total net leverage ratio of 3.55 times at the end of the period. And with that, I’ll hand back to Alfred.

Alfred C. Liggins: Thank you, Peter. Operator, could you open up for questions?

Operator: Certainly. Thank you. [Operator Instructions] We’ll go to Brad Kern with Fort Breaker [ph]. Please go ahead.

Unidentified Analyst: Hi. Thanks for the call and for taking my question. First one I had was, how do you think about the IRR on open market debt purchases versus other use of cash proceeds? Do you think that the sort of a 12%-ish IRR is a high enough return to justify cash deployments there? And when you think about your cost of capital, how do you think about the way that you would deploy that cash when you think about returns?

Peter D. Thompson: Yes. Historically, we have looked at just sort of what that yield to worst is, and that’s where you are seeing that 12%. But in today’s environment, the fact of the matter is, we are earning about 5% on our cash right now. So it’s a delta between that 5% and that 12%. So, it’s not quite the double-digit return, but a couple of things. First of all, finding places to put money to work at a 20% IRR is hard, right? Like, we’ve done two radio acquisitions in the last year. And we like to pencil out our cash investments in the 20s and we feel good about that. Particularly, the Huston one in particular was really strong. However, and we think that our casino investment would have been something in the 20s, albeit that would have been a long return to capital process.

We wouldn’t have been seeing cash coming through the door off the bat, like you do from a radio acquisition. So that’s kind of how we look at it. But irrespective of that, we want to get our debt down. I think that we are not — we’re probably looking at — we have historically done our open market purchases in like kind of blocks of $25 million authorizations and kind of weighted into it. I suspect that we’ll probably do — take a similar approach. But we are going to pick a quantum that we’d like to pay down and go after it, and continue to look for other opportunities to earn 20%-plus on our money. But I talked to a lot of people out there that our investors, professional investors finding those opportunities in today’s environment, it’s tough.

But we keep looking.

Unidentified Analyst: Yes. That makes sense. I appreciate that perspective. I mean, how committed, as you look around for those types of 20%-plus return or whatever opportunities, how committed are you to the media business to radio and TV versus other diversifying ventures? And clearly you’ve shown a case for gaming. Like what are you considering?

Alfred C. Liggins: Yes. I mean, look, we were in the radio business only, right? And then, we got into the syndicated business when we bought Reach Media. Then we created TV One and got into the cable television business, and we created Urban One — excuse me, the Interactive One, and we got into the digital business. And we’re a publisher for the most part, right? We’re not like the other radio companies where the bulk of our business is podcasting or streaming. And then, we got into the gaming business. And so, we generally like to look for businesses that are tangential to the assets that we have, meaning that the assets that we have, have the ability to make us be more successful or can help us enter those businesses or actually be successful in those businesses than we might otherwise be.

And it’s worked out, right? I mean, we got into the gaming business with MGM because we were a media company based in Washington, D.C. and they were building a resort casino here. So, that’s kind of the stuff that we look at. So, we’re open to looking at other businesses. But we like to have a competitive advantage and some skill set. I generally do not want to — I wouldn’t want to do anything where we’re just out of our depth of knowledge. To me, that’s high degree of execution risk, you’re gambling, et cetera. And so, that’s kind of how we look at it. But there could be some consumer based businesses. I mean, if there was a — I mean, if you had a online digital Urban apparel retailer opportunity, right? That’s something — and I’m just talking off the top of my head now.

That’s something where our marketing platform could be helpful, even though we’re not in that business. I’m not saying — we’re not looking at any business like that. But that’s an example of something that’s not in our core business where we would probably take a long hard look at. But I can also tell you though, as it relates to our core businesses, we have to figure out what we’re doing strategically in an ever-changing environment. How do we get some advantages, some scale advantages, some programming content advantages in our TV business? The radio acquisitions that we’ve made were very synergistic because we’re consolidating in markets. So, I think, you got to continue to look at how do you fortify those businesses as the ecosystem continues to change, because we’re going to be in those businesses, right?

And so, you got to figure — we got to figure out how to flourish. But we try to be really careful about what we do. I would say that our number one priority is — it could be in a defensive posture from the standpoint of making sure we continue to delever. And if we can get an opportunity where we think we can earn a 20% return pretty confidently, then, we’ll take a hard run at it. The casino investment, even though it didn’t — it didn’t pay back for a while, we’re pretty confident that if we spent $560 million building it that it would return a $100 million of EBITDA, and we would get that kind of return, based on what we knew about the central Virginia market.

Unidentified Analyst: Got it. And so, you just touched on this, but you’ve mentioned in the past that you’re looking for efficient — opportunities to achieve more efficiency on the — in the linear television business, given the challenges there with sort of melting subs. So, how are you thinking about that?

Alfred C. Liggins: I don’t have the answer yet. We were one of the four or five parties that were interested in the BET Media Group when it was being shopped in a process. We made an offer. Our offer was not at the level that Paramount wanted to transact at. And I don’t — evidently nobody made an offer at that level. That’s the reason they stopped the process. But there would’ve been a great deal of synergy there from a programming cost standpoint, advertising sales standpoint. And so, we looked at that. Quite frankly, we also then kind of just pivoted our attention to this Richmond referendum. And yes, that election was November 7th, and now it failed. So we’re now coming up for water — I mean, excuse me, coming up for air.

We’re in the middle of doing our budgets for next year. We haven’t — we didn’t have the bunch of M&A idea projects just sitting on the sideline that we were considering simultaneously, as we were doing the — during the referendum effort. And so now, we’re getting our budgets done, look at paying down some debt and then figure out what the opportunities are. So, that’s — so there’s nothing on deck this moment.

Unidentified Analyst: Makes sense. Maybe just a higher level question. You have four different classes of shares. I think that when you’re looking at the overall capitalization of the business and declining multiples in the core businesses, the enterprise value multiple, and it’s tough to even see what those are in the space right now, given all of the stress across some of your peers. You guys are in a pretty nice position relative to them. But how do you think about that? I mean, is there value in having that sort of controlling voting shares or do you think that you could potentially achieve a higher valuation where you just to — collapse those to just one share class and simplify that? Like, is that a remnant of maybe a prior outlook on the world or is that something that you view as important going forward to have that sort of four different share classes with different voting rights?

Alfred C. Liggins: Yes. So look, you say does it have value? The answer is yes, it does have value, particularly in this environment. We are a minority-certified, African-American controlled company. At times, we’ve been African-American owned, which is also a different designation because identifiable African-American ownership has been over 50%. The family controls about — owns about 50% of the economics of the Company. But we’ve benefited greatly from the minority certification being out there, and we’ve been certified for a long time. So, I do think that there is absolutely value there. There are lots of companies that want to do business with minority-owned companies and minority-controlled companies for their diversity efforts.

But here’s what I can also tell you. If we flattened the share structure and had one class of shares, I’ve got zero confidence that investors are going to pile into our stock and give us any sort of multiple uplift. It’s just not going to happen, right? I am not seeing it in any companies across the sectors that we’re in, whether it is radio companies or whether it is cable network companies. I don’t think the mid-single-digit multiples of radio and cable television programmers has anything to do with their share structures, right? It has everything to do with people’s view on those industries.

Unidentified Analyst: Okay. That’s interesting. I mean, I just think from a defensive stance, [Technical Difficulty] while the equity multiple may not be explosively higher on that alone, I mean, there’s been a lot of research on discounts for controlled businesses. And when you are a levered business that people are looking at LTV, I would think you’d want to do anything you can to keep as much cushion as possible. And then, lastly…

Alfred C. Liggins: Yes. I mean, we create cushion by paying down our debt or issuing equity. And we’ve never had any problem issuing equity. I mean, we don’t have them in place now, but in the past we’ve had our ATM programs into place and — in place. And I forgot, was it ‘20 or ‘21? I forgot. It was one year — no, in ‘21, fairly active issuing. I think we issued almost $50 million worth of equity. Yes. When our stock got some significant lift from being a African-American focused and controlled company because of the whole sort of mean from — there was a moment in time wherein our stocks, companies like ours were running. We took advantage of it. And so, if we need more equity capital, we are willing to issue shares to give ourselves more cushion.

Unidentified Analyst: Okay. And then on — so then the financial question. For 2024, do you have expectations yet for what the contribution of political advertising might be and your expectation and expectation — and our ex-political EBITDA kind of range for looking year ahead?

Alfred C. Liggins: Yes. We are going through it right now. We are in the middle of our budgets. It won’t be as robust as ‘22 because we had the Georgia Senate runoffs there, and we got a lot of money for that. But we think political for our radio business would give us probably some sort of double digit millions — let’s call it, $10 million of revenue. And again, that’s the early start on our budget. And it was kind of like 18 in ‘22, but we got literally $6 million in Atlanta alone in ‘22, largely due to the Senate races.

Peter D. Thompson: That was in ‘20. 18 in ‘20 of which 6 was in Atlanta and then we did 13 in ‘22.

Alfred C. Liggins: Thank you for clarifying, of which 4.5 was in Atlanta, so still half was in Atlanta, the 6 in the previous cycle in Atlanta.

Operator: And next we go to Matt Swope with Baird. Please go ahead.

Matt Swope: Yes. Good morning, Alfred and Peter. Maybe just to continue on some of the same themes. Alfred, where would you like your leverage to be? You’ve given us some numbers in the past, but where are you comfortable, where you think you’re sort of out of harm’s way, regardless of what the economy does?

Alfred C. Liggins: I don’t know, because harm’s way keeps changing, right? I would say that — I like our leverage with a 3 handle on it. I think we’re probably going to finish the year at — call it 3.8, something like that. And I’d like us to march — get down into the low-3s, so but I don’t — I’ve got no interest in levering up the Company to take a swing at something that I think is a good. There was a time when you could lever up these companies and make the assumption that your leverage is going to come down really quickly and therefore, you can take some execution risk on something but that’s when you’re dealing with businesses that are growing on a consistent basis, meaning that the macroeconomic profile of these businesses, the market is growing.

And that used to be the radio business, and that used to be the TV business. And you can count on that. Those aren’t those businesses — these aren’t those businesses any longer. So, we’re of a mindset that we wouldn’t do that. So, that’s the reason I kind of started off the conversation today talking about we are looking at debt pay-downs.

Matt Swope: No, I appreciate that. And you guys have definitely done about as good a job as anybody in the industry at that.

Alfred C. Liggins: I appreciate it. I mean, look, we got a lot to lose. The family has a lot to lose, if you have a misstep, right? And we’re 40-plus years old. And so, we’re — sometimes the equity holders aren’t aligned with the debt holders. But we are aligned with the debt holders in this instance because it’s really about being safe and preserving your viability. Right?

Matt Swope: Sure. No, that makes sense. And as you think, Peter, about the buyback part of this, I guess a couple of questions. With all the cash — I guess, one would be, could you give us a cash update as of where it is today? And then, as of where it is today, but then two would be what’s the minimum cash you need on the balance sheet? At times it’s been like $510 million. Do you need to have more cash on the balance sheet than that?

Peter D. Thompson: Look, we were talking about that a week or so ago. I think probably 50 is a decent number. Could it be lower than that? Yes. We got some lumpy payments from a coupon standpoint, obviously that goes down if we buy back debt, but obviously the semi-annual coupon is chunky. And then some of the TV One programming deals can be somewhat chunky. Probably a range is 30 to 50 in terms of what we really need on the balance sheet, so obviously we’ve got a lot more than that. Cash on hand today, I think it’s $227.5 million approximately. And that is obviously after we’ve made the Houston acquisition, which was $27.5 million. So, that’s where we are on that.

Matt Swope: As you think about — sorry…

Peter D. Thompson: Go ahead.

Matt Swope: I was going to say, as you think about the bond buyback possibilities, given that kind of that you could do something like 150 or 175, or even just going off the numbers you just said, does it make any sense just to do a broader tender for a much bigger number? Are you restricted at all by the fact that you haven’t put your 3Q out yet? Like, do you have to get some physicals out before you can do some of this?

Peter D. Thompson: Yes. Look, if we were doing open market repurchases, I think we would need to do it after Q3 unless we transacted with someone who signed a big boiler ad. So, we were protected in that sense. So, there may be an opportunity to go and find a block and sign up with a big boiler and do some sooner than later. Following that, we’ll file Q3 before the end of the year and then we’ll put a plan in place. I think as Alfred was saying, our kind of — our historic ammo has been to authorize blocks $25 million and have — go out in the market and find us blocks. So I think we’d probably take that path. To your point, if we were going to do $150 million, then I think we would probably look at a tender. I don’t think we’re going to go that route. Not decided yet, but I think Alfred’s direction saying, blocks of up to 25 and see where we’re at.

Matt Swope: Got it. No, that’s certainly helpful. And then, Alfred, is the casino idea dead at this point, or, I know at times you looked at places other than Richmond? Would you look at something else again?

Alfred C. Liggins: Yes, absolutely. I mean, we — it’s a great business. We made a lot of money on our MGM investment. We made like 4.5 times our investment. There’s risk, right? You can over build. Interest rates are higher now. So, that was going to put pressure on the returns. And it’s a political process. And we think that when gaming — getting gaming licenses are — is a political process. And we think we have some advantages there, as — I mean, I think, we’re really the only sort of African-American owned organization that’s really focused on investing in this industry that I know of, on a significant level. So, yes, we would absolutely look at other stuff. I don’t know what’s going to happen. That fifth license is going to go somewhere in Virginia.

We haven’t gotten focused yet to see if there is any way that we can participate on any level. I don’t know which city it would go to and who the players would be. There is potentially iGaming that’s going to come to the State of Maryland. It’s been public knowledge that legislators there are looking to try to move a bill out of the General Assembly, this session. And that’s very different than sports betting, because sports betting is not profitable, but iGaming is. Have no idea how they are planning to administer the iGaming structure and licenses. So what I am seeing is that what they will probably do is send out a bill that would actually put a question on the ballot to pass a reference — referendum to get passed and then figure out what the structure would be.

By the way, our deal with MGM didn’t give us access to any online activities or revenue. So, no online sports betting. If iGaming came, we wouldn’t have participated in it. Only the bricks-and-mortar operation would we — we have any sort of like claim. And so that was yet another reason to go ahead and monetize. So yes, we would look at other stuff, but they are not — those opportunities don’t grow on trees.

Matt Swope: Got it. And then maybe just a last a quick one for Peter. With the Houston radio sale that’s in your divestiture trust to Spanish broadcasting, we saw that you extended the timeline on that. Is there any pressure on that deal? Does that have any other impact on anything else you are doing in Houston or any other issues?

Alfred C. Liggins: There is a finite amount of time that the trust is authorized by the FCC. But it was — they gave us a two-year window to get that done. So, the extension that we — so one station has already been sold and closed on — with EMF. And the time line that we extended for the second station for Spanish broadcasting, I think the schedule is for it to all be wrapped up by July or something like that. So, well within — it’s well within the first year. But there is a two-year window that we have with the trust, but we suspect that it will be closed out well in advance of that.

Matt Swope: And theoretically, you could extend it a little more if you wanted even?

Alfred C. Liggins: Yes, you could.

Operator: And next we can move to Kenta Shimojo with Wellington. Please go ahead.

Unidentified Analyst: Good morning and thanks for taking my questions. And not to rehash Matt’s question, but appreciate you are still digesting the Richmond outcome. I am just kind of curious if you have any thoughts as to timing for that fifth license or any kind of milestones or mile markers that investors should be looking for in terms of when that gets revisited.

Alfred C. Liggins: I mean, it is a process that’s going to probably play out in the General Assembly this year. Again, we’re nowhere in terms of whether or not we’re looking into it. We haven’t — we really just kind of came up, like I said, for air after. But I assume that something will happen in this session. I do know that there is a group of folks that want to propose, and I know that there’s a state senator that is going to propose a bill to put it somewhere in Northern Virginia, like Reston or Tyson’s. So you got the northern Virginia, there’s a north — there’s going to be a push for Northern Virginia. I’m hearing that the city of Petersburg is interested again and would like to try to get it there as they did last go around.

But we wanted a second vote in Richmond, and so we lobbied against that. So, I just don’t have — I don’t any information of what the state of play is, other than people are positioning themselves for this legislative session. And I don’t know what’s going to happen. But I suspect that you’ll see a direction one way or the other coming out of this legislative session.

Unidentified Analyst: And then just thinking about the adjacent investment opportunities or the prospective opportunities to invest further afield from radio and even gaming that you alluded to, do you have any additional constraints that you’d be putting on yourselves in terms of like, size or maybe a higher IRR threshold or leverage cap just given the sort of additional risk of moving further afield?

A – Alfred C. Liggins: We don’t think about that. I mean…

Peter D. Thompson: Like, you look at each deal on its merit, right?

A – Alfred C. Liggins: Yes. I mean, I can tell you that — I mean, we’re not a venture capital fund. We’re not sitting here making a bunch of early stage investments in startup companies that we think are going to be 10 baggers, right? We generally have kind of wanted to invest in things that we thought were going to deliver a cash return, EBITDA that we could ultimately bring it to the Company and count. I mean, because you could look at investment. I mean, lots of people in the investment business make money on companies that actually don’t make money and just increase in value because of whatever reason. We’ve never — because we come from cash flow generative businesses, we have a bias towards cash on cash returns.

And so, my sense is if you’re going to look for a much higher return than 20-plus-percent on something, you’re probably going into something that’s more speculative and newish and early stage. And that’s just not how our mindsets have worked in — around here because of the nature of the businesses that we’re already in.

Unidentified Analyst: Yes. Fair enough. Four bagger will do. So, last one for me. There were a few recent instances of asset sales in the broader industry where non-commercial operators came in, kind of picked up pops at pretty interesting multiples. I’m just kind of curious if you have any sticks that are non-core to you that might be seen as strategic to the few non-comms that are out there?

A – Alfred C. Liggins: Yes. I mean, I’ve gotten approached recently for one of our markets. I’ve actually gotten approached for a couple of our markets. The problem is — and we’ve said no. And one of the — we thought about it. And one of the problems is, does it weaken our position in that market versus something that we might want to do that’s going to get us a bigger return? Not mentioning the market, but in one of them it would make it weak — make us weaker against the competitor there. And ultimately, we think there’s an opportunity to buy the competitor and do really, really well. So, I don’t really want to take the pressure off that competitor, before they sell. And the money’s not enough. It’s not big enough to make a big — to make a huge dent.

It’s kind of like $7 million, $8 million or something like that. And we have cash flow already in that market. So, if we peel that asset off, it’s also going to degrade the cash flow in that market. Maybe run it to zero. So you got to lock that — even if you just use a 5 multiple for radio, which is probably low, if you lose $1 million of cash flow, and somebody gives you 8, like you’re netting $3 million, it’s not worth it. So I mean, if we needed the cash for something, then that’s a different story. But today, we don’t need the cash for it. So — but yes, we’ve gotten — we’ve got a couple of those inbounds. But nobody — we’ve got nothing that somebody wants to pay $20 million for.

Operator: Next, we can move to Marilyn Pereira [ph] with Bank of America.

Unidentified Analyst: Hi Alfred, Peter. Hope all is well. You’ve answered most of my questions, but just a quick follow up. There’s the 3.55 leverage that you mentioned. That’s for 3Q, is that correct?

Peter D. Thompson: Correct.

Unidentified Analyst: Okay. And then by end of the year you’ll be around 3.8. Does that actually incorporate maybe some incremental debt reduction or just some moving around in cash? I mean…

Peter D. Thompson: Yes. So, the fact that it’s moving upwards between where we’re at now and between Q2 and the end of the year, was that the question, or no?

Unidentified Analyst: You’re like 3.55 for 3Q. And I was just asking if the around 3.8 by year-end considers any incremental debt reduction, or is it just cash moving around a bit?

Peter D. Thompson: No. It’s cash moving around. And obviously the back half, as we said, is going to be softer, because of the lack of political. So Q4 — when you LTM it, and then we roll into Q4, we’re going to be missing $8 million of political. So, we’ll just have a lower LTM EBITDA by the time we roll into Q4.

Unidentified Analyst: Got it. And then, I think it was the last call you had mentioned free cash flow, maybe in the mid-60 million area, and that depended kind of where CapEx comes out to. Obviously with a number of moving parts, whether it be Richmond or anything else, are you still thinking about it in that context for the year? And then, any comments on CapEx potentially for next year that you’d be willing to share?

Peter D. Thompson: Yes. I think it’s lower than that now. Obviously there was $5 million of referendum costs. And then as part of cleaning up all the material weaknesses, we’ve had to hire a bunch of consultants, and that’s kind of $4 million and rising at the moment, just to remediate a bunch of the stuff there. So that’s — so those two things have eaten $9 million, $10 million of cash. So, I think it’s slightly less. Although both of those are one-time only, right? So that’s worth pointing out. And CapEx, we don’t know. We are going through the budgets, as Alfred said. So we have a couple of big things. We need to consolidate in Indianapolis, and that’s going to cost some millions of dollars to put those facilities together and buy new equipment.

I think at the moment, we might be looking at a kind of $10-ish million CapEx for next year. We normally run at $7 million, so that would be a little higher for next year. But it’s preliminary. And we tend to manage the CapEx in a very tight manner. So there may be some other things that we choose not to do next year, if we need to spend the money on the Indianapolis facility.

Operator: And next we’ll go to Hal Steiner with BNP Paribas. Please go ahead.

Hal Steiner: Thanks for taking my question. I was hoping, could you just spend a little bit time talking about the TV network side of the business, and maybe just run through. Like what the — I guess, I am focusing really on like the affiliate fees in terms of what could be the timing of any carriage renewals, if there is any big ones and just maybe what your strategy is heading into all that?

Alfred C. Liggins: Carriage renewals, we just renewed with Verizon. They were up in October, and we just renewed them for another couple of years. Our next carriage renewal is not till the end of ‘25, right, Jody?

Jody Drewer: In the third quarter of ‘25.

Alfred C. Liggins: In the third quarter of ‘25. So, we got a small one. We got one small streamer that we did a one year extension on that we got to come up with. But, it’s a bit small. But our big deals don’t come up until — the first one is the end of ‘25 and then the next one is the end of ‘26 beginning of ‘27.

Jody Drewer: Yes. And that’s 97% of our sub base was locked up through the third quarter of ‘25.

Hal Steiner: Got it. That’s great. Okay. That’s very helpful. I guess just, can you maybe give a little color about how you think about sort of just what like your sort of positioning is and sort of the bundle, right? I mean, there is just a lot of talk about that and concern about that and how the bundle sort of evolves. And just if you could give any color about what you think your position is and ability to stay in there would help.

Alfred C. Liggins: I mean, we feel good about it. I mean, we’ve always been an independent network. I mean, we’ve never been part of a big group. And yes, I mean, I think that the environment has changed. But there has also been a move towards more diverse content, which we have. I do think that the fact that we are an African-American owned entity is important. And so, we’ve got great relationships with all the operators except for we are not on DISH. Certainly we are not on YouTube TV or Hulu at this point in time. So we got to try to figure that out. But, I mean, I am not going to [indiscernible]. I mean, I know the environment has changed dramatically. But we — nothing has led us to believe that operators still don’t see TV One and now CLEO as valuable, including the renewal that we just did two weeks ago.

Hal Steiner: Got it. And I mean, a lot of what you said is what I would’ve imagined, so I really appreciate that color and some of that affirmation. I guess on the digital side of the business, I get — obviously slowing a little bit with some of the cyclical pressures, but could you maybe speak a little bit more about just your ability to kind of grow that business and if there’s maybe properties out there that could be more targets to easily add in? Any color you could give me there would be helpful.

Alfred C. Liggins: I’m happy that it’s profitable, right? And yes, you’re right. There’s ad revenue pressures and so — digital is so tricky. So right now, you got ad revenue pressures, but I think we’ve been doing decently in that slowing environment. The tricky part about digital, and particularly with acquisitions is that the audience sizes change so dramatically depending on how the big platforms of Google or Meta beside to prioritize people’s content and change their algorithms. So you could go out and buy something. Very few of these digital platforms have their own natural organic go to their dotcom traffic, right? Like, they’re getting their traffic from some other source or platform. I think, I’ve read something in BuzzFeed’s last conference call when they were talking about their ad revenue being down significantly and why.

And I think I remember the number one thing they pointed out was that the big platforms are prioritizing their own content or their own verticals over third party, and it’s reduced their ability to monetize their content. So, what does that mean for acquisitions? You go out and you buy something that you think has whatever, 10 million unique visitors and 500 million page views, and then six months later, an algorithm’s changed, and that’s been cut in half. That happens. It’s happened to us on a smaller scale. But — and so you’ve got to be really, really, really careful. We look at digital acquisitions. We look at something every year. In fact, we were nosing around a public company this year that ended up doing a deal somewhere else.

So, yes, we want to figure out how to do that to scale it. But it’s tricky, so. And lastly — and then operator, we’re going to just open up one more question after that. And lastly, a lot of these digital acquisitions, these guys don’t make any money, right? So, they want you to — yes, they want you to — and remember I said earlier that we tend to be cash flow buyers. So they want you to give them a value and they don’t make money. It’s a problem. BuzzFeed bought this company Complex, which was like one of the top urban content publishers in the space, had a big brand for a long time, was doing a $100 million of revenue, they lost $11 million and BuzzFeed paid $300 million for them. And I just like — we just can never do anything like that.

Hal Steiner: Yes. I understand. If you mind — if I could just ask one before you switch to the last question. I was just going to ask on the — for the terms of the indenture, I think you needed to make an offer to repurchase the bonds if — with the amount of excess proceeds. But I guess, your belief would be through doing debt buybacks and maybe any other sort of investments you’ll be able to — you’ll fulfill — you’ll have no excess proceeds back — excess proceeds left by the time it is, you would’ve to make that repurchase offer. Is that correct?

Alfred C. Liggins: We don’t know, but there is a number of things that we’ve invested in that count towards those investments that aren’t just buying radio assets. Like, our Houston transaction counts. There’s some programming investments that we make that count. So, we’re not sitting there right now with $137 million of investible basket that we got to deal with. It’s something significantly less than that already. But as Peter said to me yesterday, we’re not going to go out and make a stupid acquisition just so we don’t have to offer to buy back bonds at par. That’s not going to happen. But to your point, we’re probably at something close to $80 million of the $137 million already, like sheltered, if you will, for stuff that we invest in on a regular basis. And I don’t know what’s going to happen between now and April.

Operator: And our last question here will come from Brad Kern with Fort Breaker [ph].

Unidentified Analyst: So, on the use of cash, you brought in Churchill Downs as a partner, would you be open to being sort of a minority partner in another, whether it’s a — another gaming endeavor or some other sort of minority partner where you’re not like — you’re not in control of the investment, but you’re sort of either a capital solutions provider, maybe there’s even something strategic? How you think about those types of opportunities?

Alfred C. Liggins: Yes. We would look at something like that. However, we are a bit spoiled because our MGM deal gave us like a cash return off the bat off the top of gaming revenue. So that was one of those unique situations where we put money in and we got money out, like kind of like the first year. And we looked at one deal with a small public gaming company, and they wanted us to invest like $20 million or $25 million in it. But, they had us subordinated under a whole bunch of stuff and it was like a really traditional equity investment and they were — it was — they were up-valuing it from what their value was. And so, we didn’t like it. And so, we’re spoiled. So we would like — yes, we would look at being a minority investor.

I think that would be one of those situations where if we ended up making a real equity investment and we’re sitting behind debt and when — it is got to be paid down and there is no dividends or restricted payments going out to the equity for a significant period of time where you’d want not a 20% return, you’d want something much higher. But we’ve seen two investments like that, and we passed on both.

Unidentified Analyst: Okay. Appreciate it. The discipline makes sense.

Operator: And that does conclude the conference for today. Thanks for your participation and for using AT&T Teleconference. You may now disconnect.