Radio One, Inc. Reports Third Quarter Results

Radio One, Inc. (NASDAQ:ROIAK and ROIA) today reported its results for the quarter ended September 30, 2007. Net revenue was approximately $90.4 million, a decrease of 1.7% from the same period in 2006. Station operating income1 was approximately $40.9 million, a decrease of 11.6% from the same period in 2006. Operating income was approximately $31.6 million, a decrease of 7.8% from the same period in 2006. Net income was approximately $4.8 million, a decrease of 40.2% from the reported net income of approximately $8.0 million in the same period in 2006. Alfred C. Liggins, III, Radio One’s CEO and President stated, "This quarter we continued to see a challenging radio industry environment as well as another rough quarter for our Los Angeles station. However, had Los Angeles maintained market share, our radio properties would have outperformed the industry, this time by approximately 100 basis points. Further, the fourth quarter looks soft, consistent with the past few quarters. Thus, we continue to make progress on the evolution of the company in non-radio areas. Reach Media’s performance was strong for the quarter, Giant Magazine is showing nice top-line growth on a sequential basis from the beginning of the year and we are building a highly qualified team in New York to help us build our Internet initiative. Also, TV One continues to perform very well. In addition, we are executing on our asset sales strategy, having closed on or agreed to sell approximately $150 million worth of radio stations to date. We are hopeful that 2008 will be a better year for radio and an even better year for our various other businesses that we believe have so much promise.”   RESULTS OF OPERATIONS             Three Months Ended Nine Months Ended September 30, September 30, 2007 2006 2007 2006 (unaudited) (unaudited) (in thousands) (in thousands) STATEMENT OF OPERATIONS DATA: NET REVENUE $ 90,389   $ 91,932   $ 252,080   $ 258,813     OPERATING EXPENSES: Programming and technical 19,699 18,793 57,922 55,226 Selling, general and administrative 29,755 26,810 82,356 78,078 Corporate 6,947 7,010 22,053 19,979 Non-cash compensation (2,310 ) 335 (1,754 ) 1,010 Stock-based compensation 923 1,332 2,536 3,964 Depreciation and amortization 3,773 3,376 11,413 10,629 Impairment of long-lived assets   -     -     5,506     -   Total operating expenses   58,787     57,656     180,032     168,886     Operating income 31,602 34,276 72,048 89,927   INTEREST INCOME 292 493 852 1,034 INTEREST EXPENSE 18,400 18,733 55,047 54,079 EQUITY IN LOSS OF AFFILIATED COMPANY 2,793 635 7,551 1,569 OTHER (EXPENSE) INCOME, net   (15 )   11     (22 )   (269 ) Income before provision for income taxes, minority interest in income of subsidiaries and discontinued operations 10,686 15,412 10,280 35,044 PROVISION FOR INCOME TAXES 5,892 7,418 4,691 16,393 MINORITY INTEREST IN INCOME OF SUBSIDIARIES   1,274     882     3,099     1,920     Net income from continuing operations   3,520     7,112     2,490     16,731     INCOME (LOSS) FROM DISCONTINUED OPERATIONS, net of tax   1,281     922     (3,196 )   2,000         Net income (loss) $ 4,801   $ 8,034   $ (706 ) $ 18,731   Weighted average shares outstanding – basic2 98,710,633 98,710,633 98,710,633 98,708,819 Weighted average shares outstanding – diluted3 98,725,387 98,710,633 98,710,633 98,712,378     Three Months Ended   Nine Months Ended September 30, September 30, 2007   2006 2007   2006 (unaudited) (unaudited) (in thousands, except per share data) (in thousands, except per share data) PER SHARE DATA – basic and diluted:   Income from continuing operations per share $ 0.04     $ 0.07     $ 0.02     $ 0.17   Income (loss) from discontinued operations per share $ 0.01     $ 0.01     $ (0.03 )   $ 0.02   Net income (loss) per share $ 0.05     $ 0.08     $ (0.01 )   $ 0.19     SELECTED OTHER DATA: Station operating income $ 40,935 $ 46,329 $ 111,802 $ 125,509 Station operating income margin (% of net revenue)4 45.3 % 50.4 % 44.4 % 48.5 % Station operating income reconciliation: Net income (loss) $ 4,801 $ 8,034 $ (706 ) $ 18,731 Plus: Depreciation and amortization 3,773 3,376 11,413 10,629 Plus: Corporate expenses 6,947 7,010 22,053 19,979 Plus: Non-cash compensation (2,310 ) 335 (1,754 ) 1,010 Plus: Stock-based compensation 923 1,332 2,536 3,964 Plus: Equity in loss of affiliated company 2,793 635 7,551 1,569 Plus: Provision for income taxes 5,892 7,418 4,691 16,393 Plus: Minority interest in income of subsidiaries 1,274 882 3,099 1,920 Plus: Interest expense 18,400 18,733 55,047 54,079 Plus: Impairment of long-lived assets - - 5,506 - Less: (Income) Loss from discontinued operations, net of tax (1,281 ) (922 ) 3,196 (2,000 ) Less: Interest income (292 ) (493 ) (852 ) (1,034 ) Less: Other (expense) income   (15 )   11     22     269   Station operating income $ 40,935   $ 46,329   $ 111,802   $ 125,509     Adjusted EBITDA5 $ 35,360 $ 37,663 $ 88,946 $ 100,287 Adjusted EBITDA reconciliation: Net Income (Loss) $ 4,801 $ 8,034 $ (706 ) $ 18,731 Plus: Depreciation and amortization 3,773 3,376 11,413 10,629 Plus: Provision for income taxes 5,892 7,418 4,691 16,393 Plus: Interest expense 18,400 18,733 55,047 54,079 Less: Interest income   (292 )   (493 )   (852 )   (1,034 ) EBITDA $ 32,574 $ 37,068 $ 69,593 $ 98,798 Plus: Equity in loss of affiliated company 2,793 635 7,551 1,569 Plus: Minority interest in income of subsidiaries 1,274 882 3,099 1,920 Plus: Impairment of long-lived assets - - 5,506 - Less: (Income) Loss from discontinued operations, net of tax   (1,281 )   (922 )   3,196     (2,000 ) Adjusted EBITDA $ 35,360   $ 37,663   $ 88,945   $ 100,287         September 30, 2007 December 31, 2006 (unaudited) (as adjusted) SELECTED BALANCE SHEET DATA: (in thousands) Cash and cash equivalents $ 21,540 $ 32,406 Intangible assets, net 1,855,663 1,860,789 Total assets 2,076,882 2,195,210 Total debt (including current portion) 836,410 937,527 Total liabilities 1,055,198 1,176,963 Total stockholders' equity 1,018,605 1,018,267 Minority interest in subsidiaries 3,079 (20 )       Current Amount Applicable Interest Outstanding Rate (a)   (in thousands) SELECTED LEVERAGE AND SWAP DATA: Senior bank term debt (swap matures 6/16/2012) $ 25,000 6.72 % Senior bank term debt (swap matures 6/16/2010) 25,000 6.57 % Senior bank term debt (swap matures 6/16/2008) 25,000 6.38 % Senior bank term debt (at variable rates) (b) 122,500 approximately 7.63 % Senior bank term debt (at variable rates) (b) 137,500 approximately 7.63 % 8-7/8% senior subordinated notes (fixed rate) 300,000 8.88 % 6-3/8% senior subordinated notes (fixed rate) 200,000 6.38 %   Seller financed loan 1,410 5.10 %   (a)   Under its swap agreements, Radio One pays a fixed rate plus a spread based on the Company's leverage, as defined in its credit agreement. As of September 30, 2007, that spread was 2.25% and is incorporated into the applicable interest rates set forth above.   (b) Subject to rolling 90-day LIBOR plus a spread currently at 2.25% and incorporated into the rate set forth above. This tranche is not covered by swap agreements described in footnote (a). Cautionary Note Regarding Forward-Looking Statements This press release includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Because these statements apply to future events, they are subject to risks and uncertainties that could cause actual results to differ materially, including the absence of a combined operating history with an acquired company or radio station and the potential inability to integrate acquired businesses, need for additional financing, high degree of leverage, seasonal nature of the business, granting of rights to acquire certain portions of the acquired company’s or radio station’s operations, market ratings, variable economic conditions and consumer tastes, as well as restrictions imposed by existing debt and future payment obligations. Important factors that could cause actual results to differ materially are described in Radio One’s reports on Forms 10-K, and 10-Q and other filings with the Securities and Exchange Commission. Radio One does not undertake any duty to update any forward-looking statements. Net revenue decreased to approximately $90.4 million for the quarter ended September 30, 2007, from approximately $91.9 million for the quarter ended September 30, 2006, a decline of 2%. The decrease in net revenue was due primarily to a significant decline in net revenue from our Los Angeles station and a decline in overall radio industry revenue in the markets in which we operate. In addition to the net revenue decline in Los Angeles, we experienced modest declines from our Baltimore, Detroit and Philadelphia markets. Loss of sponsorship revenue uniquely associated with our August 2006 25th Anniversary event also contributed to the decline. These declines were partially offset by net revenue increases from our Atlanta market, Reach Media and the consolidation of the operating results of Giant Magazine. Net revenue is reported net of agency and outside sales representative commissions of approximately $10.3 million and $11.1 million for the quarters ended September 30, 2007 and 2006, respectively. Excluding the operating results of Giant Magazine, which we acquired in December 2006, our net revenue declined 2.9% for the three months ended September 30, 2007, compared to the same period in 2006. Operating expenses, excluding depreciation and amortization, stock-based compensation and non-cash compensation increased to approximately $56.4 million from approximately $52.6 million for the quarters ended September 30, 2007 and 2006, respectively, an increase of 7%. The increase in operating expenses resulted primarily from the consolidation of the July through September 2007 operating results of Giant Magazine, new expenses associated with two recently acquired or operated stations, expenses associated with our new internet initiative, and additional spending for music royalties, sponsored events and research. These increased expenses were partially offset by the absence of expenses associated with the August 2006 25th Anniversary event, and a reduction in television production costs associated with the now ended Tom Joyner television series. Excluding the operating results of Giant Magazine, operating expenses increased 4% for the three months ended September 30, 2007, compared to the same period in 2006. Stock-based compensation decreased to $923,000 from approximately $1.3 million for the quarters ended September 30, 2007 and 2006, respectively, a decline of 31%. Stock-based compensation consists of expenses associated with our January 1, 2006 adoption of Statement of Financial Accounting Standards ("SFAS”) No. 123(R), "Share-Based Payment,” and expenses associated with restricted stock grants. The decrease in stock-based compensation was due to stock option grant cancellations and the completion of the vesting period for certain stock option grants. Depreciation and amortization expense increased to approximately $3.8 million for the quarter ended September 30, 2007 from approximately $3.4 million for the quarter ended September 30, 2006, an increase of 12%. The increase was primarily due to an increase in amortization associated with the WMOJ-FM intellectual property acquisition made in September 2006 and an increase in depreciation for capital expenditures made subsequent to September 30, 2006. Interest expense decreased to approximately $18.4 million for the quarter ended September 30, 2007 from approximately $18.7 million for the quarter ended September 30, 2006, a decline of 2%. The decrease in interest expense during the three months ended September 30, 2007 resulted primarily from interest savings associated with lower net borrowings due to debt pay downs, which was partially offset by fees associated with the operation of WPRS-FM (formerly WXGG-FM) pursuant to a local marketing agreement (LMA) that began in April of 2007. Equity in loss of affiliated company increased to $2.8 million for the quarter ended September 30, 2007 from $635,000 for the same period in 2006. The increase in the loss is attributable to a step-up in the percentage share of losses in 2007 driven by specialized accounting guidance related to TV One’s current capital structure. Provision for income taxes decreased to approximately $5.9 million for the quarter ended September 30, 2007 from approximately $7.4 million for the quarter ended September 30, 2006, a decrease of 21%. The decrease to the provision for income taxes was due to lower pre-tax income, permanent differences between incomes subject to tax for book purposes versus tax purposes, additional valuation allowances for charitable contributions and certain state net operating loss carryforwards and the tax impact of certain discrete items. For the quarter ended September 30, 2007, our effective tax rate is 55.1%; however, excluding the tax impact of certain discrete items specific to the quarter, our effective rate for the quarter ended September 30, 2007 was 51.2%. During the quarter ended September 30, 2006 our effective tax rate was 48.1%. As of September 30, 2007, our annual effective tax rate is projected at 47.0%, which is impacted by the permanent differences between incomes subject to tax for book purposes versus tax purposes. Income from discontinued operations, net of tax, was approximately $1.3 million for the quarter ended September 30, 2007, compared to $922,000 for the same period in 2006, an increase of 39%. Income from discontinued operations, net of tax, includes the gain or loss for sold assets and the results of operations associated with all our radio stations in our Dayton market, radio station KTTB-FM in Minneapolis, radio station WILD-FM in Boston, and five of the six radio stations in our Louisville market, for a total of approximately $134.0 million in cash. Income from discontinued operations also includes the results of operations of our radio stations WLRX-FM in Louisville, WMCU-AM (formerly WTPS-AM) in Miami, and all of our radio stations in the Augusta market. Other pertinent financial information for the quarter ended September 30, 2007 includes capital expenditures of approximately $1.4 million, compared to approximately $4.7 million for the quarter ended September 30, 2006. Additionally, as of September 30, 2007, Radio One had total debt (net of cash balances) of approximately $814.9 million. In October 2007, we entered into an agreement to sell the assets of our radio station WMCU-AM (formerly WTPS-AM), located in the Miami metropolitan area to Salem Communications Holding Corporation ("Salem”), for approximately $12.3 million in cash. Salem began operating the station pursuant to an LMA effective October 18, 2007. In September 2007, our board of directors approved the sale of WTPS-AM. Subject to the necessary regulatory approvals, we expect to close on this transaction during the first quarter of 2008. In September 2007, we closed on the sale of the assets of all of our radio stations located in the Dayton market and five of our six radio stations located in the Louisville market to Main Line Broadcasting, LLC for approximately $76.0 million in cash. The majority of the proceeds from this sale were used to pay down debt. In August 2007, we entered into an agreement to sell the assets of all of our radio stations located in the Augusta market to Perry Broadcasting Company for approximately $3.1 million in cash. We also entered into an agreement to sell the assets of WLRX-FM, our remaining radio station located in the Louisville metropolitan area, to WAY FM Media Group, Inc. for approximately $1.0 million in cash. Subject to the necessary regulatory approvals, both the Augusta and WLRX-FM transactions are expected to close in the fourth quarter of 2007. Also in August, we closed on the sale of the assets of our radio station KTTB-FM, located in the Minneapolis metropolitan area, to Northern Lights Broadcasting, LLC for approximately $28.0 million in cash. The majority of the proceeds from this sale were also used to pay down debt. The results of operations for the Boston WILD-FM, Minneapolis KTTB-FM and Miami WTPS-FM radio stations, and the Dayton, Louisville (including WLRX-FM) and Augusta market transactions for the three and nine months ended September 30, 2007 and 2006 have been reflected as discontinued operations in our financial statements. The assets and liabilities of these transactions as of September 30, 2007 and December 31, 2006 have also been reflected as discontinued operations. In July 2007, we closed on the agreement to acquire the assets of WDBZ-AM, a radio station located in the Cincinnati metropolitan area, for approximately $2.6 million, financed by the seller. Since August 2001 and up until closing, we had been operating WDBZ-AM pursuant to an LMA. We have included the results of operations for the station in our financial statements since August 2001. In April 2007, we entered into an agreement to acquire the assets of WPRS-FM (formerly WXGG-FM), a radio station located in the Washington DC metropolitan area, and entered into an LMA with Bonneville International Corporation to operate the radio station pending the completion of the acquisition. We began broadcasting with a contemporary inspirational format to complement our existing presence in the Washington, DC market. We expect to complete this acquisition during the first quarter of 2008. Radio One will hold a conference call to discuss its results for the third quarter of 2007. This conference call is scheduled for Tuesday November 6, 2007 at 10:00 a.m. Eastern Time. Interested parties should call 480-248-5088 at least five minutes prior to the scheduled time of the call. The conference call will be recorded and made available for replay from 1:30 p.m. Eastern Time the day of the call, until 11:59 p.m. Eastern Time the following day. Interested parties may listen to the replay by calling 320-365-3844; access code 892774. Access to live audio and 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 the seven business days following the call. Radio One, Inc. (www.radio-one.com) is one of the nation's largest radio broadcasting companies and the largest radio broadcasting company that primarily targets African-American and urban listeners. Pro forma for recently announced transactions, Radio One owns and/or operates 54 radio stations located in 17 urban markets in the United States. Additionally, Radio One owns Magazine One, Inc. (d/b/a Giant Magazine) (www.giantmag.com), interests in TV One, LLC (www.tvoneonline.com), a cable/satellite network programming primarily to African-Americans and Reach Media, Inc. (www.blackamericaweb.com), owner of the Tom Joyner Morning Show and other businesses associated with Tom Joyner. Radio One also operates the only nationwide African-American news/talk network on free radio and programs "XM 169 The POWER," an African-American news/talk channel, on XM Satellite Radio. Notes: 1 "Station operating income” consists of net income (loss) before depreciation and amortization, income taxes, interest income, interest expense, equity in loss of affiliated company, minority interest in income of subsidiaries, impairment of long-lived assets, other income (expense), corporate expenses, stock-based and non-cash compensation expenses and income (loss) from discontinued operations, net of tax. Station operating income is not a measure of financial performance under generally accepted accounting principles. Nevertheless we believe station operating income is often a useful measure of a broadcasting company’s operating performance and is a significant basis used by our management to measure the operating performance of our stations within the various markets because station operating income provides helpful information about our results of operations apart from expenses associated with our physical plant, income taxes provision, investments, debt financings, overhead, and stock-based, non-cash compensation, results of operations and gains (losses) from asset sales. Station operating income is frequently used as one of the bases for comparing businesses in our industry, although our measure of station operating income may not be comparable to similarly titled measures of other companies. Station operating income does not purport to represent operating loss or cash flow from operating activities, as those terms are defined under generally accepted accounting principles, and should not be considered as an alternative to those measurements as an indicator of our performance. A reconciliation of operating income to station operating income has been provided in this release. 2 For the three months ended September 30, 2007 and 2006, Radio One had 98,725,387 and 98,710,633 shares of common stock outstanding on a weighted average basis, diluted for outstanding stock options, respectively. 3 For the nine months ended September 30, 2007 and 2006, Radio One had 98,710,633 and 98,712,378 shares of common stock outstanding on a weighted average basis, diluted for outstanding stock options, respectively. 4 "Station operating income margin” represents station operating income as a percentage of net revenue. Station operating income margin is not a measure of financial performance under generally accepted accounting principles. Nevertheless, we believe that station operating income margin is a useful measure of our performance because it provides information about our profitability as a percentage of our net revenue. 5 "Adjusted EBITDA” consists of net income (loss) plus (1) depreciation, amortization, income taxes, interest expense, equity in loss of affiliated company, impairment of long-lived assets, and minority interest in income of subsidiaries less (2) income (loss) from discontinued operations, net of tax, and interest income. Net income before interest income, interest expense, provision for income taxes, depreciation and amortization is commonly referred to in our business as "EBITDA.” Adjusted EBITDA and EBITDA are not measures of financial performance under generally accepted accounting principles. We believe Adjusted EBITDA is often a useful measure of a company’s operating performance and is a significant basis used by our management to measure the operating performance of our business because Adjusted EBITDA excludes charges for depreciation, amortization and interest expense that have resulted from our acquisitions and debt financings, our income taxes, as well as our equity in loss of our affiliated company and any discontinued operations. Accordingly, we believe that Adjusted EBITDA provides helpful information about the operating performance of our business, apart from the expenses associated with our physical plant, capital structure or the results of our affiliated company. Adjusted EBITDA is frequently used as one of the bases for comparing businesses in our industry, although our measure of Adjusted EBITDA may not be comparable to similarly titled measures of other companies. Adjusted EBITDA and EBITDA do not purport to represent operating income or cash flow from operating activities, as those terms are defined under generally accepted accounting principles, and should not be considered as alternatives to those measurements as an indicator of our performance. A reconciliation of net income to EBITDA and Adjusted EBITDA has been provided in this release.