Urban One, Inc. (UONE) Q4 2022 Earnings Call Transcript

Urban One, Inc. (NASDAQ:UONE) Q4 2022 Earnings Conference Call July 7, 2023 10:00 AM ET

Company Participants

Alfred C. Liggins - CEO

Peter D. Thompson - CFO

Conference Call Participants

Aaron Watts - Deutsche Bank

Ben Briggs - StoneX Financial Incorporated

Matt Swope - Baird

Matthew Sandschafer - Mesirow

Operator

Ladies and gentlemen, thank you for standing by and welcome to Urban One's 2022 Year-end Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time.

During this conference call, Urban One will be sharing with you certain projections and other forward looking statements regarding future events or its future performance. Urban One cautions you that certain factors including risks and uncertainties referred to in the 10-Ks, 10-Qs and other reports it periodically files with the Securities and 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 07/07/2023. 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 12:00 PM Eastern Time, 07/07/2023, until 11:59 PM, 07/14/2023. Callers may access the replay by calling 866-207-1041 within the US. International callers may dial direct 402-970-0847. The replay access code is 8019907. Access to live audio and a replay of the conference call will be available on Urban One's corporate website at www.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 we also have Jody Drewer, the Chief Financial Officer for TV One with us and, Kris Simpson, who is the General Counsel of the company who is also joining us. Finally, our year-end earnings report in the middle of the year. Thank you everyone for bearing with us as we got through an unexpected lengthy audit. But we're happy to report that the year ended as expected with us right on top of our year-end guidance of $165.6 million of EBITDA, leverages was below 4 times, which was a great outcome and we've indicated that, that was our goal and that's where we landed.

Couple of things, just to give you highlights before I turn it over to Peter. You probably also know and seen in the press release, we monetized our MGM National Harbor investment. I think we did that in April. It ended up being a fantastic investment for us. We invested $40 million of cash in the project. We ended up pulling that $40 million out in dividends over the length of time that we held it. And then our equity investment in the end is worth $137 million. So it's probably roughly 4.5 times our money investment.

Why did we do it? We did it because we thought that their 2022 performance was number one, a high watermark for the property. That was not expected. It was well ahead where we had expected it to be. We also felt that given the macroeconomic environment and a number of other things that it probably was not particularly likely that we were going to do better than that going forward. Things can happen. We don't know for sure. But that was our calculus. The third thing is that, on that $137 million, we were earning approximately $8.8 million of dividends, which is about a 6.4% return on the value of it, since the tremendous return on $40 million, but on $137 million, it's just a 6.4% return. And we thought that we could do better than 6.4% investing that capital in other things.

And the first place we started was, even though we're not doing better, with US Treasuries where we're getting about 5% on that money. So fact of the matter is we're not giving up a ton of current income right now holding that in treasuries and we're sitting on a bunch of cash right now as we live through an uncertain economic time, hoping that the uncertainty actually moderates, feels like maybe there's not going to be a recession, but who knows? And we've got a number of things coming up where we may need to deploy that cash, whether it's -- debt -- continued debt buybacks, which we haven't been billing particularly since we hadn't filed our financial statements, but I haven’t checked in a minute.

The last I checked, our bonds are yielding like 10% -- north of 10%, 10.3%. So even that is a better investment than just continuing to hold the equity and get a 6.4% return. We are in the process of gearing up to run another referendum in Richmond for our casino project with our new partner at Churchill Downs. We believe that there is an exceptionally high likelihood that we will be running that referendum. We've got some assurances, some public assurances by the Virginia Senate budget negotiators that a Richmond referendum or this casino referendum being blocked to potentially move to Petersburg as a non-negotiable item. For them, that was recently in the news press in Virginia.

So we've got some real support there. City Council has voted it out, we're at the Virginia Lottery now for approval. And then we'll go to the Circuit Court to get the referendum scheduled. Early vote would start September 22^nd, 2023. Friday, September 22, and election day would be November 7. So if we're successful with the referendum, we'll obviously need cash in order to fund that. Although the partnership in Richmond is different now, we are not the sole equity provider at this point in time. It's a fifty-fifty equity investment with us and Churchill Downs. They're a great, well capitalized company. The CEO is very engaged in this. We couldn't be luckier to have them as a partner.

We also recently -- I don't want to say recently, a few months ago, announced the acquisition of four Houston radio stations from Cox Media Group. We expect -- for $27.5 million. We have also signed agreements to spin-off two stations that we can't own because we'll be over the limit for a total of $10.5 million. So we're going to be into that acquisition for about $17 million and some change. We expect that, that cash flow from that acquisition will equate to at least $5 million as we step into it. So a very attractive multiple that we were able to acquire that, once you factor in the amount of money that we got for the spins.

We also think that there are a number of other potential radio acquisitions that are out there that if you -- right now radio -- the radio companies are trading kind of like in the 5s in terms of an EBITDA multiple. And so if you were to buy radio at a 5.5 times multiple, you're talking about close to a 20% return, which is also better than our 6.4% that we were getting on the MGM investment. So there are a number of things that we think that we can do going forward, that will ultimately net us a better return.

So whether it's paying down debt at 10%, whether it's buying radio in the 5s that net you a 20%, if getting our referendum one and investing in the Richmond casino is another. There is a process going on that you guys have probably seen in the business press where Paramount is looking to sell the BET Media Group, which includes BET and VH1. Our name is not -- never mentioned, but we are involved in that process, but with a number of other parties. Still doing our diligence on it. Don't know where we land, but we're engaged.

We think that we have exceptionally complementary assets with the TV One and CLEO assets that could potentially create a lot of value. However, we remain disciplined from an acquisition standpoint. We're fully aware of the challenges that the pay-TV ecosystem has, one of the reasons why we think that finding scale in this business could make a lot of sense as well. So we're doing our work and staying engaged on that.

2023 guidance. We are expecting 2023 EBITDA to come in better than our 2019 pre-pandemic EBITDA, if you go ex-MGM dividends. So that's our goal. We feel pretty good about being able to achieve that. We’re thinking leverage will continue to be below 4 times, call it 3.7-ish by the end of the year. And given the macroeconomic backdrop, I think we'd also pretty good about that an outcome should that come to pass.

So with that, I am going to turn it over to Peter Thompson to go more specifically into the numbers.

Peter D. Thompson

Thank you, Alfred. And before we enter numbers, let me talk a little bit about the delayed filing and the MGM restatement. Since the inception of the MGM deal, we've been carrying our stake in that as an equity investment at that cost. However, once the put option that we had became exercisable, we should have reclassified the investment as a debt security available for sale. So really it's a technical change in that and how we should have carried it on the balance sheet. And once you end up in that bucket, that is a debt security available for sale, you should then revalue it every quarter and we didn't do that.

And obviously, we knew what it was worth. And I think we've done a decent job of telling our investors what it's worth, but when the put crystallized that. So the end state value of $136.8 was known, but we have to go on hire an outside valuation specialists to appraise the asset for each quarter of 2021 and 2022 using multiple methodologies, which took some time to work through. Separate from this, but also contributing to the delay in filing, ours is required additional documentation around the company's ASC 606 revenue recognition policies.

And that required us to bring in a consultancy firm to write a bunch of technical accounting memoranda. We're not a big shop. We didn't have the resource to do that internally. And so we had to go and find someone to write those technical accounts and memos for us. And then finally, there was significantly increased substantive order testing around journal entries and other things as a result of a lack of reliance on internal controls, but in prior years, had been deemed sufficient, but weren't this year. And all of that meant that it took many additional weeks of work to get the accounts signed off, which had been frustrating both for the company and the investors. And I thank you all for your patience and support. I've been speaking to as many of the investors as I can just to try and keep people appraised of what's going on. And we appreciate you being patient and bearing with us while we worked through all of that.

Turning to the numbers themselves. Consolidated adjusted EBITDA was $31.7 million for the quarter, which was down 2.3% from last year. Full year consolidated adjusted EBITDA was $165.6 million, in line with the company's guidance and up 10.2% year-over-year. Fourth quarter consolidated net revenue was up 1.6% year-over-year. The Indianapolis radio acquisition added approximately $4.2 million, and there was the absence of the Reach cruise event which generated $7 million last year in the fourth quarter in ‘21.

Normalizing for those two things, net revenue was up 3.9%, or down 1.4% excluding $6.6 million of incremental political advertising. Net revenue for the radio segment increased 23.8% year-over-year and by 14.1% on a same-station basis. According to Miller Kaplan and on a same-station basis, our local ad sales were on par with the market at minus 1%, and national ad sales outperformed, we were up 41.9% against the market that was up 17.4%, helped by heavy political spending and also our corporate sales effort.

We recorded $8.1 million in net political ad revenue, of which $7.2 million was radio compared to $1.5 million in prior year. Government and public was our biggest radio advertising category for the quarter, up 97.6%, healthcare was up 53.6%, auto was up 86.3%, retail was up 12.7%, entertainment was up 8.9%. Services, financial, telecoms, food and beverage, travel and transportation were down in the quarter. Q1 2023 Radio revenue, excluding digital, was up 2% on a same-station basis or up 3.1% same-station, excluding political.

Q2 is currently pacing down 5% excluding digital on a same-station basis, or down 0.9% excluding political. So we're holding well on a same-station basis, ex political. Net revenue for Reach Media was $11.9 million in the fourth quarter compared to $12.3 million last year, excluding the cruise event. Adjusted EBITDA was $3.1 million, down from $3.8 million in prior year. Our full year adjusted EBITDA increased by 13.3% to [$15 million] (ph).

Net revenues for our Digital segment increased by 24.1% in fourth quarter to $24.2 million. The direct sales team had an exceptionally strong finish to the year, driven by continued demand to Reach black audiences at scale and increased midterm political revenue. Adjusted EBITDA was $1.9 million for the quarter and $21.8 million for the year, up 24.1% year-over-year. Our Radio, Reach and Digital segments, saw our audio business, had combined Q4 adjusted EBITDA of $20.8 million for the quarter, up 12% year-over-year.

We recognized approximately $49.7 million of revenue from our Cable Television segment during the quarter, a decrease of 8.2%. Cable TV advertising revenue was down 8.4% with a favorable rate volume impact of $900,000 offset by unfavorable timing variance of $1.7 million, free video on demand, and $1.6 million unfavorable AVU burn-off. Cable TV affiliate revenue was down by 7.4% with a favorable rate increase of $1.2 million being offset by $2.4 of net churn, $650,000 increased financial support.

Cable subscribers for TV One as measured by Nielsen, finished Q4 at $46.5 million compared to $43.6 million at the end of Q3, and CLEO TV had $41.8 million Nielsen subs. You're having trouble hearing us. Okay. Sorry, I just heard the sound quality is poor. We turned the air conditioning off here and moved the microphones around. Hopefully, that will be better.

We recorded approximately $2.6 million of investment income from our stake in the MGM National Harbor property for the quarter, up 30% from prior year. Operating expenses, excluding depreciation, amortization, impairments and stock-based compensation, were approximately $104.2 million in fourth quarter to the $105.6 million in Q4 of 2021. Event expenses decreased by $6.9 million due to the absence of the Reach cruise event, which returned in May of this year.

Cable TV content amortization decreased by $5.3 million and the non-cash charge for the CEO's Employment Award decreased by $3.5 million. Employee compensation increased by approximately $5.6 million, including incentive compensation across the organization for superior annual performance against plan. Revenue variable expenses increased $4 million. Travel, entertainment and office expenses increased by $2.2 million and outside services including contract, talent, and consulting fees increased by $2.5 million. About $3.3 million of those increased expenses were in relation to the Indianapolis radio acquisition and is included in those totals.

Radio operating expenses were up by $4.8 million. The Indianapolis cluster adding just over $3 million of that increase. Expenses related to revenue increases such as sales commissions and bonuses drove the rest of the increase. Our Reach operating expenses were flat, except for the cruise event. Operating expenses in the Digital segment were up 36.9%, driven predominantly by variable expenses related to traffic acquisition costs, which were up $2.3 million, and ad production and marketing, which was up $2 million and content and streaming music royalties, which was up by $1.7 million. Cable TV expenses were down $4.9 million with content amortization expense down by $5.3 million due to some write-downs in prior years that didn't recur.

Operating expenses in the Corporate and Elimination segment were down by 4.7%. It was a favorable variance of $3.5 million for the non-cash TV One employment award charge, which was offset by increases in employee compensation, including annual performance bonuses outside legal fees, third party software license fees, T&E, recruiting and marketing.

For the fourth quarter, consolidated broadcast and digital operating income was approximately $47.6 million, an increase of 7.9%. During the quarter, the company repurchased $25 million of its 2028 notes at an average price of approximately 86.4%, resulting in a net gain on retirement of approximately $3 million. An additional $25 million of the 2028 notes was repurchased in the first quarter of 2023 at an average price approximately 89.1%, bringing the total gross debt balance down to $725 million today, down from $825 million at the start of 2022. So we've now paid down $100 million of the debt.

Interest expense decreased to approximately $14.6 million for the fourth quarter, down 8% from last year due to the debt paydowns. Company made cash interest payments of approximately $625,000 in the quarter, including the accrued interest on the retired notes, and the semiannual interest payment was paid on February 1^st, ‘23. A non-cash impairment of $10.3 million was recorded for our radio market broadcasting licenses in Cincinnati, Dallas, Houston and Raleigh and also for our Philadelphia market goodwill balance.

Provision for income taxes was approximately $3.9 million for the quarter. Company paid cash taxes in the amount of approximately $1.1 million. Net income was approximately $856,000 or $0.02 a share compared to $5.3 million or $0.10 a share for the fourth quarter of 2021. Capital expenditures were approximately $1.5 million. Company repurchased 13,577 shares of Class D common stock in the amount of $57,000.

As of December 31, ‘22, total gross debt was $750 million. The ending unrestricted cash balance was $94.9 million, resulting in net debt of approximately $655.1 million, which compared to $165.6 million of LTM reported adjusted EBITDA, gives a total net leverage ratio of 3.96 times. Pro form for the Indianapolis acquisition, total net leverage was 3.91 times.

On 03/08/2023, the company issued a put notice with respect to 100% of its interest in the MGM National Harbor, LLC. On 04/21/2023, we closed on the sale of the put interest. Company received approximately $136.8 million of proceeds at the time of settlement. During the quarter ended 03/31/2023, the company also received $8.8 million representing the company's annual distribution from MGM National Harbor with respect to fiscal year ‘22.

Pro forma for the MGM put, total net leverage was 3.21 times, including $145.5 million of cash receipts from MGM and excluding the LTM adjusted EBITDA for the MGM stake of $8.8 million. On 04/11/2023, the company announced it had signed an asset purchase agreement with Cox Media to purchase the Houston radio cluster. Urban One will divest two stations to comply with FCC ownership regulations. Transaction is subject to FCC approval, and is anticipated to close either late in the second quarter or early in the third quarter of ‘23. And until that time, we'll -- we and CMG will continue to operate our respective stations. And then finally, with the MGM proceeds, our current cash balance today is approximately $235 million.

And with that, I will hand back to Alfred.

Alfred C. Liggins

Great. Thank you. Operator, I'd like to open the line up for Q&A, please.

Question-and-Answer Session

Operator

[Operator Instructions] We will first go to the line of Aaron Watts with Deutsche Bank. One moment while we open your line. You may go ahead.

Aaron Watts

Hi, guys. Thanks for hosing the call. Good to hear from you. I've got a couple. Peter, sorry to ask you to do this. At least for me, your line was a little choppy at the beginning your comments. Could you repeat what -- on the radio side, what your kind of same-station core advertising performance was in 4Q, 1Q, and then also what you said 2Q was pacing at?

Peter D. Thompson

Yeah. So let me go back. Q1 of ‘23, excluding digital, which is what we report, the radio segment was up 2% on a same-station basis. Excluding political, it was up 3.1%. As a report of -- it's probably going to look -- it's going to look like it was up about 11% the first quarter because of the Indianapolis acquisition.

Second quarter is pacing down 5% at the moment on a same-station basis, but obviously political. There was a fair amount of political last year, a couple of million dollars. So excluding that same-station, we're pacing down 0.9% for second quarter on radio as reported, because we're layering India on top of that. We're probably looking more like we're going to be up probably low to mid-single digits.

Aaron Watts

Okay. Got it. Thank you for repeating that.

Peter D. Thompson

Hey, sorry. And then on the radio segment, on a same-station basis, 14.1% up for fourth quarter.

Aaron Watts

Great. And as you sit today guys, like, how is the environment feeling to you as you enter -- you're entering July here, relative to what you felt in the first half of the year? Any rays of light coming through in terms of advertising, willing -- advertiser willingness to spend, whether it's on the local or national level or is it feels relatively steady with what you had been feeling in the kind of April, May, June timeframe?

Alfred C. Liggins

Yeah. Look, there's definitely an advertising recession going on. I mean, I was at the Cannes Lions advertising conference weeks ago. And you hear it from the big holding companies and it's particularly taken root in national. And so you're seeing that come through with people who have national ad platforms, local feels stronger. But, I mean, you watch the news, CNBC, the economic data is still really strong and -- but just because advertisers are pulling back, not sure they're pulling back because they're worried about something that's coming or exactly why, but there's definitely an ad recession going on.

We're still feeling a level of strength due to interest in diverse owned media. We're definitely still feeling that. Doesn't mean that we're not seeing less demand, but we're doing better than our non-diverse owned peers. One of the reasons why we also felt it would be good to be sitting on a lot of cash at this point in time, don't know exactly what's going to happen. But I feel if there's a recession, it will be a mild recession. I think we're already in an advertising recession. We may not be in economic recession at this point. And our radio business is going against some significant political headwinds, right? We had $20 million worth of political…

Peter D. Thompson

It was $13 million last year. That was the prior presidential cycle, it was over [$20 million, now it’s $13 million] (ph). Yeah, still significant.

Alfred C. Liggins

Significant, excuse me. And -- but I -- we're preparing to be okay regardless of what the economy does, but I would say I feel better about where things are going today than I did in January.

Aaron Watts

Okay. That's helpful context. Thank you for that. Second question, and I'm sorry if you already disclosed this. But with the stations you're picking up from Cox, are you able to share what the multiple you paid was on that purchase?

Alfred C. Liggins

No, I mean, we paid we paid $27.5 million. I think I just said that we think with add backs and things of that nature that we'll have that we $5 million of EBITDA.

Peter D. Thompson

Sorry -- I don't know if you caught up with the NAV spins.

Alfred C. Liggins

Yeah. So let's say their EBITDA was less than $5 million, we think with add backs, we'll have at least $5 million. And when I say add backs, duplicate expense stuff that we can take out day one. And there's not a lot of it, right. We're not changing formats. But what was the surprise for us to be honest with you, because we modeled something else, was we were able to get out of the two radio stations for an acceptable price, right? And we didn't know what the marketplace was going to be like. Yeah. And we are able to find two buyers and got what we thought were not amazing prices, probably low watermarks for stations in Houston, but given the M&A activity in radio period is pretty tepid, we felt -- feel pretty good about the sales there. And so we're going to be in to Houston for about $17 million.

Aaron Watts

Okay. Thank you for that. And one last question. You mentioned your liquidity a couple of times and it is a nice a cushion to have given the uncertain economic backdrop. As you move forward here, you fought back bonds, but you also have this potential casino projects. How should we think about the uses of those of that cash, whether it's debt paydown going towards a casino initiative or potentially more M&A activity, whether that's on the radio side or otherwise?

Alfred C. Liggins

Look, if -- when we win this casino referendum, we're going to have to write a -- it's not certain exactly what the equity check will be. It's fifty-fifty right now. But let's assume that it's $80 million for each, us and Churchill and that's assuming you put some debt on it, we may not go that route depending on how expensive project financing is. So we may need to write a slightly bigger check. But assume that that's going to something that we will spend cash on starting in Q4, beginning with closing on the land acquisition. And then I think we sit back and just look at stuff opportunistic.

I mean the good thing is that our bonds trading at a discount, call it $90 million and some change or whatever, yield 10.5% right? So that's always -- that's a good use of capital at that point in time. And if we can make some radio acquisitions that are better return than that, then we should look hard at that. But paying down debt, I mean, we're also starting to get into a strike zone of leverage into 3s, you get leverage 3.5 times, low 3s, you're starting to get in the strike zone of what other kind of capital -- returns of capital do you look at. But we've got some significant projects on that -- on the plate right now that we need to see how they're going to turn out.

Aaron Watts

Okay. All right, great. I appreciate the time as always.

Operator

We'll next go to the line of Ben Briggs with StoneX Financial Incorporated. Go ahead.

Ben Briggs

Good morning, guys. Thank you for holding the call and taking the questions. So a lot of mine got answered but I still have a couple of more here. So using your guidance and again thank you for providing guidance, you said that you expect to come in above where you were in fiscal year ’19 while adjusting out the roughly $8 million MGM dividend that you received. So that gets me to roughly, let's call it like, just north of $130 million of EBITDA? I just want to kind of sanity check that and make sure I'm doing my math right there.

Peter D. Thompson

No, I have $133.5 million with MGM in, and MGM I think was 6.6%. So I think it's like high $120 million, $126 million, $127 million.

Ben Briggs

Okay, $126 million.

Peter D. Thompson

Yeah.

Ben Briggs

Okay. So $126 million, $127 million. And then if I subtract out, call it between $60 million and $65 million of interest expense, and some CapEx, it looks like you guys on an EBITDA minus interest minus CapEx basis should still be comfortably free cash flow positive in fiscal year ‘23. Is that a safe assumption?

Peter D. Thompson

Yeah, I've got us kind of mid-60s in free cash flow. Depending on where CapEx comes out, we've got couple of figures, pointers, consolidating in Indianapolis and in Charlotte, but probably we don't get to spend all of that this year. So that's why mid-60s of free cash flow is what we're come to putting out for this year.

Ben Briggs

Okay, perfect. That's right around where I was getting to. Thank you. And then the second question. So Churchill Downs, thank you for the clarity on what size the equity check might be and a little bit about what your thought process is there. Could you give a couple more details on what the operations of that might look like? So, I know obviously with MGM casino, that was very much you guys were essentially silent partners, not like you had a hand in operating the casino. You left that to them. Is the Churchill Downs project going to be similar or are you going to be taking a more hands on approach with this opportunity?

Alfred C. Liggins

They'll be the operator. We're just going to own it fifty-fifty with them and they'll be responsible for operating. However, they'll use their corporate expertise to work with us to build a management team locally at the property. They've got a number of partnerships with other people, including one with Rush Gaming in Chicago and Des Plaines. I think they've got one in Miami with Delaware North, I think it's Miami. So they've got -- good thing about them, they've got experience with having large partners, meaning not somebody who owns 7% but somebody who owns 50% along with them, right? So -- but we will be relying on them to be the operator.

Ben Briggs

Okay. Got it. Got it. Okay. Thank you. And then finally, and I'm hoping you can answer this. So obviously you just released fiscal year ‘22 10-K. Do you -- and I know this is officially the fiscal year ‘22 conference call. Do you know when you might release the first quarter ‘23, 10-Q?

Peter D. Thompson

We haven't set a date. I think we'll know more next week. We're just working through some stuff there in terms of timing of that. And obviously, we're mindful of -- we got an extension from NASDAQ through 09/27/2023. We don't want to take that length of time. But I think we'll put something out next week, which will shed some light on that in terms of timing of filing that.

Ben Briggs

Okay, great. Thank you very much for holding the call and answering the questions. Have a great day, guys.

Alfred C. Liggins

Thank you.

Operator

Our next question will come from the line of Matt Swope with Baird. Go ahead.

Matt Swope

Good morning, guys. Peter, could you give us a sense for, out of that large cash number you've mentioned, what tax it will be around MGM and any other sort of unexpected or unusual uses that we should think of coming out of that cash number?

Peter D. Thompson

Yeah. You just went a bit out as you said it, but I think you're asking is there any tax leakage on the MGM sale, right?

Matt Swope

That's right. Yeah.

Peter D. Thompson

Yeah, minimal because we got enough NOLs to cover it. So it's definitely $100 million gain. And what it will do, it will burn through our NOLs faster. So it probably accelerates us becoming a federal taxpayer from 2027 to 2026, somewhere in that region. So the good news is we'll have the cash on the balance sheet and there'll be minimal tax leakage.

Operator

[Operator Instructions] We'll go next to the line of Bradd Kern, a private investor. Go ahead.

Bradd Kern

Hi. Thanks for taking the call and appreciate all the information today. First one is on the Richmond casino. What's the likelihood in your view of a favorable vote? Are you doing any polling yourselves or tracking any sort of local polling that you can maybe give us some color on and what work are you doing to improve local sentiment for the project among likely voters, in addition on the casino? It's a 50-half partnership. Who's going to be controlling that -- the decisions should you decide, I think it has your name on it, so who are you -- who's going to be making the decisions when you get down to the tough ones?

Alfred C. Liggins

Yeah, there'll be joint decisions. If we disagree, there's dispute resolution mechanism. But we're fifty-fifty partners and we got to agree. Otherwise, we go to our dispute resolution mechanism. We've got a fifty-fifty shot, the referendum, we lost it 50.85 to 49.15. Sentiment continues to be divided in the City. And we got to do a better job of telling voters how the money that the casino will generate is going to be spent. We didn't do that last time. We got to work with the City on that's not our unilateral call. I think that we've got to articulate the other aspects of the resort, not just the casino part, their entertainment vehicle. We got to do a better job of getting out our voters. But it's fifty-fifty. I've always said that people should look at our company as a baseline and decide whether or not they're comfortable with our existing operations and in our balance sheet and look at the casino as upside, like gravy. And so that's where we sit.

Bradd Kern

Okay. That's helpful. And what -- assuming that is approved, what do you anticipate the payback will be on the casino and sort of for modeling purposes in terms of number of cables and slots and gross gaming revenue across each of those? Are there some preliminary figures you can throw out? [indiscernible]

Peter D. Thompson

You should assume that the gaming revenue, this is -- the state has its own gaming analysis for each of the proposed casino licenses of five different jurisdictions. The one for Richmond, Virginia is a little better than $300 million of gaming revenue a year. And you can probably operate better than a 30% margin on that. So assuming that the property would do $100 million of EBITDA, if not better. But as a minimum, I think you should assume it's $100 million, it could do better.

Bradd Kern

Okay, that's really helpful. And then on the radio and TV side, are you seeing -- do you anticipate any potential slowdown in appetite for DEI advertising, particularly given the affirmative action ruling, what are you hearing from your advertising partners at the point?

Alfred C. Liggins

Everybody's asking that question. And so my general gut is that if the political climate changes significantly in the country, that sort of progressive and inclusionary politics will take a hit. However, I believe that many of the corporations that have committed to D&I efforts, believe in it and are doing it because it's good business in today's world. I mean one of the things that you cannot run from is the changing face of America. That's just what's happening. Black and brown and now Asian populations are growing at a considerably faster clip than the traditional Caucasian population. And that's not a race war, that's just the economics of the country, right?

And so there will be different consumption patterns for those populations and different types of consumption for media and how you communicate with them and talk to them et cetera. They will become more and more of a force from a consumer standpoint and it's no different than any other customer. You got to cater to that customer. And so -- and that's the conversation that I'm hearing among advertisers now. But yeah, if the government doesn't give a -- about diversity and inclusion, then I think there will be some corporations that will pull back on that. Because generally, government pressure or fear of some sort of government regulation or retribution causes good corporate citizenship.

But that's my general view, but you never know. I mean, forgot who it was, but Donald Trump went his way out the door and pardoned, I forgot, a number of wrappers or whatever like -- I forgot who it was. It's like who would have thought, right? Was it Lil Wayne? I don’t remember who that was. So maybe he -- if he wins the presidency, maybe he all of a sudden decides it's a good business as well. Never know. But that's my view. I mean, look, the progressive wing of the democratic party right now has got a lot of people talking about fairness and equity and justice. And then -- and the traditional faction of the democratic party is, yeah, those are things that we believe in too, right? And so that helps with this wave.

Bradd Kern

Okay. I appreciate that. That's helpful response. On a related note, your core audience, are you seeing the sort of existential time for radio listenership and secular pressures there? Are you seeing better consumption trends or how -- can you just talk about consumption trends of your core audience versus competitors?

Alfred C. Liggins

Everything in traditional media is going down and seeing less consumption. And so -- but radio feels safer and better and less, and in less of a free fall than the pay-TV ecosystem does. But I think what we're also seeing is with radio, we're dealing with less rating points right now. If you looked at our revenue, Peter, you did that analysis. Our revenue is really kind of on par, what was the analysis you did?

Peter D. Thompson

When you look at audio, looking across the radio segment reach and digital audio, we're still above pre pandemic levels of revenue and EBITDA despite the fact that the universe of listeners has gone down fairly significantly post pandemic as you might imagine given different working patterns and commuting patterns.

Alfred C. Liggins

So I'm going to give some credit to one of the CEOs, premier CEO in the industry, Bob Pittman. I had a conversation with him in Cannes at this advertising festival. And we were talking about the radio business and he hammers the point that radio still has 90% reach. Even though the numbers may be small, there is 90% reach in America and reach in television continues to decline. Historically, advertisers have paid more for less in television. And I think Peter's analysis would say that we're doing pretty good on pricing versus where audience has gone. So that's a world we're living in And I don't know what the answer is.

Nobody except Netflix is making money in streaming right now, maybe Discovery turns the corner here. I think they were supposed to turn the corner this quarter, next quarter. But people are starting to dial back on their investments in streaming. Radio is kind of hanging in there. But I -- there was a time when I was a lot more worried about radio and I was really good that -- I felt really good that we were in the cable television business. Today, I feel really good that we're diversified among all of these things and radio feels like it's hanging in there. And we're making our cable TV business hang in there right now with the way that we're managing it.

But I do feel like we need to do something strategic there, whether it's picking up more distribution, programming investments, some sort of consolidation opportunity because that landscape is changing. And so we got to figure that. But the good news is we're at a leverage level now where we're going to have time to do that. We're going to have time to make those investments. We're going to have time -- we're not going to be under any pressure that will make us have to operate in a non-effective, non-strategic way. I think that we're going to have the runway to make the turn.

Bradd Kern

Sure. On the balance sheet, I mean we've talked about the -- you talked about the economics of the casino. So in the world where in the fifty-fifty shot where it doesn't go through, you mentioned on the call that its leverage kind of -- leverage in the low 3s that there's other forms of capital return you might be looking at. So how do you -- how are you thinking about that versus potential strategic actions on the radio and TV side? Or other industries whether it's gaming or otherwise?

Alfred C. Liggins

Yeah, look, we match -- everything for us is -- so strategy is often very overused in terms of a rationale as to why you do something. Something -- strategy has to be accountable to what your current return options are. I don't think you make you make a strategic decision and not match that up against what's the best use of capital, right? So I would not -- if we can pay -- if we can buy our bonds and retire our debt and get a 10.5% return, there's no strategic decision that we would make that would net us a 5% return. We wouldn't do that. You just pay down -- you can pay down your bonds, right? Because if it's strategic, then it should actually yield you an outside return, right? It should have you create value and the value that it creates needs to be better than what else you can do with the capital. That's the lens under which we look at so. And it's worked for us. Does that make sense?

Bradd Kern

I guess I'm just wondering, is there at some point, is there a leverage level that you -- I know the stock isn't terribly liquid, is there a leverage level that you start to think about, you shift from debt reduction to whether it's share buybacks or…

Alfred C. Liggins

Maybe.

Bradd Kern

Whatever it is to return that cash.

Alfred C. Liggins

Yeah. Maybe, I mean, we were buying back shares last year. Then we bought that $25 million worth of shares at $5.30. And I go up, we said it come down, but it's kind of…

Peter D. Thompson

Given the macro that we're just -- we got some strategic ahead of us. That will be on the plate at some point, but it depends on how revenue goes, how EBITDA goes, how we feel about it.

Alfred C. Liggins

And share buyback analysis goes through the same return rigor that buying a radio cluster does, us buying more cable assets, us investing in the casino. If -- we're not going to buy back our stock and earn a 5% return over paying down our debt and earning 10.5% return.

Bradd Kern

Okay. Thank you. And last question for me is just housekeeping. When you mentioned the 3.7 times leverage by end of year, is that -- I assume that’s…

Alfred C. Liggins

We said 3.7 times.

Bradd Kern

Right, 3.7 times. That's on a net basis? And that's -- is that pro forma for any other uses of cash or what are the underlying assumptions in the 3.7 times.

Peter D. Thompson

It assumes that we win the Richmond referendum and we buy the land that Alfred referred to in fourth quarter. So that cash goes out the door and it assumes that we close on the acquisition in Houston. So that net $17 million goes out the door as well, but we pro forma and call it $5 million of EBITDA from that transaction.

Bradd Kern

And no additional debt buybacks in that number? Modeled into that number?

Peter D. Thompson

No.

Bradd Kern

Okay. Thank you. That's all my questions. Appreciate it.

Operator

We'll go next to the line of Matthew Sandschafer with Mesirow. Go ahead.

Matthew Sandschafer

Hi guys. Thank you for sneaking me in here near the end. Just a couple of housekeeping questions. What are you guys planning to spend on content this year? That number was obviously pretty high in 2022.

Peter D. Thompson

Yeah, it was high in ‘22. I was just looking, I think mid-50s, Jody's here with us. He can speak to if he'd like. But I think we're looking at cash. I've got -- on my sheet at least, cash spend in the kind of mid-50s.

Matthew Sandschafer

Did you say mid-50s? I'm sorry, I'm having a little sound issue.

Peter D. Thompson

Yeah, mid-50s.

Matthew Sandschafer

Okay, great.

Peter D. Thompson

I think it normalizes better than last year, from a cash standpoint.

Matthew Sandschafer

Okay, great. Thank you. And were there any unusual cash expenses in the radio or digital segments in the fourth quarter specifically, as margins took a little bit more of a hit than I might have been expecting? And I'm sorry, if you went through that during the first part of the call, when AT was on, but I missed it.

Peter D. Thompson

Yeah, there were a few things, Matt. There was some noise in the number. So obviously, we had the high watermark year, so bonuses were higher than they otherwise normally would be. So that was some of that. In margins in digital, we talked a little bit about the fact that those were impacted by higher traffic acquisition costs, that was $2.3 million, also higher content costs at digital and ad production costs. So those margins compressed. Other than that, there wasn't anything particularly material.

Matthew Sandschafer

Okay, great. And then the -- that mid-60s free cash flow number you mentioned, does that include the MGM dividend this year or are you rolling that up into the sale price?

Peter D. Thompson

That is in the sale price, so that's not -- so that mid-60s, hang on a second. Good point. Let me just double check before I speak on the -- shouldn't have, yeah, we have -- actually, no, sorry, that does include it, Matt. That is rolled up into it, the $8.7 million of receipts. Is in the mid-60s. Sorry.

Matthew Sandschafer

Okay. And I guess just generally on the digital side of things, you mentioned a higher traffic acquisition cost. There's some guidance for what looks like kind of persistent lower margins going forward. What do you think about that competitive landscape overall? It feels like -- as you guys know, it feels like every radio station and not just radio obviously, but every radio station company has been trying to get into that business in a significant way. What do you think is driving the higher traffic acquisition costs? Yeah, go ahead.

Alfred C. Liggins

Yeah, our digital business is different than everybody else’s radio business -- digital business. Our digital business is largely as a content publisher where we sell video ads and display advertising, probably roughly 40% of our revenue this year it would be digital video. We've got some streaming revenues. Forgot what it was. I know it's at least 5%. I don't know if this is -- excuse me, at least $5 million. I don't know if it's going to be a little higher.

Peter D. Thompson

$5.7 million, and it’s in the $5 million.

Alfred C. Liggins

Yeah. And we've got a bit of podcast business, but the Cumulus and Odyssey models and -- are podcast driven. iHeart has got their iHeartMedia streaming platform they've got a big podcasting business. We're much more of a publisher. And then Townsquare does digital services, right? So they act as a local small digital advertising agency for small, medium sized clients in the markets that they operate in. So our digital business is different than everybody else's. With that said, it's benefiting from still demand. We've got the largest African-American targeted audience in the space. So we're the scale player in that space. And I don't know what the prognosis is going forward. I hope it continues to remain profitable. We got to figure out how to see if we can grow that margin. Digital publishing is a tough business. You can see from BuzzFeed and Cox and a bunch of these other -- and Vice, they're having a tough way to go. We've been doing better. We've got to figure out how to manage through that. But it's a better business than the podcasting business. Yeah, so in my viewpoint.

Matthew Sandschafer

Great. Thank you.

Peter D. Thompson

Thank you, Matt.

Operator

We'll go next to the -- pardon me.

Alfred C. Liggins

Yes, it's 11:06, and so we got time for one more question, operator.

Operator

We'll go to the line of [Marilyn Pereira] (ph) with Bank of America. Go ahead.

Unidentified Analyst

Thank you for taking my call and squeezing me in. Most of them have been answered. But quick question. You had mentioned BET at the top of the call. So any other information on that or thoughts or what that could potentially like in terms of the impact on leverage?

Alfred C. Liggins

I mean, it's a competitive process. We're under an NDA. I just figured some -- people ask us if we're interested in it. So I just figured I'd mentioned that we are in the process. I couldn't -- we're not far enough along on anything at this point in time to comment and we wouldn't be allowed to comment anyway. But I just get tired of people asking me, hey, are you guys looking at this. And so I decided to admit that we were, but that's all the information I can give.

Unidentified Analyst

And then just a quick kind of reframe, given the current environment overall secular and cyclical, how high would you be willing to have your leverage in the current environment or what you kind of see the environment to be over the next year?

Alfred C. Liggins

Look, we like our leverage 4 times or below. We like it here. If we have to write $100 million plus check at the -- over the next 12 months, for the casino, that could change our leverage profile. I'm sure Peter has the numbers, but we have -- $100 million goes out the door with no cash flow coming in for, call it 24 to 30 months, is going to raise your leverage. But I'm also assuming that we -- win a casino referendum that we're probably going to get some credit for that in our equity value and who knows, maybe we'll raise some more equity, don't know how we'll think about that. But I would suffice it to say, we sleep good at night when our leverage is 4 times, below 4 times, we like that.

Peter D. Thompson

It probably pops up above 4 times in Q1, excluding the pro forma for MGM because the cash wasn't received till Q2. So I guess we'll get pro forma numbers in Q1. But excluding the pro forma, it is probably north of 4 times, and it drops down hopefully mid 3s. And as Alfred said, we are hoping to finish about 3.7 times this year. And if I look at our long-range plan, it's out in the low 3s and eventually in the mid 2s, that's assuming we can have our plan.

Unidentified Analyst

Got it. And sorry, if I could just give you one last one. Early on the top of the call, you also had said kind of more generally that radio multiples are like 5 times, if I heard you correctly. What…

Alfred C. Liggins

I mean there's lots of comps out there. Last I looked, I thought the average radio multiple is kind of like 5.5 times or something like that. So again, that's what I think I remember saying EBIT.

Peter D. Thompson

It's variable within that, right, depending on who you look at.

Alfred C. Liggins

Yeah.

Peter D. Thompson

I mean that was about the meaning.

Unidentified Analyst

Fair enough. Great. Well, thank you very much.

Alfred C. Liggins

Thank you. Thank you everybody. We look forward to talking to you at a point in the near future.

Operator

Ladies and gentlemen, that will conclude your conference call for today. Thank you for your participation and for using AT&T Event Teleconferencing. You may now disconnect.