Urban One, Inc. — Q2 2022 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2022; unaudited. Urban One is a multi-media company focused on African-American and urban audiences, operating radio stations, Reach Media, digital properties, and TV One/CLEO TV. Unless noted, amounts below are in U.S. dollars.
Financial performance and liquidity
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Net revenue | $118.8m | $107.6m | $231.2m | $199.0m |
| Operating income | $23.8m | $37.9m | $60.4m | $61.7m |
| Net income attributable to common stockholders | $15.0m | $17.9m | $31.4m | $17.9m |
| Adjusted EBITDA | $47.5m | $44.8m | $89.5m | $75.0m |
| Broadcast and digital operating income margin | 46.4% | 46.1% | 44.8% | 43.2% |
- Q2 revenue rose 10.4%; first-half revenue rose 16.1%. Q2 common-stockholder net income fell 15.9%, while first-half net income rose 75.7%.
- Q2 operating income declined 37.1%, primarily reflecting a $16.9m non-cash impairment charge. First-half operating income declined 2.1% despite higher revenue.
- For Q2, radio advertising increased 4.5%, digital advertising 19.1%, and cable television advertising 26.8%; cable affiliate fees decreased 4.2%. Management attributed revenue growth mainly to recovering economic conditions and increased demand for minority-focused media.
- Cash from operations was $43.6m for the first half, down from $51.5m. Investing activities used $3.9m; financing activities used $49.0m, including debt and share repurchases. Cash and cash equivalents were $123.0m, plus $20.0m of restricted cash, at June 30, versus $132.2m and $20.0m, respectively, at year-end.
- Debt principal was $800m, consisting of 7.375% senior secured notes due February 2028; carrying value net of issuance costs was $787.4m. The company had no borrowings under its $50m asset-backed revolver. It repurchased about $25m principal of notes at an average 91% of par, recording a $1.9m gain.
- Current assets were $311.1m and current liabilities $109.6m. The filing states management believes operating cash flows and available financing capacity are sufficient for foreseeable needs, while noting estimates remain subject to uncertainty.
Material changes and unusual items
- The $16.9m impairment comprised $4.3m for Atlanta market goodwill and $12.6m for radio broadcasting licenses in Atlanta, Dallas, Houston, Indianapolis, and Raleigh. The license charge included a $3.7m out-of-period correction relating to prior valuation errors; management said the errors were not material to prior periods and could be corrected in the current period.
- The company recognized $7.6m of other income when its PPP loan and accrued interest were forgiven. It also received MGM National Harbor distribution income of $2.1m in Q2 and $4.1m for the first half.
- First-half operating cash flow declined partly because of interest-payment timing, launch-support payments, and increased content-asset payments. The company also recorded $13.8m of non-cash launch-support additions payable in future periods.
- Urban One repurchased about 4.67m Class D shares for $24.6m during the first half. By July 6, it had used the remaining $439,000 under the authorization.
Outlook, risks, and contingencies
- No quantified revenue, earnings, or cash-flow guidance is provided. Management expects to meet debt service and liquidity needs but describes the outlook as uncertain, including because of the pandemic and broader economic conditions.
- Management cited slowing economic conditions and rising interest rates as impairment indicators. Key risks include advertising demand, recession and market volatility, the company’s high leverage, competition, COVID-19 impacts, FCC and gaming regulation, and potential additional impairment of licenses or goodwill.
- Material weakness: Management concluded disclosure controls were ineffective in timely alerting executives to relevant impairment information and identified a material weakness in controls over valuation reports and assumptions for radio licenses and goodwill. It planned remediation, including additional finance resources and stronger review procedures, but stated these actions had not yet been implemented. The company said it would amend its 2021 Form 10-K and Q1 2022 Form 10-Q disclosures.
- The company signed a $25m agreement to acquire Emmis Communications’ Indianapolis radio cluster and expects to sell its WHHH license and related intellectual property for about $3.2m. Both transactions were subject to FCC approval and customary closing conditions, with closing anticipated in Q3 2022.
- After the reporting date, Urban One said it would pursue a Richmond casino referendum in the 2023 election cycle rather than seek a November 2022 ballot measure. Gaming outcomes and investments involve regulatory and execution risks.
- Contractual obligations were reported at $1.334bn, including debt interest, operating contracts, and leases; approximately $93m of other operating contracts was not recorded on the balance sheet because it did not meet recognition criteria. Routine legal proceedings were not expected by management to have a material adverse effect. Reach Media noncontrolling holders have annual put rights; none were exercised for the period ending January 31, 2022.
Most important facts for investors to verify
- How the material weakness and planned amendments affect confidence in reported impairment valuations and prior-period disclosures, and whether remediation is implemented and tested effectively.
- Whether advertising growth persists, particularly in radio, and whether cost increases in programming, selling, and administration constrain margins.
- Debt-service capacity and liquidity under weaker advertising conditions, given $800m of note principal, substantial contractual obligations, and restricted cash.
- Details and completion status of the Indianapolis acquisition and related asset sale, including FCC approvals and final economics.
- Progress and costs associated with the proposed Richmond casino referendum and other gaming investments.
- Potential future impairment charges, given that licenses and goodwill totaled about $708m, or 56.5% of total assets, and valuation estimates are sensitive to assumptions.