Urban One, Inc. — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022. Unaudited results are compared with the corresponding 2021 periods. Urban One operates radio, syndicated programming, digital media and cable television businesses targeting African-American and urban audiences.
Financial highlights
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Net revenue | $121.4 million | $111.5 million | $352.6 million | $310.5 million |
| Operating income | $19.0 million | $34.5 million | $79.3 million | $96.2 million |
| Net income attributable to common stockholders | $4.2 million | $13.9 million | $35.6 million | $31.7 million |
| Adjusted EBITDA | $44.3 million | $42.7 million | $133.9 million | $117.7 million |
| Broadcast and digital operating income margin | 41.9% | 44.1% | 43.8% | 43.5% |
| Operating cash flow | Not provided for quarter | Not provided for quarter | $54.1 million | $36.3 million |
Adjusted EBITDA and broadcast and digital operating income are non-GAAP measures; the company cautions they are not substitutes for GAAP results or operating cash flow.
Business and period changes
- Q3 revenue rose 8.9%; nine-month revenue increased 13.5%. Management attributed growth primarily to recovery from pandemic-related impacts and stronger demand for minority-focused media.
- Q3 revenue growth included digital advertising up 33.9%, cable TV advertising up 16.7%, and radio advertising up 4.6%. Cable affiliate fees fell 7.6%. For nine months, digital advertising increased 32.4% and cable TV advertising increased 29.6%.
- Q3 operating income fell 45.0%, and common-stockholder net income fell 69.6%, as higher operating costs, a $14.5 million non-cash impairment charge and increased stock compensation more than offset revenue growth. Stock-based compensation was $5.0 million versus $53,000 a year earlier.
- For nine months, operating income declined 17.5%, partly reflecting $31.4 million of long-lived asset impairment charges and higher expenses. Common-stockholder net income rose 12.2%, aided by $7.6 million of PPP loan forgiveness income and a $3.7 million gain on debt retirement; 2021 included a $6.9 million debt-retirement loss.
- Radio broadcasting generated a Q3 operating loss of $2.5 million at the segment level, including impairment, versus $12.4 million operating income a year earlier. Digital and cable revenue increased, while management cited higher compensation, marketing, traffic acquisition, content and other costs.
Cash, debt and liquidity
- At September 30, cash and cash equivalents were $85.6 million and restricted cash was $20.0 million, totaling $105.5 million. Current assets were $287.1 million and current liabilities were $112.6 million.
- Operating cash flow was $54.1 million for the first nine months. Investing activities used $27.2 million, including the $25.0 million Emmis radio-station acquisition; financing activities used $73.6 million, including approximately $45.5 million of note repurchases and $26.5 million of stock repurchases.
- Long-term debt had a $763.2 million carrying value, representing $775.0 million principal of 7.375% senior secured notes due February 2028, net of discounts and issuance costs. The company repurchased about $50.0 million principal during the first nine months at an average price near 91% of par. It reported no outstanding balance on its $50 million asset-backed revolver.
- After quarter-end, through the filing date, Urban One repurchased approximately $18.3 million principal of the 2028 Notes at an average price of approximately 85.7% of par. The company also reported $443,000 remaining under its share repurchase authorization after subsequent share repurchases.
- Management stated that operating cash flows and available financing capacity should meet foreseeable liquidity needs and that it had sufficient capacity to meet obligations. It also highlighted substantial uncertainty around the economy and COVID-19 effects.
Impairments, outlook and risks
- The company recorded $14.5 million of Q3 non-cash impairment on radio broadcasting licenses in Atlanta, Charlotte, Dallas, Houston, Philadelphia, Raleigh and Richmond. Nine-month impairment totaled $31.4 million, including $4.3 million of Atlanta goodwill impairment in Q2 and license impairment charges. Management cited slowing economic conditions and rising interest rates; further impairment is possible if valuations weaken.
- A $3.7 million out-of-period non-cash license impairment adjustment related to prior periods was recorded in Q2 2022. Management concluded the prior-period errors were not material and that correction in 2022 was appropriate.
- No quantified forward guidance was provided. Management described advertising demand, particularly local radio and event activity, as exposed to recession, interest rates, COVID-19 developments and changing work and commuting patterns. The company does not carry business interruption insurance for pandemic losses.
- Material weakness: Management concluded disclosure controls were ineffective and identified a material weakness in controls over review of key reports and assumptions used to value radio licenses and goodwill. Remediation steps were underway but not fully implemented; the company warned of possible future misstatements or restatement if remediation is inadequate.
- Other risks include high leverage, advertising competition, FCC and gaming regulation, music royalty arrangements, and potential exercise of Reach Media noncontrolling shareholders’ annual put rights. Management said ordinary-course legal proceedings were not expected to have a material adverse effect.
- Urban One acquired Emmis Communications’ Indianapolis radio cluster for $25 million, closing August 31, 2022. The acquired operations contributed approximately $1.3 million revenue and $328,000 operating income in the reported periods.
Key facts investors should verify
- Whether radio advertising trends, segment margins and cost growth support continued revenue growth, especially amid economic uncertainty.
- The assumptions and sensitivity behind radio-license valuations, the full impairment history, and the progress and effectiveness of control remediation.
- Cash availability, debt repayment capacity and any restrictions or collateral provisions under the 2028 Notes and asset-backed facility.
- The effect of the $7.6 million PPP forgiveness, debt-retirement gains, impairment charges and unusually high stock compensation on recurring earnings and cash generation.
- Potential cash or share requirements if Reach Media put rights are exercised, and the impact of subsequent note and share repurchases.