Urban One, Inc. — Q2 2023 Form 10-Q
Business context and reporting period. Urban One operates radio, syndicated programming, digital media and cable television businesses serving primarily African-American and urban audiences. This unaudited report covers the three and six months ended June 30, 2023, compared with the same 2022 periods. The filing was submitted on November 20, 2023, after the reporting deadline.
Financial performance
Amounts below are in millions of dollars unless noted.
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Net revenue | $129.7 | $118.7 | $239.5 | $230.8 |
| Operating income | $9.7 | $25.4 | $17.8 | $61.8 |
| Net income attributable to common stockholders | $70.4 | $16.3 | $67.4 | $32.8 |
| Adjusted EBITDA (non-GAAP) | $37.5 | $47.5 | $67.8 | $89.5 |
| Operating cash flow | Not presented separately | Not presented separately | $41.8 | $43.2 |
- Revenue increased 9.3% in Q2 and 3.8% for the six-month period. Calculated operating margin fell to 7.4% in Q2 from 21.4%; for six months it was 7.4% versus 26.8%.
- Common-stockholder earnings rose sharply, but were substantially driven by the $96.8 million pre-tax gain on the MGM National Harbor investment sale. The gain is not representative of recurring operating performance. The sale generated $136.8 million of proceeds; the company also recorded $23.9 million of discrete tax expense related to the gain.
- Cash, cash equivalents and restricted cash totaled $231.2 million at June 30, 2023, including $230.7 million of cash and cash equivalents. Current assets were $417.7 million and current liabilities $116.7 million.
- Debt was $725.0 million principal, or $715.2 million net of unamortized discount and issuance costs, consisting of 7.375% senior secured notes due February 2028. The company repurchased about $25.0 million principal during the first half at an average 89.1% of par. No borrowings were outstanding under its $50 million asset-backed revolving facility.
- Six-month investing cash flow was $113.3 million, mainly reflecting the MGM sale; financing cash outflow was $25.7 million. Capital expenditures were $4.1 million.
Material changes versus the prior comparable period
- Q2 revenue growth was led by Reach Media, whose revenue rose to $20.1 million from $11.1 million, primarily because the Fantastic Voyage cruise operated in 2023 but not 2022. Cable television revenue declined to $52.4 million from $53.3 million. Radio and digital revenue increased.
- For the first half, radio revenue rose to $74.4 million from $68.7 million, and Reach Media revenue increased to $31.0 million from $21.1 million. Cable television revenue fell to $102.1 million from $109.5 million, attributed to lower ratings and reduced advertising and affiliate fees.
- Costs rose faster than revenue: Q2 operating expenses increased 28.6%, including higher selling, general and administrative costs and a $22.1 million radio-license impairment. First-half impairment charges totaled $38.9 million, including $16.8 million related to the planned KROI-FM sale.
- Six-month Adjusted EBITDA declined 24.3% to $67.8 million. Management attributed the decline to lower results across segments, including cable television, digital and Reach Media, alongside increased expenses.
- Comprehensive income attributable to common stockholders was a loss of $2.9 million in Q2 despite reported net income, largely because the sale reclassified accumulated other comprehensive income into earnings.
Outlook, risks and unusual items
- No quantified revenue, earnings or EBITDA guidance is provided. Management said operating cash flows, cash and other liquidity sources are expected to be sufficient for foreseeable cash needs. The filing notes seasonal revenue patterns, typically weakest in Q1, and potentially higher political advertising in even-numbered election years.
- Radio-license valuations were impaired after projected market revenue declined. Three markets, with licenses carried at approximately $147.4 million, had fair values less than 10% above carrying values and were identified as at risk of future impairment if performance weakens further. Recession, inflation and higher interest rates could worsen valuation assumptions.
- The company disclosed material weaknesses in internal control over financial reporting and concluded disclosure controls were ineffective. Weaknesses included financial close and review controls, non-routine transaction accounting, IT access and change controls, and controls over license valuations. Remediation was underway but had not been established as effective.
- Late SEC reports led to repeated waivers of defaults under the ABL facility and a Nasdaq Staff Delisting Determination. A hearing was scheduled for November 30, 2023; the filing says the trading suspension or delisting was stayed pending the hearing and any extension. Continued listing was not assured.
- After quarter-end, the company completed its $27.5 million Houston radio-station acquisition on August 1, 2023. KROI-FM assets were classified as held for sale, with closing anticipated in 2024; KTHT-FM also required divestiture under the acquisition terms. After a November 2023 referendum defeated the Richmond casino project, the company expected to receive its 50% share of escrowed funds during Q4 2023.
- The company cited macroeconomic and advertising-market uncertainty, leverage, competition, programming costs, regulatory requirements, gaming-investment risks and potential Nasdaq delisting among its risks. Routine legal matters were not expected by management to have a material adverse effect.
Important facts for investors to verify
- How much of reported earnings and cash generation is sustainable after excluding the MGM gain and other nonrecurring items.
- Whether revenue trends, ratings and margins—particularly in cable television and radio—stabilize, and whether the three at-risk radio-license valuations deteriorate.
- Whether Urban One completes the promised control remediation and files subsequent SEC reports on time, and the outcome of Nasdaq’s listing process.
- Liquidity and debt-service capacity, including the ABL facility’s covenant compliance, waiver terms and the timing and use of expected Richmond escrow proceeds.
- Completion and financial impact of the Houston acquisition and required station divestitures, including the KROI-FM sale.