Urban One, Inc. — FY 2019 Form 10-K
Reporting period: Fiscal year ended December 31, 2019. The filing also provides unaudited quarterly results, including the fourth quarter. Filed April 29, 2020, under the SEC’s COVID-19 filing extension.
Business context
Urban One is a multimedia company focused on African-American and urban audiences. Its four reporting segments are radio broadcasting, Reach Media, digital and cable television (TV One and CLEO TV). At year-end it owned or operated 60 broadcast stations in 15 markets and held a minority investment in MGM National Harbor.
Financial performance
| Metric | FY 2019 | FY 2018 |
|---|---|---|
| Net revenue | $436.9 million | $439.1 million |
| Operating income (GAAP) | $87.1 million | $73.6 million |
| Net income attributable to common stockholders | $0.9 million | $137.4 million |
| Broadcast and digital operating income (non-GAAP) | $156.4 million | $164.8 million |
| Broadcast and digital operating margin (non-GAAP) | 35.8% | 37.5% |
| Adjusted EBITDA (non-GAAP) | $133.5 million | $140.6 million |
| Cash from operating activities | $58.5 million | $50.2 million |
Revenue fell 0.5%. Radio segment revenue declined 2.9%; cable television revenue rose modestly to $185.0 million, Reach Media revenue increased 4.0%, and digital revenue increased 1.1%. Radio advertising revenue declined 2.2%; event and other revenue increased 29.0%. Broadcast and digital operating income declined 5.1%, reflecting weaker radio, Reach Media and cable results, partly offset by an improvement in digital. The disclosed non-GAAP measures exclude various costs and are not substitutes for GAAP operating income or operating cash flow.
Common-stockholder net income fell sharply from 2018, when results included a $135.2 million income-tax benefit, mainly from releasing a valuation allowance on deferred tax assets. In 2019 the company recorded $10.9 million of tax expense. The 2019 effective tax rate was 84.1%, affected by statutory taxes and permanent tax adjustments.
FY 2019 quarterly data show fourth-quarter revenue of $105.9 million, operating income of $12.1 million and a $7.9 million net loss attributable to common stockholders. Fourth-quarter 2018 included a $124.3 million tax benefit and $113.4 million of net income attributable to common stockholders, making the year-over-year comparison unusual.
Cash, liquidity and debt
At December 31, 2019, cash and cash equivalents were $33.1 million; total current assets were $186.0 million and current liabilities were $101.0 million. The company reported $58.5 million in operating cash flow, $8.4 million in investing cash flow and $49.2 million of cash used in financing activities. Capital expenditures were approximately $5.1 million.
Reported total debt before discounts and issuance costs was $889.9 million, versus $929.9 million at year-end 2018; balance-sheet debt, net of current portion and financing adjustments, was $850.3 million. Debt included the $350.0 million 7.375% senior secured notes due April 2022, the 2017 Credit Facility, the 2018 Credit Facility and the MGM National Harbor Loan. The 2018 facility carried a 12.875% stated rate; the MGM loan carries 7.0% cash interest plus 4.0% paid-in-kind interest. Interest expense in the audited statements was $81.4 million, up from $76.7 million.
The ABL borrowing balance was zero at year-end; its capacity had been increased to $37.5 million in November 2019. At December 31, the company reported compliance with its debt covenants, with 2017-facility interest coverage of 1.91x against a 1.25x minimum, senior secured leverage of 4.78x against a 5.85x maximum, and 2018-facility gross leverage of 6.27x against an 8.00x maximum. Scheduled principal maturities are concentrated in 2022 and 2023. Debt agreements impose restrictions and mandatory repayments, including use of excess cash flow and MGM distributions.
Changes, outlook and material risks
- Portfolio and programming: Urban One sold Detroit station WDMK-FM and translators for approximately $13.5 million in August 2019 and ceased operating WGPR-FM under its TBA at year-end. The Tom Joyner Morning Show ended in December 2019 following Mr. Joyner’s retirement. CLEO TV launched in January 2019.
- Impairments and content: The company recorded $10.6 million of non-cash impairment charges in 2019, including $4.8 million related to radio licenses and $5.8 million for Interactive One goodwill. It also recorded approximately $4.9 million of impairment/additional amortization related to content contracts. Radio licenses and goodwill together were $822.5 million, about 65.7% of total assets.
- COVID-19, subsequent to year-end: Management reported reduced or halted advertiser spending, especially from local radio advertisers; the 2020 Fantastic Voyage cruise was postponed and other event ticket sales were impaired. The company drew $27.5 million on its ABL Facility in March 2020. Cash was approximately $54.7 million as of April 27, 2020, after a $12.9 million interest payment. Management forecast covenant compliance and debt-service capacity through April 2021 after cost reductions, but emphasized uncertainty. COVID-19 could also lead to further impairment charges. The company had no business-interruption insurance.
- Controls and reporting: Management concluded disclosure controls and internal control over financial reporting were ineffective at year-end because of material weaknesses involving tax accounting, review of financial statements, and ASC 842 lease accounting. The company revised prior interim financial statements and corrected/reclassified certain 2019 amounts; remediation was underway but not yet considered complete. The auditor gave an unqualified opinion on the financial statements, but did not audit internal-control effectiveness.
- Other risks and contingencies: Advertising cyclicality, competition from digital platforms, concentration in key radio markets, FCC licensing and regulation, cable carriage renewals, content costs, and high leverage are significant risks. BMI royalty negotiations were ongoing; a court could determine required payments if no agreement is reached. Routine legal proceedings were not expected by management to have a material adverse effect. No cash dividends were anticipated in the foreseeable future.
Most important facts for investors to verify
- Reconcile the MD&A statement that 2019 interest expense was approximately $87.1 million with the audited income statement’s $81.4 million figure.
- Track COVID-19 advertising and event impacts, actual cash use, ABL availability, and compliance with all debt covenants; management’s forecast was through April 2021.
- Review remediation and testing of the material weaknesses, particularly tax and lease accounting controls, and any further restatements or adjustments.
- Assess refinancing and repayment capacity ahead of substantial 2022–2023 debt maturities, given high leverage and borrowing costs.
- Monitor impairment testing for radio licenses, goodwill and content assets, and renewal/distribution developments for FCC licenses and cable networks.