URBAN ONE, INC. annual report, FY2016

Vollständiges Dokument

URBAN ONE, INC. (then Radio One, Inc.) — 2016 Form 10-K

Reporting period: Fiscal year ended December 31, 2016. Although the request identifies 2016 Q4, this is an annual filing; fourth-quarter figures are noted separately below. Amounts are in U.S. dollars.

Business context

The company operated 55 broadcast stations in 15 U.S. urban markets and targeted African-American and urban audiences. Its businesses included radio broadcasting, syndicated programming through Reach Media (80% owned), wholly owned cable network TV One, digital media, and a minority investment in MGM National Harbor. Management planned to change the corporate name to Urban One before reporting first-quarter 2017 results; the radio business would retain the Radio One brand.

Financial performance and liquidity

  • Revenue: $456.2 million, up 1.2% from $450.9 million in 2015. Segment revenue was radio broadcasting $194.5 million, Reach Media $53.9 million, internet $22.2 million, and cable television $191.9 million, before corporate eliminations.
  • Revenue mix and trends: Core radio advertising revenue was $210.1 million, down 3.5%; political advertising increased to $8.6 million from $2.1 million. Cable advertising revenue rose 3.1% to $85.6 million and affiliate fees rose 5.7% to $106.0 million. Internet revenue increased 4.9%; Reach Media revenue declined 1.5%. Management cited continued weakness in Houston radio and growth in cable advertising and affiliate fees.
  • Profit: GAAP operating income was $88.1 million, versus $36.2 million in 2015. Net income was $0.7 million before noncontrolling interests; the net loss attributable to common stockholders was $0.4 million, or $0.01 per share, compared with a $74.0 million loss, or $1.54 per share, in 2015.
  • Margins and non-GAAP measures: Broadcast and internet operating income, a company-defined non-GAAP measure, was $174.6 million, up 5.8%; its margin rose to 38.3% from 36.6%. Adjusted EBITDA was $136.2 million versus $125.5 million. These measures are not substitutes for GAAP operating results or cash flow.
  • Cash flow and investment: Operating cash flow was $48.2 million, compared with $41.8 million. Investing cash outflow was $42.2 million, including a $35.0 million contribution completing the MGM investment; capital expenditures were $5.2 million. Financing cash outflow was $26.7 million. Cash and restricted cash ended the year at $46.8 million, down from $67.4 million.
  • Debt and interest: Year-end gross principal debt was approximately $1.022 billion; reported carrying debt, net of discounts and issuance costs, was approximately $1.006 billion. Debt included $344.8 million under the 2015 Credit Facility, $315.0 million of 9.25% notes due 2020, $350.0 million of 7.375% secured notes due 2022, and an $11.9 million Comcast note due 2019. Interest expense was $81.6 million; cash interest paid was $77.0 million.
  • Liquidity and covenants: The company had $25 million of asset-based revolving capacity and no borrowings under it at year-end. It reported compliance with its credit-facility covenants: interest coverage of 1.81x against a 1.25x minimum, and senior secured leverage of 4.85x against a 5.85x maximum. The term facility matures December 31, 2018.
  • Balance sheet: Total assets were $1.359 billion, total liabilities $1.418 billion, and stockholders’ deficit $71.1 million. Goodwill and broadcast licenses totaled $901.7 million, or 66.4% of assets. The company reported a $272.7 million net deferred tax liability and a full valuation allowance against deferred tax assets.

Material changes and unusual items

  • The 2015 common-stockholder loss narrowed substantially in 2016, chiefly reflecting much lower impairment charges ($1.3 million versus $41.2 million) and improved operating income. The 2016 impairment was for Columbus radio licenses; 2015 charges included radio licenses, Cincinnati goodwill, and Interactive One goodwill.
  • The company repurchased approximately $20 million principal amount of 2020 notes at about 86% of par, recording a $2.6 million gain on debt retirement. Interest expense increased 2.0%, primarily due to higher debt balances.
  • TV One became wholly owned following the buyout of Comcast’s interest and redemption of remaining management interests. Cable television operating income increased to $49.4 million from $40.3 million; the filing’s separate broadcast-and-internet measure for TV One was $85.6 million versus $78.7 million.
  • The company completed its $40 million MGM National Harbor investment. In January 2017 it agreed to sell certain land, towers, and equipment for $25 million, subject to customary conditions, and lease the assets back.
  • Fourth quarter: Revenue was $113.6 million, operating income $17.1 million, and net loss attributable to common stockholders $3.4 million. In Q4 2015, revenue was $109.4 million, operating loss $11.3 million, and common-stockholder net loss $24.3 million; 2015 included substantial impairment charges.

Outlook, risks, and contingencies

  • Management said it expected 2017 results to improve and compare favorably with 2016, without providing quantified guidance. Priorities were growing market share, improving audience share and revenue conversion, and diversifying revenue through its multimedia strategy.
  • Key risks include advertising cyclicality and pricing pressure; competition from digital, streaming, cable, and other media; concentration in a few radio markets and Reach Media; high leverage and interest-rate exposure; audience and talent changes; FCC licensing and ownership regulation; and execution risks in digital and diversification initiatives.
  • A 200-basis-point increase in LIBOR above year-end rates was estimated to add approximately $6.9 million in annual interest expense. Future impairment charges remain possible given the large goodwill and license balances and sensitivity of valuations to growth, margins, and discount rates.
  • The Reach Media noncontrolling shareholders may begin exercising annual put rights in 2018, requiring the company to purchase shares at fair value, payable in cash and/or Class D shares at the company’s discretion. ASCAP reached a new five-year agreement; BMI negotiations continued, and SESAC rate arbitration was pending. A temporary GMR license was in place.
  • Routine legal proceedings were not expected by management to have a material adverse effect. The company disclosed $5.8 million of unrecognized tax benefits and potential limits on some tax-loss carryforwards. It reported effective disclosure controls and internal control over financial reporting, with unqualified audit opinions.

Important facts for investors to verify

  • Debt maturities, refinancing options for the December 2018 term facility, covenant headroom, and the effect of variable rates on cash interest.
  • Whether cash generation and advertising trends—particularly in Houston and other major markets—support management’s 2017 outlook.
  • TV One’s revenue and profitability trajectory, affiliate-fee and subscriber trends, and content commitments.
  • The valuation assumptions and impairment sensitivity for $901.7 million of goodwill and broadcast licenses.
  • Terms and completion of the $25 million asset sale and leaseback, and the future cash distributions from MGM National Harbor.
  • Potential cash or share dilution from Reach Media put rights, the CEO’s TV One-linked award, and unresolved music-licensing costs.