Urban One, Inc. (then Radio One, Inc.) — Q1 2015 Form 10-Q
Reporting period: Three months ended March 31, 2015; unaudited. Radio One operated 54 broadcast stations in 16 U.S. markets, alongside Reach Media, Interactive One and TV One.
Financial results and key metrics
| Metric | Q1 2015 | Q1 2014 |
|---|---|---|
| Net revenue | $105.8 million | $111.1 million |
| Operating income | $15.6 million | $15.8 million |
| Net loss attributable to common stockholders | $18.5 million; $0.39 per share | $25.2 million; $0.53 per share |
| Station operating income (non-GAAP) | $36.6 million | $35.2 million |
| Station operating income margin (non-GAAP) | 34.6% | 31.7% |
| Adjusted EBITDA (non-GAAP) | $26.6 million | $26.2 million |
| Operating cash flow | $0.5 million | $1.1 million |
| Cash and cash equivalents at quarter-end | $61.0 million | $45.8 million |
Interest expense was $19.2 million, down 12.0%. Income tax expense was $8.5 million despite a pre-tax loss of $3.5 million; the company attributed tax expense primarily to deferred tax liabilities on indefinite-lived intangible assets and noted its effective tax rate can vary significantly.
Changes versus the prior-year quarter
- Reported revenue fell 4.8%. Radio broadcasting revenue declined 9.4%, with weakness in several large markets; internet revenue fell 10.9%.
- Cable television revenue rose to $45.7 million from $39.7 million, reflecting higher advertising demand and affiliate subscriber-rate increases.
- Reach Media revenue fell to $10.7 million from $16.7 million, largely because the Tom Joyner Fantastic Voyage event occurred in Q1 2014 and was scheduled for Q2 2015. The event generated about $6.6 million of Q1 2014 revenue. Adjusting for promotional-event timing, management reported net revenue growth of 2.7%.
- Lower selling and administrative expenses and the absence of the prior-year debt-retirement loss helped reduce the common-stockholder loss. Stock-based compensation increased to $1.6 million from $45,000.
- Station operating income improved mainly on TV One and Reach Media results, partly offset by weaker radio broadcasting performance.
Debt, liquidity and capital matters
- At March 31, reported debt was $821.6 million: $367.6 million of senior bank term debt, $335.0 million of 9.25% notes due 2020 and $119.0 million of TV One notes due March 2016. The balance sheet classified $484.8 million as current, reflecting near-term maturities; cash was $61.0 million.
- The company reported compliance with its amended credit-facility covenants at quarter-end. Interest coverage was 1.59x against a 1.25x minimum; senior secured leverage was 3.47x against a 4.25x maximum; total leverage was 6.95x against an 8.00x maximum.
- After quarter-end, on April 17, the company closed a $350 million 7.375% secured-note offering and a new $350 million credit facility, using financing proceeds to refinance existing debt, refinance TV One’s $119 million notes and fund the Comcast buyout of TV One. The company paid about $211.1 million in cash and issued Comcast an approximately $11.9 million note; its TV One ownership increased to 99.6%. Pro forma debt following these transactions was approximately $1.047 billion.
- Following the refinancing, the company disclosed that it no longer had access to a revolving credit facility and was seeking an asset-backed lending facility to support working capital. It warned that failure to obtain acceptable financing could constrain liquidity and business plans.
- Operating cash flow was modest; investing activities used $0.5 million and financing activities used $6.7 million. TV One paid $5.3 million in dividends to noncontrolling shareholders.
Outlook, risks and unusual items
- No quantitative earnings or revenue guidance was provided. Management cited advertising demand, local-market conditions, leverage, refinancing and covenant compliance as important uncertainties.
- TV One affiliation renewals were a significant risk. A new Comcast agreement covered 26.8% of its subscriber base; agreements covering a further 35.8% were under discussion, with management expecting to finalize negotiations before the end of Q2 2015. Another 29.9% was due for renewal by the end of 2016. Renewal on acceptable terms was not assured.
- TV One also faces audience, ratings and programming competition risks. Other disclosed risks include high leverage, dependence on advertising, competition from digital platforms, FCC regulation, talent and programming costs, and potential impairment of goodwill or broadcast licenses.
- The company committed to a minimum $5 million investment in MGM National Harbor and made that investment on April 10, 2015; it had an option to invest up to an additional $35 million.
- Reported revenue comparisons were affected by event timing. No goodwill or broadcast-license impairment was recorded in Q1 2015; management noted some licenses had limited fair-value cushions. Routine legal proceedings were not expected by management to have a material adverse effect.
Most important facts for investors to verify
- Completion terms and ongoing borrowing capacity under the post-quarter refinancing, including whether the planned asset-backed facility was obtained and on what terms.
- Debt service, liquidity and covenant headroom after the TV One buyout and financing transactions; distinguish quarter-end reported debt from the approximately $1.047 billion post-transaction figure.
- Outcomes of TV One affiliate renewals, particularly the agreements then under negotiation and the effect on subscriber fees and advertising reach.
- Whether underlying revenue trends improve after the promotional-event timing shifts, and whether radio-market weakness persists.
- TV One investment valuation and the carrying values of goodwill and broadcast licenses, which together represented about 68% of total assets.