Urban One, Inc. (filed as Radio One, Inc.) — Q1 2014 Form 10-Q
Period: Three months ended March 31, 2014; unaudited. The company operates radio stations and businesses in syndication, internet media, and cable television, primarily serving African-American and urban audiences. It reported 54 stations in 16 U.S. markets.
Financial performance
| Metric | Q1 2014 | Q1 2013 |
|---|---|---|
| Net revenue | $111.1 million | $99.1 million |
| Operating income | $15.8 million | $15.5 million |
| Net loss attributable to common stockholders | $(25.2) million | $(18.1) million |
| Adjusted EBITDA (non-GAAP) | $25.1 million | $26.4 million |
| Operating cash flow | $1.1 million | $(0.2) million |
- Revenue increased 12.1%, but operating expenses rose 13.8%. Station operating income, a company-defined non-GAAP measure, fell 1.9% to $35.2 million; its margin declined to 31.7% from 36.2%.
- Revenue by segment: Radio Broadcasting $49.6 million (down 0.4%); Reach Media $16.7 million (up from $9.5 million); Internet $6.4 million (up 27.6%); Cable Television $39.7 million (up from $36.0 million).
- Reach Media’s increase chiefly reflected the Tom Joyner Fantastic Voyage event falling in Q1 2014 rather than Q2 2013; the event contributed about $6.6 million of Q1 2014 revenue. Excluding this timing difference, Reach Media revenue rose 5.9%.
- TV One’s operating income declined to $6.8 million from $8.6 million amid higher programming and promotional costs. Company-wide programming and technical expense rose 15.6%; SG&A rose 24.1%.
- Interest expense was $21.9 million. The $5.7 million debt-retirement loss reflected a $4.1 million write-off of financing costs and a $1.6 million premium. Income tax expense was $8.6 million despite a pretax loss of $11.7 million, primarily due to deferred taxes associated with indefinite-lived intangibles.
Cash, debt, and liquidity
- Cash and cash equivalents were $45.8 million at March 31, down from $56.7 million at year-end. Current assets were $180.8 million and current liabilities $53.1 million.
- Gross debt was $826.5 million: $372.5 million under the senior bank term facility, $335.0 million of 9.25% senior subordinated notes due 2020, and $119.0 million of TV One 10% secured notes due 2016. Balance-sheet long-term debt, net of current portion and original issue discount, was $819.2 million.
- In February and March, the company issued the $335.0 million 2020 notes and redeemed all of its 12.5%/15% notes due 2016. The refinancing extended the subordinated-note maturity but left substantial debt and continuing interest obligations.
- About $24.0 million was available under the revolving facility after letters of credit and covenant adjustments. The company reported compliance with its financial covenants: interest coverage 1.61x versus a 1.20x minimum; secured leverage 3.56x versus a 4.25x maximum; and total leverage 6.95x versus an 8.25x maximum. It made an additional $1.0 million excess-cash-flow payment in April.
- Investing cash outflow was $9.5 million, including $7.1 million for the Gaffney station acquisition and $1.7 million of capital expenditures. Financing cash outflow was $2.4 million, including debt-refinancing costs and $3.4 million of TV One distributions to noncontrolling shareholders.
Material changes, outlook, and risks
- Gaffney Broadcasting’s AM and FM stations were acquired in February for approximately $7.7 million; the AM assets were sold for $225,000 at quarter-end. The company also disclosed a letter of intent to invest in MGM National Harbor, but the filing gives no investment amount or definitive commitment.
- Radio revenue was broadly flat while the markets operated in grew 0.4%; performance varied by market. Management attributed growth in cable and internet to advertising and direct/studio services, respectively.
- No quantified earnings or revenue guidance is provided. Management cautions that interim results may not indicate full-year results.
- Key risks include high leverage, refinancing and covenant headroom, advertising demand and economic conditions, competition and audience measurement changes, programming and talent costs, FCC matters, and possible impairment of goodwill and broadcast licenses. The company recorded no Q1 2014 impairment, but noted limited fair-value cushion for some licenses. Goodwill and broadcast licenses together were about $941.5 million, or 66.9% of assets.
- Management said ordinary-course legal matters were not expected to have a material adverse effect. Four standby letters of credit totaled about $1.0 million. Reach Media noncontrolling shareholders’ put right was deferred until January 1, 2018.
Important facts for investors to verify
- Whether revenue growth persists after adjusting for the Fantastic Voyage timing benefit, and whether radio revenue stabilizes.
- TV One’s cost trends and whether its lower operating income and margin recover.
- Cash generation, available revolver capacity, covenant headroom, and the ability to address the $484.8 million of principal scheduled for 2016, including TV One debt.
- The effect of the 2020 notes’ 9.25% coupon and the refinancing on future interest expense and liquidity.
- The terms and potential funding needs of the proposed MGM National Harbor investment, and the sensitivity of impairment valuations to market growth assumptions.