URBAN ONE, INC. annual report, FY2015

Abrir documento

URBAN ONE, INC. (identified in the filing as Radio One, Inc.) — FY2015 Form 10-K

Reporting period: Fiscal year ended December 31, 2015; the filing was signed March 14, 2016. This is an annual report, not a standalone fourth-quarter filing. Unless stated otherwise, amounts below are U.S. dollars.

Business context

The company operated 56 broadcast stations in 16 U.S. markets and targeted African-American and urban audiences. Its businesses comprised radio broadcasting, syndicated programming through Reach Media, digital media through Interactive One, and cable television through TV One. Radio One acquired Comcast’s TV One interest in April 2015, increasing its ownership to approximately 99.6%.

Financial performance and liquidity

  • Revenue: $450.9 million, up 2.1% from $441.4 million in 2014. Radio broadcasting revenue fell 7.3% to $197.4 million; Reach Media rose 4.3% to $54.8 million; internet revenue fell 13.0% to $21.2 million; and cable television revenue rose to $183.6 million from $157.1 million.
  • Profitability: Operating income was $36.2 million versus $77.2 million, reflecting $41.2 million of impairment charges in 2015. Net loss attributable to common stockholders was $74.0 million, compared with $62.7 million in 2014; basic and diluted loss per share was $1.54 versus $1.32. Station operating income, a non-GAAP measure, increased 6.1% to $167.0 million, and its margin rose to 37.0% from 35.7%. Adjusted EBITDA, also non-GAAP, was $125.5 million versus $121.4 million.
  • Fourth quarter: Revenue was $109.4 million; operating loss was $11.3 million and net loss attributable to common stockholders was $24.3 million. The quarter included approximately $26.7 million of impairment charges.
  • Cash flow: Operating cash flow was $41.8 million, down from $53.9 million; capital expenditures were $7.3 million. Investing cash outflow was $219.3 million, including $209.9 million to acquire additional TV One interests and a $5.0 million MGM National Harbor investment. Financing cash inflow was $177.1 million. Cash ended the year at $67.4 million, nearly unchanged from $67.8 million.
  • Debt and interest: Gross principal debt was approximately $1.045 billion; balance-sheet debt, net of current portion, original issue discount and issuance costs, was $1.021 billion. Cash interest expense was $69.9 million; reported interest expense was $80.0 million. Debt included $348.3 million outstanding under the variable-rate 2015 Credit Facility, $335.0 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.
  • Liquidity and covenants: Cash was $67.4 million; current assets were $213.6 million and current liabilities $83.4 million. The company reported compliance with credit-facility covenants at year-end: interest coverage was 1.69x against a 1.25x minimum, and senior secured leverage was 4.99x against a 5.85x maximum. The filing warns that weaker operating conditions could threaten future covenant compliance.
  • Balance sheet: Total assets were $1.347 billion, total liabilities $1.407 billion, and total equity was a deficit of $71.8 million. Goodwill and broadcast licenses totaled approximately $901.5 million, or 67% of assets.

Material changes versus prior period

  • Radio weakness, including declines in several large markets, was offset by growth in TV One and Reach Media. TV One’s higher advertising and affiliate revenue supported higher segment operating income; Reach Media benefited from lower talent costs following contract renegotiations.
  • The company recorded $41.2 million of impairments, versus none in 2014: $23.6 million on radio licenses, $3.1 million on Cincinnati goodwill, and $14.5 million on Interactive One goodwill. Interactive One revenue declined, and management revised its cash-flow projections downward.
  • April 2015 refinancing replaced the prior credit agreement and TV One notes with the new credit facility and 2022 secured notes. Proceeds also helped fund the approximately $221.7 million Comcast buyout. Debt carrying value increased from $813.4 million to $1.024 billion.
  • Stockholders’ equity moved from $220.6 million to a $71.8 million deficit, reflecting the TV One ownership transaction, losses, and related equity changes.

Outlook, risks, and unusual items

  • Management expected 2016 business results to improve and compare favorably with 2015, citing a gradual recovery in advertising. Its stated priorities were market-share growth, stronger audience or revenue conversion, and execution of its multimedia strategy. No numeric 2016 guidance was provided.
  • Key risks include high leverage and substantial interest costs; advertising cyclicality and pricing pressure; concentration in a small number of radio markets and Reach Media; audience and technology shifts; competition from digital platforms; FCC licensing and regulatory requirements; and potential further impairment of goodwill or broadcast licenses.
  • The CEO’s TV One-related employment award was valued at $20.9 million at year-end, with changes in fair value recorded as compensation expense. The company also reported approximately $4.0 million of unrecognized tax benefits and maintained a full valuation allowance on deferred tax assets.
  • Management and the auditor concluded internal control over financial reporting was effective as of year-end; the auditor issued unqualified opinions on the financial statements and internal controls. Routine legal proceedings were not expected by management to have a material adverse effect. The company disclosed a prior-period correction described as immaterial.
  • The company is controlled by its chairperson and CEO, who together held approximately 95% of voting power at year-end. The filing states that no cash dividends are anticipated in the foreseeable future.

Important facts for investors to verify

  • Confirm the debt maturity, interest-rate, collateral, and covenant details, particularly the 2018 credit-facility maturity and covenant cushion.
  • Assess whether radio revenue declines are stabilizing and whether cable and syndicated-media growth can offset them.
  • Review the assumptions and remaining valuation cushion for broadcast licenses and goodwill after the 2015 impairments.
  • Track Interactive One performance, TV One carriage and affiliate agreements, and the results of the TV One acquisition.
  • Reconcile cash generation with content commitments, scheduled debt service, and other contractual obligations; the filing reports $1.578 billion of scheduled obligations including interest and operating commitments.
  • Consider control and governance implications of concentrated voting power, related-party compensation, and the absence of expected dividends.