Urban One, Inc. — FY2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022. This annual filing also restates specified 2021 financial statements and interim periods in 2021 and 2022; use the restated figures presented here, not prior reports.
Business context
Urban One is a multi-media company primarily targeting African-American and urban audiences. Its four reportable segments are radio broadcasting, Reach Media (syndicated radio), digital, and cable television (TV One and CLEO TV). At year-end, it owned or operated 66 independently formatted broadcast stations in 13 markets. Cable television was the largest segment by revenue.
Financial performance and liquidity
| Metric | FY2022 | FY2021, restated | Change |
|---|---|---|---|
| Net revenue | $484.6 million | $440.3 million | +10.1% |
| Operating income | $94.7 million | $116.4 million | -18.7% |
| Net income attributable to common stockholders | $37.3 million | $36.8 million | +1.5% |
| Operating margin | 19.5% | 26.4% | Lower |
| Operating cash flow | $67.1 million | $80.2 million | Lower by $13.1 million |
| Adjusted EBITDA | $165.6 million | $150.2 million | +10.2% |
Adjusted EBITDA and broadcast and digital operating income are non-GAAP measures and should not be treated as substitutes for GAAP earnings or cash flow. The company reported broadcast and digital operating income of $202.0 million, up 12.7%.
Revenue growth reflected stronger political advertising, continued recovery from pandemic-related disruption, and greater demand for minority-focused media. Digital revenue rose to $78.5 million from $59.9 million; cable television revenue increased to $209.9 million from $197.0 million. Reach Media revenue declined 7.1%, primarily because its 2021 cruise event did not recur in 2022. Radio broadcasting segment revenue increased 11.7%.
Cash, cash equivalents, and restricted cash totaled $95.4 million at year-end, including $75.4 million of cash and cash equivalents and $20.0 million of restricted cash. Operating cash flow fell, which management attributed primarily to payment timing. Investing cash flow was a $28.7 million outflow, including the $25.0 million Emmis acquisition; financing cash flow was a $95.2 million outflow.
Long-term debt, net of discounts and issuance costs, was $739.0 million; principal outstanding on the 7.375% senior secured notes was $750.0 million, due February 2028. The company repurchased approximately $75.0 million principal amount of the notes during 2022, spending about $67.1 million and recording a $6.7 million gain. The $50 million asset-backed revolving facility had no borrowings outstanding at year-end. The filing says cash flows and available borrowing capacity should meet foreseeable needs, but the company remains highly leveraged.
Material changes and unusual items
- Restatement: The audit committee concluded previously issued financial statements for affected periods should no longer be relied upon. The primary error was undervaluation and incorrect accounting classification of the MGM National Harbor investment, including related tax effects. The investment was corrected to an available-for-sale debt security measured at fair value, with unrealized changes in other comprehensive income. Other corrections involved license impairment, right-of-use assets, Reach Media redeemable noncontrolling interests, launch-asset amortization, balance-sheet classifications, cash-flow presentation, and disclosures.
- Impairment: The company recorded $40.7 million of non-cash long-lived asset impairment in 2022, including $33.5 million for radio broadcasting licenses and $7.2 million for goodwill, versus $2.1 million in restated 2021. This contributed to the decline in operating income.
- Other income: FY2022 included $7.6 million from forgiveness of the PPP loan and $8.8 million of MGM investment income. Interest expense was $61.8 million, down from $65.7 million.
- Acquisition: Urban One acquired Emmis Communications’ Indianapolis radio cluster and Network Indiana for $25 million, closing August 31, 2022. It sold a related former license and intellectual property for approximately $3.2 million.
Outlook, risks, and contingencies
No quantitative financial guidance is provided. For 2023, management identified priorities to grow market share, improve audience share and revenue conversion in selected markets, and diversify revenue through its multimedia strategy. Management described radio revenue as volatile amid advertiser shifts to digital media, economic uncertainty, and changing audience and commuting patterns.
Key risks include advertising cyclicality and concentration in a limited number of radio markets; competition for audiences, advertising, content, and distribution; high leverage and debt restrictions; impairment exposure; FCC licensing and regulation; and the ability to execute gaming and diversification initiatives. The proposed Richmond casino remained subject to a further local referendum and regulatory steps.
The filing reports material weaknesses in internal control over financial reporting, including weaknesses in entity-level controls, IT access and change management, journal-entry review, and controls over revenue, taxes, content assets, cash flows, MGM valuation, goodwill, and broadcast licenses. Management concluded disclosure controls and internal control over financial reporting were ineffective at December 31, 2022; the auditor issued an adverse opinion on internal control, while giving an unqualified opinion on the financial statements. Remediation was underway, but the weaknesses were not yet considered remediated.
Subsequent event: Urban One exercised its put option on the MGM National Harbor investment and received approximately $136.8 million in April 2023, plus an $8.8 million distribution related to 2022. It also disclosed Nasdaq notices concerning late filings and an exception requiring the delinquent reports to be filed by September 27, 2023. The company reported that it had not experienced an adverse liquidity impact from the cited 2023 bank failures. Routine legal proceedings were not expected by management to have a material adverse effect.
Important facts for investors to verify
- Review Note 2 and the quarterly restatement tables for the exact impact and accounting treatment of the MGM valuation error and other corrections.
- Track remediation and independent testing of the disclosed material weaknesses, including whether additional errors or restatements emerge.
- Assess debt-service capacity, note repurchases, the borrowing-base availability of the ABL facility, and use of MGM put proceeds.
- Monitor impairment assumptions and remaining fair-value cushions for radio licenses and goodwill, especially given the 2022 charges and sensitivity to rates and forecasts.
- Evaluate the sustainability of revenue growth by segment, radio-market concentration, and the effects of political advertising and nonrecurring events.
- Confirm Nasdaq filing compliance and the status, approvals, and funding requirements of the proposed Houston acquisition and Richmond gaming project.