Urban One, Inc. — Form 10-Q Summary
Reporting period: Quarter and six months ended June 30, 2019. Urban One is a multimedia company focused on African-American and urban audiences, operating radio, Reach Media, digital and cable television businesses. It reported 60 broadcast stations in 15 U.S. markets and launched CLEO TV in January 2019. Amounts below are in U.S. dollars; financial figures are in millions unless stated otherwise.
Financial performance and liquidity
| Metric | Three months ended June 30 | Six months ended June 30 |
|---|---|---|
| Net revenue | $121.6 (2019); $115.2 (2018) | $220.0 (2019); $214.8 (2018) |
| Operating income | $30.5; $24.8 | $46.7; $32.1 |
| Net income (loss) attributable to common stockholders | $6.6; $23.6 | $(0.1); $1.0 |
| Adjusted EBITDA | $41.1; $39.0 | $70.1; $67.5 |
| Broadcast and digital operating income margin, non-GAAP | 38.1%; 38.5% | 36.7%; 35.8% |
For the six months, operating cash flow was $28.2, versus $33.8 in 2018; investing cash outflow was $2.1 and financing cash outflow was $26.6. Cash and cash equivalents were $14.6 at June 30, with restricted cash of $0.7. Current assets were $169.4 and current liabilities $98.5.
Total debt principal was $910.2 at June 30, 2019, compared with $929.9 at year-end 2018; long-term debt, net of current portion and financing adjustments, was $874.5. Debt included $350.0 of 7.375% secured notes due 2022, $322.3 outstanding on the 2017 credit facility, $177.8 on the 2018 credit facility, $51.1 on the MGM National Harbor loan and $9.0 on the asset-backed facility. The 2018 facility carried a stated 12.875% rate; the MGM loan had 7% cash interest plus 4% paid-in-kind interest. The company reported compliance with its financial covenants. Its disclosed leverage ratios were 6.11x under the 2018 facility (8.00x limit), 4.75x senior secured leverage under the 2017 facility (5.85x limit), and 1.97x interest coverage (1.25x minimum).
Changes versus prior comparable periods
- Second-quarter revenue rose 5.5%; first-half revenue rose 2.4%. Q2 radio advertising increased 6.8%, digital advertising 16.8%, cable advertising 9.4%, and event and other revenue 20.4%. Cable affiliate fees declined 5.1% in Q2.
- Second-quarter operating income increased 23.1%, while common-stockholder net income fell 72.1%. The comparison reflects the prior-year $15.6 million income-tax benefit; 2019 had $3.1 million of tax expense.
- First-half operating income rose 45.2%, but common stockholders recorded a $0.1 million loss versus $1.0 million income in 2018. Interest expense increased 14.9% to $44.2 million, and the tax provision was $5.4 million, including approximately $3.5 million of discrete expense related primarily to state net operating loss estimates.
- Q2 Reach Media revenue grew 14.6%, largely from special events, including Fantastic Voyage revenue of $10.4 million versus $9.3 million. Digital segment operating results improved from a loss to income; cable television revenue was slightly lower in Q2 and its operating income declined, while radio revenue grew.
- Operating cash flow was lower year over year, which management attributed primarily to collection timing, accrued compensation payments and higher content-asset payments.
Outlook, management commentary and risks
- The filing provides no quantified full-year revenue, earnings or cash-flow guidance. Management said operating cash flow, cash and other liquidity sources were expected to be sufficient for foreseeable cash requirements; interim results may not indicate full-year results.
- Urban One recorded a $3.8 million non-cash impairment of Detroit-market radio licenses in Q2. Management noted that some broadcast licenses have little or no fair-value cushion, so further impairment could occur if assumptions or market conditions worsen.
- On June 10, 2019, the company agreed to sell WDMK-FM and three Detroit translators for approximately $13.5 million, subject to FCC approval and customary closing conditions; it expected closing in Q4 2019.
- Urban One adopted ASC 842 leases accounting in 2019, recognizing approximately $49.8 million of right-of-use assets and $54.1 million of lease liabilities at adoption. Lease liabilities were $53.7 million at June 30. The company reported $6.5 million of lease cost for the six-month adoption period shown.
- Key risks include high leverage and substantial interest costs, debt covenant and refinancing risk, dependence on advertising and local-market conditions, competition and programming costs, FCC licensing and regulation, potential impairment of goodwill and licenses, and uncertain music royalty costs. The company was negotiating a new BMI agreement; unresolved royalties could be determined by a court.
- Management said routine legal matters were not expected to have a material adverse effect. Reach Media noncontrolling shareholders have an annual put right; it was not exercised in January 2019, and management could not determine if or when it may be exercised. The filing also reports $828,000 of letters of credit, collateralized with cash.
Investor verification points
- Track the Detroit station sale’s FCC approval, closing, proceeds and use of proceeds.
- Assess debt service capacity, especially the high-cost 2018 facility and the disclosed 2022–2023 scheduled principal maturities; verify covenant headroom and available ABL capacity.
- Separate recurring operating performance from event-related revenue, tax items, non-cash impairment, lease-accounting effects and other adjusted EBITDA exclusions.
- Monitor radio advertising by market, cable affiliate-fee trends, digital profitability and whether event-driven Reach Media growth is sustainable.
- Evaluate the assumptions supporting deferred tax asset realization and the fair values of Detroit licenses and other assets, as well as potential exposure from BMI negotiations and Reach Media put rights.