Urban One, Inc. (filed as Radio One, Inc.) — Q3 2015 Form 10-Q
Reporting period: Three and nine months ended September 30, 2015. Financial statements are unaudited. The company operates radio, syndicated programming, digital media and TV One, primarily serving African-American and urban audiences.
Financial results
| Metric | Q3 2015 | Q3 2014 | Nine months 2015 | Nine months 2014 |
|---|---|---|---|---|
| Net revenue | $115.9 million | $112.2 million | $341.5 million | $331.7 million |
| Operating income | $7.1 million | $19.6 million | $47.5 million | $57.7 million |
| Net loss attributable to common stockholders | $18.1 million | $13.2 million | $49.7 million | $49.2 million |
| Adjusted EBITDA (non-GAAP) | $31.9 million | $29.3 million | $94.6 million | $87.8 million |
| Station operating income margin (non-GAAP) | 36.4% | 34.5% | 36.9% | 34.6% |
| Cash provided by operating activities | Not provided separately | Not provided separately | $30.9 million | $30.4 million |
Q3 operating results included a preliminary $14.5 million goodwill impairment charge for Interactive One. Interest expense was $20.4 million in Q3 and $59.6 million for the nine-month period. The company recorded a $7.1 million loss on debt retirement during the first nine months. Income tax expense was $22.9 million on a nine-month pretax loss of $19.4 million; management attributed the unusual relationship largely to deferred taxes on indefinite-lived intangible assets.
Liquidity, debt and cash flow
- At September 30, cash and cash equivalents were $59.2 million; current assets were $201.3 million and current liabilities $67.5 million.
- Total debt was $1.046 billion, including $349.1 million under the 2015 Credit Facility, $335 million of 9.25% notes due 2020, $350 million of 7.375% secured notes due 2022, and an $11.9 million Comcast note due 2019. Debt carrying value, net of current portion, discount and issuance costs, was $1.021 billion.
- Debt rose from $822.5 million at December 31, 2014, primarily following the April refinancing and TV One transaction. The company refinanced its prior credit facility and TV One notes, and used financing proceeds in part to acquire Comcast’s TV One interest. Radio One reported 99.6% ownership of TV One after the purchase.
- Operating cash flow was $30.9 million. Investing used $218.6 million, including about $209.9 million for the TV One interest and $5 million for an MGM National Harbor investment. Financing provided $179.1 million. Cash declined $8.6 million to $59.2 million.
- The company reported compliance with its credit facility covenants at quarter-end: interest coverage was 1.83x against a 1.25x minimum; senior leverage was 4.70x against a 5.85x maximum. The facility matures in 2018, with $341.3 million of scheduled principal payments in that year.
Changes and management commentary
- Nine-month revenue increased 3.0%, but results differed by segment. Cable television revenue rose 18.6% to $138.9 million, supported by advertising demand and affiliate fees; Reach Media revenue rose 5.1% to $42.5 million. Radio broadcasting revenue fell 6.8% to $149.1 million, while internet revenue fell 13.3% to $15.8 million.
- For Q3, radio revenue declined 6.6%, and management cited weakness in several major markets, including Atlanta, Baltimore, Houston and Washington, D.C. Internet revenue declined 5.5%, primarily from lower alliance revenue.
- Higher cable and Reach Media operating income lifted station operating income and margin, partly offset by radio weakness. Lower Reach Media talent costs reflected renegotiated contracts; cable results benefited from advertising and affiliate growth.
- Interactive One’s revenue and cash flows declined and projections were revised downward. The $14.5 million impairment is preliminary; management expected to complete the analysis and record any adjustment in Q4 2015. Radio license testing found no impairment, but the company cautioned that some licenses had limited fair-value cushion.
- No numerical earnings or revenue guidance was provided. Management identified leverage and refinancing, economic and advertising demand fluctuations, competition, execution of diversification, talent and programming costs, FCC regulation, and potential impairment as risks. Routine legal matters were not expected to have a material adverse effect.
Important facts for investors to verify
- Final Interactive One goodwill impairment assessment and subsequent operating performance.
- Debt-service capacity, covenant headroom, variable-rate exposure and the 2018 credit-facility maturity.
- Whether TV One’s revenue and cash-flow growth supports the acquisition and related financing burden.
- Radio and digital revenue trends in weak markets, and the continued effect of declining alliance revenue.
- Tax expense and deferred-tax assumptions, plus the collectability of receivables given the increased doubtful-account allowance.