Urban One, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; unaudited. Unless noted, amounts are in U.S. dollars. The 2022 comparative figures are revised. The company operates radio, syndicated programming, digital media and cable television businesses, primarily targeting African-American and urban audiences.
Financial performance and liquidity
- Revenue: $109.9 million, down 2.0% from $112.1 million. Radio broadcasting revenue rose to $35.2 million from $31.5 million, and Reach Media revenue rose to $10.9 million from $10.0 million. Cable television revenue fell to $49.7 million from $56.2 million; digital revenue was $15.1 million versus $15.5 million.
- Profitability: Operating income was $8.1 million, down 77.7% from $36.5 million; operating margin was approximately 7.4%, versus 32.5%. Net loss attributable to common stockholders was $2.9 million, or $0.06 per share, compared with income of $16.5 million, or $0.32 per share, in Q1 2022.
- Non-GAAP measures: Broadcast and digital operating income was $39.3 million versus $48.4 million; Adjusted EBITDA was $30.3 million versus $42.0 million. These are company-defined non-GAAP measures.
- Key expense items: The company recorded a $16.8 million impairment related to the planned sale of the KROI-FM license. Programming and technical expense increased 18.7% to $33.9 million, including higher cable content amortization. Interest expense declined 11.7% to $14.1 million, while a $2.4 million debt-retirement gain was recorded.
- Cash flow: Operating activities provided $17.1 million, compared with $15.5 million. Investing activities used $21.4 million and financing activities used $25.6 million. Cash, cash equivalents and restricted cash decreased $29.9 million to $71.9 million; this included $71.5 million of unrestricted cash and $0.5 million of restricted cash.
- Debt and liquidity: Senior secured notes had $725.0 million principal outstanding ($714.8 million net carrying value), bear 7.375% interest and mature in February 2028. The company repurchased $25.0 million principal during the quarter. Its $50 million ABL revolver was undrawn at quarter-end, subject to borrowing-base limits and covenants. Current assets were $258.7 million and current liabilities $112.6 million.
Material changes and unusual items
- Cable television revenue declined, which management attributed to lower ratings and reduced advertising sales and affiliate fees. Radio growth reflected the 2022 Indianapolis station acquisition and improvement in Atlanta; same-station radio revenue, excluding political advertising, increased 3.6%.
- In February 2023, Urban One’s ownership of the Richmond casino joint venture changed to 50% after its partner acquired a 25% interest. Urban One deconsolidated the venture and began equity-method accounting; its investment was $13.1 million at quarter-end.
- After quarter-end, the company received approximately $136.8 million on April 21, 2023, from exercising its put right on its MGM National Harbor investment. It also completed the $27.5 million Houston radio-cluster acquisition on August 1, 2023. The filing says a second Richmond casino referendum failed on November 7; the company anticipated receiving its 50% share of escrowed funds in Q4 2023.
- The company recorded the KROI-FM assets and related liabilities as held for sale; the planned sale was expected to close in 2024. It also agreed to divest KTHT-FM in connection with the Houston acquisition.
- The company revised previously issued 2022 quarterly and annual financial statements for immaterial errors involving stock-based compensation, the RVAEH joint venture and related tax effects, plus other immaterial adjustments. Management concluded that recording the corrections in Q1 2023 instead would materially misstate that quarter’s financial statements.
Outlook, risks and controls
- No numerical revenue or earnings guidance is provided. Management says first-quarter revenue is typically seasonally lowest and interim results may not indicate full-year results; political advertising can also favor even-numbered years.
- Management identified macroeconomic uncertainty, inflation, interest rates, advertising demand, leverage, competition, broadcasting and gaming regulation, and potential impairment of licenses and goodwill among relevant risks. Four radio markets had license carrying values with less than 10% headroom over fair value in the 2022 impairment test, making them more vulnerable to future impairment if performance weakens.
- The company reported ineffective disclosure controls as of March 31, 2023 and material weaknesses in internal control over financial reporting, including deficiencies in the close process, review of significant transactions and disclosures, IT controls, segregation of duties, and review of revenue, taxes, content assets and valuations. Remediation was underway, but management had not concluded the weaknesses were remediated.
- The Q1 report was filed late, on November 20, 2023. Nasdaq had initiated a potential delisting process over late filings; a hearing was scheduled for November 30, 2023, with a stay in place through the hearing and any additional extension. The company said it could not assure continued Nasdaq listing. The ABL facility also received successive waivers relating to late financial deliverables.
- Management stated that ordinary-course legal matters were not expected to have a material adverse effect. The filing provides no specific quantified outcome for those matters.
Most important facts for investors to verify
- Revised 2022 figures and the nature and completeness of the accounting corrections.
- Progress and independent testing of internal-control remediation, and timeliness of subsequent SEC filings.
- Nasdaq hearing outcome and the company’s ongoing listing status.
- Availability and covenant status of the ABL facility, debt-service capacity, and use of the MGM sale proceeds.
- Receipt of the Richmond escrow funds, performance of the acquired Houston stations, and any further impairment or disposal effects.