Urban One, Inc. — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020; unaudited consolidated results. Filed May 29, 2020. Urban One operates radio, syndicated programming, digital media and cable television businesses, primarily serving African-American and urban audiences.
Financial results and liquidity
| Metric | Q1 2020 | Q1 2019 |
|---|---|---|
| Net revenue | $94.9 million | $98.4 million |
| Operating income (loss) | $(27.3) million | $14.8 million |
| Net loss attributable to common stockholders | $(23.2) million; $(0.51) per share | $(3.1) million; $(0.07) per share |
| Operating cash flow | $22.0 million | $16.3 million |
| Capital expenditures | $1.4 million | $0.7 million |
| Adjusted EBITDA | $32.3 million | $27.7 million |
| Broadcast and digital operating income margin | 39.7% | 33.9% |
Revenue declined 3.6%. Radio advertising fell 9.3% to $38.4 million and digital advertising fell 15.4% to $6.3 million. Cable television advertising rose 4.2% to $21.0 million, while affiliate fees declined 4.6% to $26.2 million. Political advertising increased to $2.4 million from $0.1 million.
Operating results included a $53.7 million non-cash impairment charge: $47.7 million for radio broadcasting licenses across nine markets and $6.0 million for Atlanta and Indianapolis goodwill. Without this new charge, operating expenses were lower year over year, including due to reduced cable content amortization and marketing costs. The $21.9 million income tax benefit included a $12.5 million benefit from reducing a valuation allowance on deferred tax assets.
Cash and cash equivalents were $65.9 million at March 31, up from $33.1 million at year-end; restricted cash was $0.5 million. Current assets were $215.1 million and current liabilities $102.1 million. Total debt was $905.1 million, including $27.5 million drawn on the asset-backed credit facility (ABL) in March; long-term debt, net of current portion, discounts and issuance costs, was $870.0 million. Total liabilities were $1.055 billion. The company paid approximately $12.9 million of interest on its 2022 Notes on April 15; cash was approximately $63.3 million as of May 22.
Management reported compliance with financial covenants at quarter-end and projected compliance and the ability to meet debt service through May 2021, based on its forecast, cash position, cost actions and further available countermeasures. The 2017 Credit Facility interest coverage ratio was 2.00x against a 1.25x minimum; senior secured leverage was 4.60x against a 5.85x maximum. The 2018 Credit Facility gross leverage ratio was 6.21x against a 7.50x limit. These cushions face uncertainty from the pandemic and operating forecasts.
Material changes, outlook and risks
- COVID-19 sharply affected advertising demand beginning in March, particularly local radio advertising, and led to postponement of the 2020 Fantastic Voyage cruise and disruption to other events. The company said it does not have business interruption insurance.
- Management implemented or considered furloughs, layoffs, salary reductions, reduced discretionary spending, deferred programming and production costs, and a hiring freeze. It drew $27.5 million on the ABL as a precaution.
- Management did not provide specific revenue or earnings guidance. It cautioned that further outbreaks, slow reopening, weaker advertising and covenant pressure could adversely affect liquidity, results and asset values. Failure to meet covenants could trigger default and acceleration; management said it could not repay debt if lenders called it.
- Debt is substantial and includes $350 million of 7.375% secured notes due April 2022, with significant scheduled principal maturities in 2022. The notes’ fair value was approximately $322 million versus $350 million carrying value at quarter-end. The company also has a high-cost 2018 facility bearing 12.875% interest and an MGM National Harbor loan bearing 7% cash plus 4% paid-in-kind interest.
- Disclosure controls and procedures were deemed ineffective because of material weaknesses previously identified in the 2019 Form 10-K; remediation was underway, with a goal of completion by year-end 2020. COVID-related operational demands also delayed the company’s 2019 annual report and this quarterly filing.
- After quarter-end, Nasdaq notified the company that Class D shares did not meet the $1 minimum bid-price rule. The deadline to regain compliance was extended to December 28, 2020; the company said a reverse split was among options under consideration. Failure to comply could lead to delisting.
- Other items include $98.4 million of operating-contract commitments not recorded on the balance sheet, $0.8 million of letters of credit, and contingent Reach Media shareholder put rights whose timing and potential cost were not determinable. Management considered ordinary-course legal proceedings not likely to have a material adverse effect.
Investor verification points
- Track post-quarter advertising trends, cash consumption, ABL availability and management’s assumptions supporting covenant compliance through May 2021.
- Review debt repayment requirements and refinancing options ahead of the substantial 2022 maturities.
- Assess whether the impairment assumptions and deferred-tax-asset realizability judgments remain supportable as COVID-19 affects market revenues.
- Confirm progress remediating the disclosed material weaknesses and whether future SEC filings are timely.
- Monitor Class D bid-price compliance and any reverse-split action, as well as settlement of the new BMI license terms.