Urban One, Inc. — Q3 2020 Form 10-Q
Reporting period: Three and nine months ended September 30, 2020; unaudited. Urban One is a multi-media company focused on African-American and urban audiences, operating radio, syndicated programming, digital platforms and cable television. It operated 61 broadcast stations in 14 U.S. markets at period-end.
Financial performance
Amounts below are in millions of dollars unless otherwise noted.
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Net revenue | $91.9 | $111.1 | $262.8 | $331.1 |
| Operating income (loss) | $4.0 | $31.1 | ($2.9) | $75.0 |
| Net income (loss) attributable to common stockholders | ($12.8) | $5.4 | ($34.5) | $8.8 |
| Adjusted EBITDA | $39.6 | $38.7 | $96.4 | $106.0 |
| Broadcast and digital operating income margin | 48.1% | 39.3% | 42.6% | 36.9% |
- Q3 revenue declined 17.2%; nine-month revenue declined 20.6%. Radio advertising was down 31.3% in Q3 and 31.9% year to date. Event revenue and other fell 91.0% and 92.4%, respectively. Political advertising rose from a low 2019 base.
- Q3 broadcast and digital operating income improved slightly despite the revenue decline, as cost reductions offset weaker radio results. For the nine months, it fell 8.3% to $112.0 million. These are company-defined non-GAAP measures.
- Impairment charges were $29.1 million in Q3 and $82.7 million year to date, versus none in Q3 2019 and $3.8 million in the prior-year nine-month period. Charges related to radio-market goodwill and broadcast licenses.
- Interest expense was $18.2 million in Q3 and $55.8 million year to date, down 9.9% and 9.5%, respectively, year over year. Nine-month income tax benefit was $21.5 million, including a $12.5 million benefit from an IRS-approved procedural election and related valuation-allowance reduction.
Cash flow, debt and liquidity
- Operating cash flow was $64.4 million for the first nine months, up from $51.0 million. Management attributed the increase mainly to collections timing and lower content-asset payments. Investing activities used $3.7 million; financing activities provided $8.4 million.
- Cash and cash equivalents were $102.2 million at September 30, 2020, compared with $33.1 million at December 31, 2019. The company reported cash of approximately $94.6 million as of November 9, 2020.
- Total debt was $887.7 million at September 30, including $27.5 million drawn on the ABL facility; debt net of discounts and issuance costs was $877.1 million. Current debt was $50.0 million and long-term debt, net, was $827.1 million. Cash was therefore substantially below gross debt.
- The company reported compliance with its debt covenants at quarter-end. Covenant measures showed 2.02x interest coverage against a 1.25x minimum and 4.55x senior secured leverage against a 5.85x maximum under the 2017 facility; gross leverage was 6.36x against a 7.50x maximum under the 2018 facility.
- Management stated it expected adequate liquidity and covenant compliance for the next 12 months, based on its forecast, cost actions and ability to defer capital spending. It also emphasized substantial uncertainty from COVID-19 and potential further revenue declines.
Changes, outlook and material items
- COVID-19 reduced advertiser demand, particularly among local radio advertisers, and disrupted events. The 2020 Fantastic Voyage cruise was postponed to November 2021; ticket sales for other events were impaired or events canceled. The company has no business-interruption insurance.
- Cost reductions included furloughs, layoffs, salary cuts, reduced talent and event costs, deferred programming and marketing spending, and a hiring freeze. Q3 programming and technical expense fell 22.0%, and selling, general and administrative expense fell 35.3% year over year.
- Segment performance diverged: Q3 radio revenue fell 31.9%, while cable television revenue declined modestly and digital revenue was nearly flat. Cable and digital operating results benefited from lower expenses; radio operating income fell materially. Nine-month Reach Media revenue also declined substantially, including from the event cancellations and the prior-year Tom Joyner Morning Show comparison.
- After quarter-end, holders tendered $347.0 million of the $350.0 million 7.375% notes for exchange. On November 9, 2020, the company issued approximately $347.0 million of new 8.75% secured notes due December 15, 2022, extending the maturity beyond the prior April 2022 maturity but at a higher coupon. The company also amended the 2018 credit facility, including a 90-day maturity extension.
- Other subsequent developments include an announced radio-station asset exchange with Entercom, subject to FCC approval and other conditions, and a new Columbus station operating arrangement. The company also raised approximately $14.8 million net through its at-the-market Class A share program during the nine months, with up to $25 million authorized.
- Management recorded $15.9 million of goodwill and $66.8 million of broadcast-license impairment for the first nine months. It noted that certain licenses have little or no valuation cushion and could require further impairment if assumptions deteriorate.
- The company said disclosure controls and procedures were not effective at period-end because of material weaknesses identified previously. Remediation was substantially completed, but management had not yet concluded the weaknesses were remediated; it expected to complete remediation in 2020.
- No specific revenue or earnings guidance was provided. Management’s stated outlook focused on liquidity and covenant compliance over the following 12 months, subject to considerable uncertainty.
Key investor verification points
- Confirm the final exchange-note terms, outstanding debt, higher interest burden and remaining 2022 maturity and refinancing needs.
- Monitor operating cash flow, cash balances, ABL availability, debt-covenant headroom and the assumptions supporting management’s 12-month liquidity assessment.
- Track advertising recovery—especially local radio—and event revenue, along with the effect of continued cost reductions on sustainable operating performance.
- Review further goodwill and broadcast-license impairment risk, including sensitivity to market-revenue forecasts and valuation assumptions.
- Verify completion and testing of remediation for the material weaknesses in disclosure controls.
- Assess potential dilution from further ATM share sales and the status and expected impact of the proposed station exchange, which remained subject to regulatory and closing conditions.