Urban One, Inc. — Q1 2018 Form 10-Q
Reporting period: Three months ended March 31, 2018; results are unaudited and compared with Q1 2017. Urban One is a multimedia company focused on African-American and urban audiences, with radio, syndicated programming, digital, and cable television operations.
Financial performance
| Metric | Q1 2018 | Q1 2017 |
|---|---|---|
| Net revenue | $99.6 million | $101.3 million |
| Operating income | $7.3 million | $16.5 million |
| Net loss attributable to common stockholders | $22.6 million; $0.48 per share | $2.3 million; $0.05 per share |
| Cash provided by (used in) operating activities | $22.0 million | $(2.7) million |
| Adjusted EBITDA | $28.5 million | $27.7 million |
| Broadcast and digital operating income | $32.5 million | $34.9 million |
| Broadcast and digital operating margin | 32.6% | 34.5% |
Revenue declined 1.6%. Radio advertising was $44.6 million, digital advertising $8.1 million, cable television advertising $18.9 million, and cable affiliate fees $27.3 million. The filing does not provide a consolidated gross margin.
Operating expenses increased 8.8% to $92.3 million, including $6.6 million of noncash impairments: $2.7 million against Charlotte goodwill and $3.8 million against Detroit radio licenses. Interest expense was $19.3 million, down from $20.3 million. A $239,000 gain was recorded on retirement of debt. The $12.8 million income tax provision on a $9.7 million pretax loss materially contributed to the larger net loss.
Liquidity, debt, and cash flow
At March 31, cash and cash equivalents were $43.0 million, with another $1.1 million restricted. Current assets were $190.9 million and current liabilities $91.2 million. Total assets were $1.306 billion; stockholders’ equity was $17.3 million.
Gross debt was $972.4 million: $346.5 million under the 2017 Credit Facility, $264.0 million of 9.25% notes due February 2020, $350.0 million of 7.375% secured notes due 2022, and an $11.9 million Comcast note due April 2019. The company repurchased approximately $11 million of the 2020 Notes during the quarter. It had no borrowings on its $25 million asset-backed revolver. The filing reports covenant compliance: interest coverage of 1.94x against a 1.25x minimum and senior secured leverage of 4.82x against a 5.85x maximum.
Operating cash flow improved to $22.0 million, primarily from collection timing, lower accrued compensation payments, and lower content-asset payments. Investing used $0.9 million, mainly capital expenditures; financing used $14.8 million, including debt repayments and $3.0 million of share repurchases. Cash, cash equivalents, and restricted cash ended the quarter at $44.1 million.
Material changes and management commentary
- Digital revenue grew 47.9%, primarily from higher direct revenue and the digital acquisition; the digital segment’s operating loss widened, partly due to acquisition-related variable compensation.
- Cable television revenue fell about 4.9%, mainly from lower advertising sales. Reach Media revenue declined about $1.1 million amid weaker demand. Radio broadcasting revenue decreased 0.6%, while surveyed markets’ total revenues declined 5.8%.
- Adjusted EBITDA rose modestly despite lower broadcast and digital operating income and margin. Management attributed the decrease in operating income to lower results across segments.
- Urban One adopted ASC 606 revenue recognition on January 1, 2018; management said adoption had no material financial-statement impact. The tax accounting effects of the 2017 Tax Act remained under review.
Outlook, risks, and unusual items
The filing gives no specific revenue or earnings guidance. Management identifies risks including high leverage, advertising demand and local economic conditions, covenant compliance, competition, audience measurement changes, FCC regulation, talent and programming costs, and possible further impairment of goodwill or broadcast licenses. Some licenses have limited fair-value cushion.
Debt maturities and interest costs remain significant, including the 2020 Notes and the Comcast Note. The company reported approximately $1.535 billion of contractual obligations, including debt, interest, leases, and operating commitments. Reach Media minority shareholders have an annual put right; it was not exercised in January 2018, but management could not determine if or when it may be exercised. Routine legal matters were not expected by management to have a material adverse effect. The company reported effective disclosure controls and no material change in internal control over financial reporting.
Subsequent events: on May 1, 2018, the company announced a definitive agreement to sell Detroit station WPZR-FM for approximately $12.7 million, subject to customary conditions and FCC approval. On May 7, it repurchased approximately $14 million of 2020 Notes at about 95.125% of par.
Key facts for investors to verify
- Whether advertising trends, particularly cable and radio, stabilize and digital growth translates into improved segment profitability.
- Whether the company can sustain covenant headroom and manage the 2020 Notes maturity, refinancing needs, and high interest burden.
- The drivers and potential recurrence of impairments, and the sensitivity of broadcast-license and goodwill valuations to market conditions.
- The final tax effects of the 2017 Tax Act and the unusual quarterly tax provision.
- Whether the WPZR-FM sale closes on the stated terms and whether Reach Media minority holders exercise future put rights.