Urban One, Inc. (identified in the filing as Radio One, Inc.) — Q1 2013 Form 10-Q
Reporting period: Three months ended March 31, 2013; unaudited, compared with Q1 2012. The company reported 54 radio stations in 16 U.S. markets, alongside Reach Media, Interactive One and its approximately 51.1%-owned TV One cable network.
Financial performance
| Metric | Q1 2013 | Q1 2012 |
|---|---|---|
| Net revenue | $99.1 million | $103.0 million |
| Operating income | $15.5 million | $13.8 million |
| Net loss attributable to common stockholders | $18.1 million | $79.2 million |
| Station operating income (non-GAAP) | $35.9 million | $33.1 million |
| Station operating income margin (non-GAAP) | 36.3% | 32.1% |
| Adjusted EBITDA (non-GAAP) | $26.5 million | $23.5 million |
| Cash from operating activities | $3.8 million | $12.5 million |
Revenue declined 3.7%, while operating income rose 12.5%. The smaller net loss primarily reflects a much lower income tax provision: $6.7 million versus $65.3 million. The company recorded a $6.6 million pretax loss from continuing operations in Q1 2013. Management said tax expense is not closely correlated with pretax earnings, and used the current-period actual effective tax rate rather than the estimated annual rate used in Q1 2012. It maintains a full valuation allowance for certain deferred tax assets.
Segment revenue was $49.9 million for Radio Broadcasting (up from $49.2 million), $9.5 million for Reach Media (down from $17.0 million), $5.1 million for Internet (down from $5.8 million), and $36.0 million for Cable Television (up from $32.2 million). Segment reporting was affected by moving syndication operations into Reach Media effective January 1, 2013.
Liquidity, cash flow and debt
At March 31, 2013, cash and cash equivalents were $46.4 million, down from $57.3 million at year-end 2012. Current assets were $172.6 million and current liabilities $58.8 million. Cash from operations fell to $3.8 million, which management attributed primarily to higher cash interest payments and content-asset payments. Investing activities used $3.5 million, including $2.2 million of capital expenditures; financing activities used $11.1 million, including $7.8 million in TV One dividends to noncontrolling owners and $1.5 million for share repurchases. Cash declined by $10.8 million during the quarter.
Total debt was $822.4 million before original issue discount; the balance sheet reported $813.5 million of long-term debt, net, plus $3.8 million current debt. Debt included $376.3 million of senior bank term debt, $327.0 million of senior subordinated notes due May 2016, and $119.0 million of TV One secured notes due March 2016. Approximately $24.0 million was available under the revolving facility. The filing lists approximately $811.8 million of principal debt payments due in 2016.
The company reported compliance with its credit covenants at quarter-end. Covenant senior secured leverage was 4.07x against a maximum of 4.50x; total leverage was 7.84x against a maximum of 8.50x; and interest coverage was 1.26x against a minimum of 1.10x. The covenant calculations exclude TV One’s operating results and related debt. The company expected to remain in compliance over the next twelve months, based on current projections.
Changes, outlook and risks
- Core radio revenue increased 4.9% after adjustment for the timing of the annual Gospel Cruise; the filing also cites a 1.4% increase after adjusting for the syndication transfer. Reach Media revenue fell 13.9% excluding the prior-year timing of the Tom Joyner Fantastic Voyage, which generated about $5.9 million in Q1 2012. Both events were scheduled for Q2 2013.
- TV One revenue rose with higher subscriber counts and organic growth; its station operating income increased to $17.6 million from $14.0 million. Internet revenue declined 12.7%, driven by lower direct revenue. Market revenue growth across the company’s radio markets was reported at 0.3%.
- Unusual items included a $1.4 million non-cash impairment of Cincinnati radio licenses and a $893,000 gain on the February sale of the Columbus station. The filing notes that additional license impairments could result if market assumptions worsen; broadcasting licenses and goodwill together represented about 65.5% of total assets.
- No specific revenue or earnings guidance was provided. Management’s stated outlook was covenant compliance over the next twelve months, based on current projections.
- Key risks include high leverage and refinancing needs, covenant headroom, advertising demand and economic conditions, competition and audience measurement, FCC regulation, key-personnel changes, programming costs, and potential impairment of licenses or goodwill. The filing added information-technology disruption and data-security risks. Routine legal proceedings were not expected to have a material adverse effect; standby letters of credit totaled $1.0 million.
Investor verification points
- Reconcile reported revenue changes with the syndication transfer and timing of major events; assess underlying trends in radio, Reach Media and Internet.
- Monitor covenant ratios and available revolver capacity, particularly given limited covenant headroom and the large 2016 debt maturities.
- Review operating cash generation against interest, content commitments, dividends to noncontrolling owners and other financing needs.
- Evaluate the tax provision and deferred-tax valuation allowance, including the assumptions supporting deferred tax assets.
- Assess the assumptions and remaining valuation cushion for radio licenses and goodwill, including the Cincinnati impairment.