Business context and reporting period
Urban One, Inc. is an urban-oriented, multi-media company focused on African-American and urban audiences. This Form 10-K covers the fiscal year ended December 31, 2018, with 2017 comparisons. Its four reportable segments are radio broadcasting, Reach Media, digital and cable television (TV One). The company owned or operated 60 broadcast stations in 15 markets at year-end.
Management’s stated 2019 priorities are to grow market share, improve audience share and revenue conversion, and diversify revenue through its multimedia strategy. CLEO TV launched in January 2019.
Financial performance and liquidity
| Metric | 2018 | 2017 |
|---|---|---|
| Net revenue | $439.1 million | $440.0 million |
| Operating income | $73.6 million | $52.7 million |
| Net income attributable to common stockholders | $141.0 million | $111.9 million |
| Broadcast and digital operating income (non-GAAP) | $164.8 million | $161.7 million |
| Broadcast and digital operating margin (non-GAAP) | 37.5% | 36.7% |
| Adjusted EBITDA (non-GAAP) | $140.6 million | $137.1 million |
| Net cash provided by operating activities | $50.2 million | $28.3 million |
Revenue was nearly flat year over year. Net income included a $138.8 million income-tax benefit, primarily from releasing valuation allowances on federal and state net operating loss deferred tax assets; the fourth quarter tax benefit was approximately $127.8 million. Accordingly, reported net income materially reflects a non-cash tax accounting benefit, rather than operating performance alone.
Cash and cash equivalents were $15.3 million at year-end (plus $0.6 million of restricted cash); current assets were $173.2 million and current liabilities $111.3 million. Investing activities provided $3.2 million, including proceeds from the Detroit station sale, while financing activities used $75.4 million. Capital expenditures were approximately $4.4 million.
Reported principal debt totaled approximately $929.9 million at December 31, 2018. The company had $350 million of 7.375% senior secured notes due 2022, $323.9 million outstanding under its 2017 credit facility, a new $192 million 2018 facility, and a $50 million MGM National Harbor loan, among other obligations. The new facility bears 12.875% interest initially; the MGM loan bears 7% cash interest plus 4% paid-in-kind interest. The company reported 2017 facility covenant ratios of 1.93x interest coverage versus a 1.25x minimum and 4.73x senior secured leverage versus a 5.85x maximum, and stated it was in compliance with its financial covenants.
Material changes versus 2017
- Net revenue declined $0.9 million (0.2%); radio segment revenue increased 3.4%, while Reach Media revenue fell 5.6% and cable television revenue fell about $3.2 million. Digital segment revenue increased about 2.7%.
- Operating income rose 39.7%, helped by lower operating expenses, including lower corporate costs and impairment charges. Broadcast and digital operating income increased 1.9%; adjusted EBITDA increased 2.6%.
- Cash from operations increased by $21.9 million, which management attributed mainly to timing of receivable collections and compensation payments and lower content-asset payments.
- Non-cash impairment charges were $21.3 million, compared with $29.1 million in 2017, affecting Detroit radio licenses and Atlanta and Charlotte goodwill in 2018.
- The company borrowed $192 million under a new credit facility and $50 million against its MGM National Harbor interest, using proceeds primarily to refinance 2020 notes. Approximately $2 million of 2020 notes remained at year-end; the company announced their redemption and paid off its $11.9 million Comcast Note in February 2019.
Outlook, risks and unusual items
Management gave no quantitative revenue or earnings guidance. It cited continuing pressure on traditional radio from digital and streaming competition, shifting advertiser budgets, and weak radio-market performance. Advertising demand and pricing, audience ratings, and results in a few key markets are significant sensitivities: four markets represented 52.6% of radio-station net revenue, while Reach Media plus those markets represented 31.6% of consolidated revenue.
Key risks include high leverage, substantial debt service and contractual commitments, covenant compliance, refinancing and liquidity needs, FCC license renewals (some begin in October 2019), and potential further impairment of goodwill and broadcast licenses. Those assets totaled $845.7 million, or 68.3% of total assets, at year-end. The company also reported ongoing negotiations with BMI over music royalties and uncertainty around realizing tax assets; it retained $4.6 million of unrecognized tax benefits. The annual impairment estimates depend on management assumptions about growth, margins and discount rates.
Other notable items: the CEO’s TV One-related employment award liability was remeasured to $25.7 million, including a $6.6 million credit adjustment from a revised valuation method. Reach Media shareholders did not exercise their annual put right in January 2019. Management and the auditor reported effective internal control over financial reporting; the auditor issued unqualified opinions on the financial statements and internal controls. The filing describes routine legal matters as not expected to have a material adverse effect.
Important facts for investors to verify
- How much of 2018’s reported profit came from the deferred-tax valuation-allowance release, and whether future taxable income supports realization of the remaining tax assets.
- Current debt balances, interest costs, required amortization and cash-flow sweep obligations after the February 2019 redemptions and Comcast Note repayment; confirm covenant headroom under each facility.
- Whether radio advertising and performance improve in the concentrated markets, and whether audience and pricing trends stabilize in Reach Media and TV One.
- Potential further impairment, particularly given the sensitivity of radio-market valuations and the large carrying value of licenses and goodwill.
- The financial impact of CLEO TV’s launch, TV One distribution agreements, and any resolution of BMI royalty negotiations.