Urban One, Inc. — Q2 2018 Form 10-Q
Reporting period: Three and six months ended June 30, 2018; unaudited. Urban One is a multimedia company focused on African-American and urban audiences, with radio, syndicated programming, digital and cable television businesses. It operated 56 radio stations in 15 markets.
Financial performance
| Metric | Q2 2018 | Q2 2017 | Six months 2018 | Six months 2017 |
|---|---|---|---|---|
| Net revenue | $115.2 million | $117.6 million | $214.8 million | $218.9 million |
| Operating income | $24.8 million | $12.1 million | $32.1 million | $28.6 million |
| Net income (loss) attributable to common stockholders | $23.6 million | $0.8 million | $1.0 million | $(1.5) million |
| Diluted earnings (loss) per share | $0.49 | $0.02 | $0.02 | $(0.03) |
| Broadcast and digital operating income margin | 38.5% | 35.5% | 35.8% | 35.0% |
| Adjusted EBITDA | $39.0 million | $36.7 million | $67.5 million | $64.4 million |
Adjusted EBITDA and broadcast and digital operating income are non-GAAP measures. The filing’s adjusted EBITDA reconciliation table has inconsistent period headings; the comparative figures above follow the surrounding discussion and financial statements.
- Revenue mix: Q2 radio advertising fell 6.0% to $48.9 million; cable advertising fell 4.6% to $18.1 million, partly offset by cable affiliate fees rising 7.2% to $28.0 million. Six-month digital advertising grew 20.1% to $14.7 million, while radio advertising declined 4.8% to $93.5 million.
- Cash flow: Six-month operating cash flow was $33.8 million, versus $11.7 million. Capital expenditures were $2.1 million, versus $3.5 million. Operating cash flow less capital expenditures was approximately $31.8 million; the company attributed stronger operating cash flow mainly to collection timing, accrued compensation payments and lower content-asset payments.
- Liquidity: June 30 cash and cash equivalents were $36.0 million, with $0.9 million restricted cash. Current assets were $182.3 million and current liabilities $96.1 million. The $25 million ABL revolving facility had no borrowings outstanding; borrowing availability is subject to eligible receivables and reserves.
- Debt: Total principal debt was $957.5 million, compared with $984.2 million at year-end 2017; balance-sheet long-term debt, net of current portion and financing adjustments, was $930.0 million. The company repurchased approximately $25 million of its 9.25% notes due 2020 during the first half. Six-month interest expense was $38.4 million. Net of cash and cash equivalents, principal debt was approximately $921.5 million.
Changes and management commentary
- Revenue declined 2.1% in Q2 and 1.9% for the first half. Management cited radio-market weakness and pricing pressure at Reach Media; cable affiliate fees and first-half digital growth partially offset declines.
- Q2 operating income more than doubled, helped by lower operating expenses and the absence of the $12.8 million Houston license impairment recorded in Q2 2017. The first-half comparison also benefited from lower impairments, while 2017 included a $14.4 million sale-leaseback gain.
- For the first half, radio broadcasting operating income declined and the digital segment’s operating loss widened, which management attributed in part to increased video investment. Cable television and Reach Media operating income improved.
- Q2 common-stockholder income included a $15.6 million income-tax benefit despite $8.3 million of pretax income. First-half results included a $2.7 million tax benefit despite a $1.4 million pretax loss. Management said tax calculations remained subject to completion following the 2017 Tax Act; deferred and discrete tax items materially affected reported earnings.
Outlook, risks and unusual items
- The filing provides no quantified revenue, earnings or cash-flow guidance. Management noted results are exposed to advertising demand, audience ratings, local-market conditions, competition, programming costs and economic volatility.
- Debt covenants require interest coverage of at least 1.25x and senior secured leverage no greater than 5.85x. At June 30, reported ratios were 1.99x and 4.78x, respectively; the company stated it was in compliance.
- First-half non-cash impairment charges totaled $6.6 million: $2.7 million for Charlotte goodwill and $3.8 million for Detroit radio licenses. Management warned that some licenses have little or no valuation cushion, leaving potential for further impairment.
- The company had $250 million of 2020 notes due February 2020, $350 million of secured notes due 2022, and a $11.9 million Comcast note due April 2019. High leverage, refinancing needs and covenant headroom remain important risks.
- Music licensing remains subject to unresolved BMI negotiations and a temporary GMR license then due to expire September 30, 2018. Reach Media minority shareholders have an annual put right; it was not exercised in January 2018, but future exercise timing is uncertain.
- Subsequent events: the company expected to complete the $12.7 million sale of Detroit station WPZR-FM and the $4.2 million acquisition of Washington station WTEM in August 2018, subject to customary conditions and FCC approval. It also repurchased about $5 million of 2020 notes on July 3.
Investor verification priorities
- Verify the adjusted EBITDA comparative periods, given the inconsistent headings in the filing’s reconciliation table.
- Assess the sustainability of earnings and cash generation apart from unusually large tax benefits, non-cash impairment charges and prior-year sale-leaseback and debt-refinancing items.
- Review upcoming maturities, refinancing alternatives, covenant calculations and actual availability under the receivables-based ABL facility.
- Track radio advertising trends, digital-segment losses and the valuation assumptions supporting goodwill and broadcast-license carrying amounts.
- Confirm completion and final economics of the WPZR-FM sale and WTEM acquisition, and monitor the Reach Media put right and music-license negotiations.