Urban One, Inc. — Q1 2017 Form 10-Q
Reporting period: Three months ended March 31, 2017; unaudited. The company operated 55 radio stations in 15 U.S. markets and also owned or operated Reach Media, digital media properties, and TV One. It changed its corporate name from Radio One, Inc. to Urban One, Inc. effective May 5, 2017; its radio business retains the Radio One brand.
Financial performance and liquidity
Unless noted otherwise, amounts are in U.S. dollars.
- Revenue: $101.3 million, down 7.1% from $109.1 million. Radio advertising fell 8.7%; digital advertising fell 15.0%; cable advertising fell 3.7%; affiliate fees were nearly flat. Political advertising declined to $0.2 million from $1.5 million.
- Profitability: Operating income was $16.5 million, down 12.5%. Net loss attributable to common stockholders narrowed to $2.3 million, or $0.05 per share, from $3.9 million, or $0.08 per share. The filing reports broadcast and digital operating income, a non-GAAP measure, of $34.9 million versus $39.6 million; its margin declined to 34.5% from 36.3%. Adjusted EBITDA, also non-GAAP, was $27.7 million versus $30.7 million.
- Segment trends: Radio revenue was $39.7 million, down from $42.7 million; Reach Media revenue was $7.7 million, down from $10.5 million; digital revenue was $5.5 million, down from $6.5 million; and cable revenue was $48.6 million, down from $49.5 million. Reach Media and digital reported segment operating losses of $0.3 million and $1.5 million, respectively. Cable segment operating income increased to $12.8 million from $12.0 million.
- Cash flow: Operating cash flow was negative $2.7 million, compared with positive $10.2 million a year earlier. Management attributed the decline chiefly to collection timing, accrued compensation payments, and increased prepaid expenses and event deposits. Investing cash outflow was $1.5 million, including $1.5 million of capital expenditures; financing cash outflow was $1.8 million, including $0.9 million of scheduled debt repayment and $0.9 million of share repurchases for employee tax withholding.
- Liquidity: Cash and cash equivalents were $39.9 million at March 31, versus $45.8 million at year-end; restricted cash was $1.0 million. Current assets were $201.3 million and current liabilities $87.6 million. The $25 million asset-backed revolving facility had no borrowings outstanding at quarter-end.
- Debt and equity: Total debt principal was $1.021 billion at March 31; balance-sheet long-term debt, net of discounts and issuance costs and including the current portion, was approximately $1.007 billion. Debt included $343.9 million under the 2015 Credit Facility, $315.0 million of 9.25% notes due 2020, $350.0 million of 7.375% secured notes due 2022, and an $11.9 million Comcast note due 2019. Interest expense was $20.3 million. Stockholders’ deficit was $73.5 million. Goodwill and radio licenses totaled $899.5 million, or 66.5% of assets.
Material changes and subsequent events
- Revenue declined across all segments. Management cited weaker advertising demand at Reach Media, lower indirect and radio-property digital sales, and declines in several radio markets; the company’s measured markets overall declined 1.3%.
- On April 18, 2017, the company closed a new $350 million senior secured term loan facility and used the proceeds to repay the 2015 Credit Facility. The new facility matures in 2023, subject to an earlier-maturity provision tied to the 2020 and 2022 notes. The filing’s post-refinancing debt schedule reports total principal debt of approximately $1.027 billion. The new facility includes financial covenants, including minimum interest coverage of 1.25x and maximum senior secured leverage of 5.85x.
- On May 2, 2017, the company completed the sale of land, towers, and equipment for $25 million and began leasing certain assets back. It also agreed to sell its Detroit WCHB-AM station for approximately $2 million.
- After quarter-end, Urban One agreed to acquire two radio stations, subject to FCC approval, and acquired the Bossip, HipHopWired, and MadameNoire digital brands for $5 million upfront plus potential performance-based payments of up to $5 million.
Management commentary, risks, and unusual items
- No quantified full-year revenue, earnings, or cash-flow guidance is provided in the filing.
- Management said the company was in compliance with the 2015 facility’s financial covenants at March 31. Its reported covenant interest coverage was 1.75x against a 1.25x minimum, and senior secured leverage was 5.06x against a 5.85x maximum.
- The company recorded $1.3 million of other income, primarily related to its MGM National Harbor investment. It also recorded a $1.0 million expense from revaluing the CEO employment-agreement award. Management reported no goodwill or broadcast-license impairment indicators during the quarter, but noted limited or no fair-value cushion for some licenses, creating potential for future impairment.
- Key risks include high leverage and interest burden, covenant headroom and refinancing exposure, advertising-market weakness, competition and audience measurement changes, FCC licensing and regulation, programming and talent costs, and possible impairment of goodwill or broadcast licenses. ASCAP reached a five-year agreement; BMI negotiations continued, SESAC was in rate arbitration with a retroactive effect, and the company used a temporary GMR license.
- Reach Media minority holders may begin exercising annual put rights in 2018, requiring the company to purchase shares at fair market value; payment may be in cash and/or registered Class D shares. Management said routine legal matters were not expected to have a material adverse effect. No impairment was recorded in Q1.
Important facts for investors to verify
- Track advertising trends and whether the revenue and margin declines in radio, Reach Media, and digital persist.
- Review post-refinancing interest expense, covenant calculations and headroom, and the earlier-maturity terms linked to the 2020 and 2022 notes.
- Confirm the cash proceeds, leaseback costs, and realized financial impact of the $25 million asset sale, and the status and terms of the pending station transactions.
- Assess the future cash or share dilution exposure from Reach Media put rights and the substantial carrying value of goodwill and broadcast licenses.