URBAN ONE, INC. — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2014. The filing identifies the registrant as Radio One, Inc. and presents unaudited consolidated results.
Business context and reporting period
Radio One operated 54 radio stations in 16 U.S. markets and reported four segments: radio broadcasting, Reach Media, internet, and cable television (TV One). Radio advertising is the core business; TV One is the largest non-radio revenue contributor. The company also disclosed a planned investment in MGM National Harbor.
Financial performance and liquidity
| Metric | Q3 2014 | Q3 2013 | Nine months 2014 | Nine months 2013 |
|---|---|---|---|---|
| Net revenue | $112.2m | $118.4m | $331.7m | $337.1m |
| Operating income | $19.6m | $21.8m | $57.7m | $55.6m |
| Net loss attributable to common stockholders | $(13.2)m | $(13.2)m | $(49.2)m | $(45.5)m* |
| Station operating income margin (non-GAAP) | 34.5% | 37.9% | 34.6% | 37.5% |
| Adjusted EBITDA (non-GAAP) | $28.8m | $35.1m | $85.6m | $99.2m |
*Prior-period net-loss figure requires verification: the statements of operations report $(45.541)m for nine-month 2013, while the EPS note and adjusted EBITDA reconciliation show $(46.434)m. The filing does not resolve this inconsistency.
- Segment revenue, Q3 / nine months 2014: Radio $54.5m / $159.9m; Reach Media $13.6m / $40.4m; internet $5.8m / $18.2m; cable television $39.5m / $117.2m.
- Cash flow, nine months: Operating activities provided $30.4m (prior year $22.5m); investing used $12.0m (prior $4.6m); financing used $20.0m (prior $26.9m). Cash declined $1.6m to $55.1m.
- Balance sheet at September 30: Current assets were $188.5m and current liabilities $56.9m. Total assets were $1.392bn; total liabilities $1.147bn. Stockholders’ equity was $32.6m, down from $77.9m at year-end 2013.
- Debt: Total principal debt was $823.5m, including $369.5m of bank term debt, $335.0m of 9.25% notes due 2020, and $119.0m of TV One notes due 2016. Net long-term debt carrying value was $817.0m. Approximately $22.0m was available under the revolving facility after covenant and letter-of-credit adjustments.
- Covenants: The company reported compliance at quarter-end. Interest coverage was 1.47x against a 1.20x minimum; senior secured leverage was 3.75x against a 4.00x maximum; total leverage was 7.49x against an 8.00x maximum.
Material changes versus the prior comparable period
- Q3 revenue fell 5.3%; nine-month revenue fell 1.6%. Radio revenue declined 8.1% for Q3 and 4.8% year to date, with declines in major markets and increased competition cited. Reach Media revenue fell 19.3% and 9.0%, respectively, due to customer turnover and lower rates.
- TV One revenue increased to $39.5m in Q3 and $117.2m year to date, driven mainly by advertising and affiliate sales. Internet revenue decreased 4.9% in Q3 but rose 3.2% year to date.
- Station operating income declined 13.8% in Q3 and 9.1% year to date; the margin fell 3.4 and 2.9 percentage points, respectively. Radio and Reach Media were principal sources of weakness.
- Operating income increased 3.9% for the nine-month period, partly because 2013 included $14.9m of radio-license impairment charges; no long-lived-asset impairment was recorded in 2014. Net loss attributable to common stockholders nevertheless widened year over year in the nine-month comparison.
- Interest expense declined 9.5% year to date after refinancing the 12.5%/15% notes due 2016 with $335.0m of 9.25% notes due 2020. The refinancing generated a $5.7m loss on debt retirement, including a financing-cost write-off and premium.
Outlook, commentary, risks and unusual items
- Management expected covenant compliance and adequate liquidity over the next 12 months, but cautioned that adverse conditions could impair compliance. It said potential responses included further operating-cost and capital-spending reductions or deferrals.
- Debt concentration is significant: scheduled principal payments include $483.7m in 2016, including the bank term facility and TV One notes. The revolving facility matures in 2015. The notes and credit facilities contain restrictive covenants.
- Goodwill and radio licenses totaled $941.5m, about 67.7% of assets. No 2014 impairment was recorded, but the company cited below-plan Reach Media revenue and cash flows, revised projections downward, and identified limited fair-value cushions for some licenses. Reach Media’s goodwill valuation is particularly sensitive to the performance of content associated with Tom Joyner.
- The nine-month income-tax provision was $26.2m despite a pretax loss, primarily due to deferred tax liabilities on indefinite-lived intangible assets. The company maintained a valuation allowance on substantially all net deferred tax assets.
- The company committed to a $5m initial MGM National Harbor investment, subject to regulatory approval, and had an option to invest up to an additional $35m. The project was then expected to open in fall 2016.
- Music-licensing rates were under negotiation for an agreement expiring December 31, 2014. Management considered routine legal matters not likely to have a material adverse effect. Four standby letters of credit totaled approximately $1.0m.
- Subsequent events included executive employment terms and equity awards, additional restricted-stock grants, and an October 2014 Houston radio-format change. No formal financial guidance was provided.
Important facts for investors to verify
- Reconcile the inconsistent nine-month 2013 net-loss-attributable-to-common-stockholders amounts shown in the filing.
- Track performance and cash-flow assumptions for Reach Media, radio markets, and TV One, and assess potential impairment exposure in the substantial goodwill and license balances.
- Monitor covenant headroom, revolving-facility availability and maturity, and the company’s ability to address the large 2016 debt maturities.
- Confirm the final terms, timing, funding, and potential return of the MGM National Harbor investment, including the optional additional investment.
- Assess whether local and national radio advertising trends, competitor activity, and Reach Media customer turnover and pricing stabilize or continue to pressure revenue and margins.