Business context and reporting period
Radio One, Inc. (the registrant named in the filing) filed this unaudited Form 10-Q for the quarter ended September 30, 2013. Its businesses include radio broadcasting, Reach Media, digital media and TV One cable television. The filing describes 54 radio stations in 16 U.S. markets. The request metadata names Urban One, Inc.; investors should verify the issuer and filing identity.
Financial performance
Unless noted otherwise, dollar amounts are in millions. Prior-year figures are adjusted where indicated in the filing.
| Metric | Q3 2013 | Q3 2012 | Nine months 2013 | Nine months 2012 |
|---|---|---|---|---|
| Revenue | $118.4 | $109.9 | $337.1 | $318.7 |
| Operating income | $21.8 | $21.5 | $55.6 | $56.6 |
| Consolidated net loss | $(8.9) | $(10.3) | $(29.9) | $(39.0) |
| Net loss attributable to common stockholders | $(13.2) | $(13.1) | $(45.5) | $(49.6) |
| Adjusted EBITDA | $35.1 | $31.2 | $99.2 | $86.2 |
| Station operating income margin (non-GAAP) | 37.9% | 37.2% | 37.5% | 36.2% |
Operating income was $21.8 million in Q3, while the company reported a common-stockholder loss of $13.2 million. For the first nine months, revenue grew 5.8%, but operating income fell 1.8%; the common-stockholder loss narrowed 8.3%. Interest expense was $22.3 million for Q3 and $66.8 million year to date. Income tax expense was $8.4 million and $19.8 million, respectively, despite pretax losses; the filing attributes this principally to deferred tax liabilities on indefinite-lived intangible assets.
Operating cash flow was $22.5 million for the nine months, down from $29.2 million. Investing activities used $4.6 million, including $7.2 million of capital expenditures, partly offset by $4.0 million proceeds from the Columbus station sale. Financing activities used $26.9 million, including $17.7 million of dividends to TV One noncontrolling shareholders and $5.5 million of share repurchases. Cash declined $8.9 million to $48.3 million; short-term investments were $3.2 million.
At September 30, total debt was $820.5 million, including $374.4 million of senior bank term debt, $327.0 million of 12.5% senior subordinated notes and $119.0 million of TV One notes bearing 10%. Net long-term debt on the balance sheet was $812.4 million. Approximately $24.0 million was available under the revolving facility. Current assets were $184.4 million and current liabilities $58.8 million. Principal maturities are concentrated in 2016, when the credit facility, subordinated notes and TV One notes come due.
Material changes versus prior period
- Q3 revenue increased 7.7%. Cable Television revenue rose to $37.8 million from $33.2 million and Internet revenue increased 37.6%; core radio revenue was lower, though radio revenue increased 1.6% after adjusting for the syndication transfer.
- Nine-month revenue rose 5.8%, led by Cable Television ($111.5 million versus $97.7 million), Reach Media ($44.4 million versus $34.0 million) and Internet ($17.6 million versus $14.7 million). Radio Broadcasting revenue declined to $167.9 million from $176.1 million, but increased 1.1% after adjusting for the syndication transfer.
- The company contributed its syndication operations to Reach Media effective January 1, 2013, following an increase in its Reach Media ownership from approximately 53.5% to 80%. Comparisons of those segment results are affected by this change.
- Nine-month impairment charges on radio broadcasting licenses were $14.9 million, versus $0.3 million in the comparable 2012 period. The 2013 charge included Boston, Cincinnati, Cleveland and Philadelphia markets; no goodwill impairment was recorded.
Outlook, risks and unusual items
- The filing gives no quantified revenue or earnings guidance. Management said it continually evaluates refinancing opportunities but cannot assure that refinancing will be available on acceptable terms or at all.
- At quarter-end, the company reported compliance with its credit covenants: interest coverage was 1.36x against a 1.10x minimum, senior secured leverage 3.55x against a 4.50x maximum, and total leverage 6.91x against an 8.50x maximum. These covenant calculations exclude TV One operating results and related debt, but include TV One cash dividends.
- Management cited below-plan market revenue growth as the trigger for interim license impairment tests. It warned that additional impairment may be possible because some licenses have little or no fair-value cushion. Broadcast licenses and goodwill totaled $931.8 million, about 65.6% of assets.
- Other disclosed risks include high leverage and refinancing needs, advertising demand and local economic conditions, competition from digital platforms and changing viewing habits, FCC licensing and regulation, programming costs, and technology or data-security disruptions. The filing reports ordinary-course legal matters that management does not expect to have a material adverse effect, plus $1.1 million of standby letters of credit.
- Disclosure controls were deemed ineffective due to a material weakness in review controls over condensed consolidating guarantor disclosures. Management described remediation steps, including additional finance resources, updated procedures and required senior-management, legal and accounting review. Prior-period consolidating footnote classifications were corrected; the filing says the corrections did not affect consolidated financial statements.
- The Columbus, Ohio station sale generated $4.0 million proceeds and an $0.9 million gain. A CEO award tied to TV One proceeds was valued at $13.2 million; payment is contingent on recovery of the company’s TV One investment and receipt of qualifying proceeds.
Important facts for investors to verify
- Confirm the registrant identity: the filing names Radio One, Inc., whereas the request metadata names Urban One, Inc.
- Assess refinancing and repayment capacity ahead of the concentrated 2016 debt maturities, including the high-coupon subordinated notes and TV One debt.
- Review covenant headroom and the effect of excluding TV One debt and operating results from the reported covenant ratios.
- Track cash conversion, receivable collections and liquidity after dividends, capital spending and repurchases; operating cash flow declined year over year.
- Evaluate assumptions and valuation headroom behind the $14.9 million license impairments and the substantial license and goodwill balances.
- Confirm whether the material weakness remediation has been tested and whether disclosure controls have become effective in subsequent filings.