Urban One, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; comparisons are with Q1 2021. Urban One operates radio, syndicated programming, digital media and cable television businesses primarily targeting African-American and urban audiences. The interim financial statements are unaudited.
Financial performance
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Net revenue | $112.3 million | $91.4 million | +22.9% |
| Operating income | $36.5 million | $23.8 million | +53.8% |
| Consolidated net income | $17.1 million | $0.5 million | +$16.6 million |
| Net income attributable to common stockholders | $16.4 million | $7,000 | +$16.4 million |
| Operating cash flow | $15.7 million | $14.3 million | +$1.4 million |
| Capital expenditures | $1.6 million | $0.8 million | +$0.8 million |
GAAP operating margin was approximately 32.5%, versus 26.0% in the prior-year quarter. Management’s non-GAAP broadcast and digital operating income was $48.4 million, with a 43.1% margin, compared with $36.4 million and 39.8%. Adjusted EBITDA, also non-GAAP, was $42.0 million versus $30.2 million. Diluted earnings per share were $0.30 versus $0.00.
Revenue mix and material changes
- Radio advertising revenue increased 17.4% to $39.1 million; radio segment revenue rose 13.3%. Management said revenue improved in all existing radio markets except Atlanta and Philadelphia.
- Digital advertising increased 49.5% to $15.5 million, attributed primarily to higher direct revenue.
- Cable television advertising increased 46.9% to $30.4 million; affiliate fees increased 1.9% to $26.0 million. Management cited stronger advertising and affiliate sales.
- Reach Media segment revenue increased 28.3% to $10.0 million, primarily due to increased demand. Political advertising declined 31.8% to $0.5 million.
- Management attributed overall revenue growth primarily to recovery from pandemic-related economic impacts and increased demand for minority-focused media. Operating expenses rose 12.0%, slower than revenue; higher programming and technical and selling, general and administrative costs were partly offset by lower corporate expenses.
- Interest expense declined 11.7% to $15.9 million, which the company attributed to lower debt balances and average rates. Q1 2021 included a $6.9 million loss on debt retirement that did not recur.
Cash, debt and liquidity
- At March 31, 2022, cash and cash equivalents were $146.4 million and restricted cash was $20.0 million. Total current assets were $326.1 million and current liabilities were $99.7 million.
- Debt principal was $832.5 million: $825.0 million of 7.375% senior secured notes due February 2028 and a $7.5 million PPP loan at 1%, due June 2026. Long-term debt, net of discount and issuance costs, was $819.0 million. The company reported no borrowings on its $50 million asset-backed revolving facility.
- Operating cash flow was $15.7 million; investing cash outflow was $1.6 million and financing cash outflow was $10,000. Cash, cash equivalents and restricted cash increased $14.1 million during the quarter.
- Management stated it believes operating cash flows and available liquidity are sufficient to meet foreseeable requirements and debt service, including for at least one year after issuance of the financial statements. The company is applying for forgiveness of the PPP loan; until forgiven or repaid, it remains debt.
Outlook, risks and unusual items
- The filing provides no specific revenue or earnings guidance. Management expects continued revenue fluctuations related to COVID-19 and notes uncertainty around the duration and effects of the pandemic, variants, advertising demand, customer payments and event attendance.
- Other cited risks include high leverage and debt-service commitments; economic volatility, inflationary or interest-rate effects and the war in Ukraine; dependence on advertising; competition; broadcast and gaming regulation; and potential impairment of goodwill or broadcast licenses. Goodwill and broadcast licenses totaled about $728.6 million, or 56.7% of assets. No interim impairment indicators were identified for the quarter, but management noted that certain licenses have limited or no fair-value cushion.
- A non-cash launch-support addition of $18.75 million was recorded in Q1 for cable carriage initiation. The filing reports no impairment of content assets during the quarter.
- The board authorized a share repurchase program of up to $25 million over 24 months; no shares were repurchased under that authorization by March 31. The quarter’s $10,000 of Class D repurchases related to stock-vesting tax obligations.
- The Reach Media noncontrolling owners did not exercise their annual put right in January 2022; the timing of any future exercise is uncertain. Routine legal proceedings were not expected by management to have a material adverse effect. The company also disclosed $871,000 of letters of credit and contractual commitments, including obligations not recorded on the balance sheet.
- Management reported effective disclosure controls and no material change in internal control over financial reporting during the quarter.
Investor verification priorities
- Track whether revenue growth and margin improvement persist, particularly in radio markets and cable advertising, and compare reported GAAP results with management’s non-GAAP measures.
- Assess the company’s ability to service its substantial secured debt, including cash interest needs, refinancing exposure and the status of PPP loan forgiveness.
- Review future cash flows and liquidity against operating commitments, content spending and the undrawn asset-backed facility.
- Monitor COVID-19 and broader economic effects on advertising, events and MGM National Harbor distributions, as well as the potential for impairment of licenses and goodwill.
- Verify developments in music licensing agreements, the Reach Media put right, and execution of the authorized share repurchase program.